Banking industry announces major undertaking to harmonize Supply Chain Finance terminology

Launched today on the side-lines of a Banking Commission gathering in Dubai, the newly formed Global Supply Chain Finance (SCF) Forum seeks to clarify existing definitions and supply chain finance terminology and will be led by the ICC Banking Commission, Euro-Banking Association (EBA), Bankers Association for Finance and Trade (BAFT), Factors Chain International (FCI), International Factors Group (IFG) and the International Forfaiting Association (IFA).

Encompassing both traditional and non-traditional products and services that are generally categorized as Supply Chain Finance – such as Open Account techniques – the project responds to the growing need for greater harmonization within the trade finance industry and will extend to products and services offered by financial institutions such as banks and factoring and forfaiting companies.

Kah Chye Tan, Chair of the ICC Banking Commission said: “SCF is a growing market with considerable business opportunities identified for the near future. Given increased collaboration among the wide range of bank and non-bank representatives facilitating domestic and cross border trade, and the advent of Internet and new communication technologies, it is more important than ever before for all market participants to adopt universally-accepted terminology that corresponds to the rich array of processing, financing and risk management techniques currently being developed by the industry to support increasingly globalized supply chains.”

Initial objectives of the Global SCF Forum include collecting all existing SCF nomenclatures developed to date by individual trade associations, aiming to precisely map efforts that have already been undertaken in the field and to explicitly define the typology of SCF products and services that fall under the terms of reference. Other objectives are to harmonize SCF existing market terminology – rendering it operational and usable in daily practice by banks and non-banks when processing, financing and risk mitigating trade transactions – and to ensure that the initiative provides a competitive platform for all market participants to continue innovating solutions to meet ever-changing market needs. “In short, this initiative will promote competition and innovation while providing market nomenclature clarity for all stakeholders,” Mr Tan said.

In an effort to build consensus on the proposed SCF market terminology, the six associations undertaking the project expect will conduct a series of non-binding, open consultations – including where appropriate corporates and end-clients – and aim to complete the set of recommended definitions within a twelve-month timeframe.

“Today, the term ‘supply chain finance’ covers a wide range of products, programmes and solutions in the financing of international trade, to the extent that it can be used to refer to a single product, or a comprehensive programme of solutions aimed at addressing the full range of needs of importers and exporters,” said SCF Global Forum Drafting Group Chair Alexander Malaket. “Supply Chain Finance is at times positioned as a complement, a subset or even a superset of global trade finance, and the inconsistency in definitions, nomenclature and general language around the financing of trade linked to open account terms and to the support of global supply chains, is proving to be challenging for importers, exporters, bankers, financiers and other service providers.”