When it comes to trade finance, change is the only constant. The sector has experienced many changes over the past few years as regulation, the need for digitalisation and rapid fluctuations in global trade volumes have increased.
Additionally, in the UAE in particular, the overall need for trade finance has soared. This increased demand, combined with market changes, brings a greater risk of financial crime.
The central bank of the UAE recently announced a new directive pushing banks to digitalise compliance with trade-based anti-money laundering (AML) and counter-terrorist financing (CTF).
According to its recent statistics, the value of confiscated assets was $625 million in 2021. Additionally, the Ministry of Economy (MoE) and Securities and Commodities Authority (SCA) have adopted an automated solution for risk scoring (STRIX), which provides greater insight into specific AML and CTF risks. These measures are a positive step forward for combating financial crime.
I recently chaired a panel at Finastra Forum – our flagship industry event – to discuss orchestrating digital trade finance in a new regulatory landscape.
I was joined by Tim Tyler, Senior Industry Principal, Solutions Consulting, Finastra; Edwin de Groot, Sales Manager, Conpend; Paul Baker, Head of Group Operations, Bank ABC, and Sushil Chawla, Senior Banking Expert and Advisor, Wipro.
A key takeaway from the panel was that technology, such as APIs and machine learning (ML), play a key role in strengthening the UAE’s approach towards financial crime.
These sorts of tools are essential for banks to have access to the necessary data, use that data correctly and effectively, and integrate enhanced products and solutions via strategic partnerships.
Unlocking access to data and partnerships
When it comes to compliance with AML and CTF regulations, data is critical. Being able to scrub up-to-date data from documents quickly and accurately is required to perform the necessary checks and sanctions screening.
Trade finance originates a lot of data. The challenge for banks, however, is having the right systems in place to access it and use it effectively to make positive decisions.
Once banks get this right, they can automate compliance by feeding the data into ML algorithms, enabling them to quickly adapt to global events and focus on pursuing their growth goals. It also enables banks to maintain a full audit trail over each case, see what decision was taken and which risk was mitigated.
A big enabler to achieve this is APIs. They are the key to unlocking data that may be kept in siloed systems, allowing banks to utilise the data effectively.
API technology enables the digitalisation and automation of certain functions, and so increases efficiency and accuracy.
Through API-enabled partnerships, various applications can also be integrated into a bank’s offering, for example to carry out document and price checks, and therefore enabling the bank to evolve and comply with new regulations as they emerge.
Conpend’s TRADE AI app, which is available on Finastra’s FusionFabric.cloud platform, provides key functionalities such as AI-powered document recognition and automatic trade-based money laundering screening based on BAFT guidelines.
Using the app, banks can meet the demand for paperless trade while automating compliance with AML.
The future of financial services
For financial services generally, and trade more specifically, an ecosystem of partnerships is crucial, especially when we consider how quickly the landscape is evolving.
For example, a key emerging trend is Banking-as-a-Service (BaaS), which is disrupting how and where consumers (whether in the retail or corporate space) access financial services.
Our recent market study found that more than 80 percent of regulated financial services providers expect the overall BaaS market to grow. Of these, 30 percent expect it to grow by more than 50 percent per year over the next five years.
As banks increasingly begin to embed their services into contexts they don’t own – such as within retailer and consumer brands – there is an even greater requirement to implement solutions that combat financial crime.
On the one hand, APIs are a prerequisite for BaaS; banks that don’t adopt them will be left behind. On the other hand, banks need APIs to partner with fintechs offering AML capabilities, to future-proof their BaaS offering.
The API technology acts a gateway to create a new financial services ecosystem, allowing BaaS use cases to expand, without neglecting compliance.
While the UAE’s push for tackling financial crime focuses on regulation, it also provides an opportunity for banks to digitalise and improve their offering.
Adopting APIs can support banks with compliance and protect them from threats and exposure, but they can also improve the delivery of lending products and turnaround times for customers.
To conclude, automating compliance frees up resource to focus on building additional value-add products and services. And while this regulatory intervention has started in the UAE, just as we experienced with open banking, it is only a matter of time before it expands throughout the GCC.
APIs are critical for all banks to unlock and utilise data, partner with fintechs and other brands, and to future-proof their business against financial crime and changing demands. Those that fail to recognise the opportunity will be faced with significant challenges ahead.
Carlos Teixeira, lead sales specialist at Finastra.
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