Singapore takes lead to boost transparency in trade finance

Singapore

WITH the commodity-trade finance business rocked by scandals and structural issues such as falling prices and regulatory pressures on profits, industry watchers are certain that this age-old business is due for reckoning.

And Singapore - which is so intimately tied to commodities trading from some 200 years ago - is playing a key role now in trying to bring greater transparency to this lending segment.

Among the initiatives is Singapore's TradeTrust, which is an interoperability framework that connects platforms to exchange digital trade documentation. Global financial messaging network Swift and Singapore's Infocomm Media Development Authority recently partnered to combine TradeTrust with the Swift community for more efficient and cost-effective cross-border paperless trade.

Another breakthrough came in October when DBS and Standard Chartered announced that they will be leading a work group of 12 other banks to create and conduct a proof-of-concept for a digital trade finance registry.

This is to serve as a secure central database for the banking industry to access records of trade transactions financed across banks in Singapore, in a push to prevent duplicate financing.

With this, banks are now able to conduct validations only within a single customer entity, or across their individual banking network, with no view of what other banks have financed or undertaken payment obligation against.

To be sure, this is no easy undertaking, said industry watchers. Trade inevitably involves different countries and legal systems, and requires the buy-in of numerous stakeholders such as traders. Analysts have also pointed out that while the technology is available, industry players must be serious about collaboration.

READ MORE: Fraud, rules and thin margins putting global banks off commodity financing