By trainee Humzah Irfan at Sullivan in London
Sam Fowler-Holmes restarted Sullivan's Breakfast Seminar, this time at lunchtime! On the day England moved into a second national lockdown due to the COVID-19 pandemic, Sam provided an overview of the impact of COVID-19 on the trade finance sector. The presentation discussed issues from the progress in digitalisation in the trade finance market to Brexit and LIBOR.
The keys points from Sam's presentation include:
- COVID-19 Impact on trade – Even though no part of the supply chain has escaped the impact of the pandemic and the World Trade Organisation has forecast significant decline in global trade, the expectations of large volumes of insolvencies has, thus far, not materialised.
- Digitalisation – The pandemic has put a spotlight on digitalisation efforts in the trade finance industry, but there are still many issues to overcome in this space. Stakeholders should not lose focus on scaling up digital initiatives, harmonising the platforms and the need to extend broadband access across the developing world. English law has shown that it is flexible when faced with digital issues, but there are still limitations.
- Supply chain finance (SCF) – There has been a surprising boom in the SCF market during the pandemic, with the increased demand for programmes likely caused by a need for liquidity during the pandemic. However, the scrutiny of the SCF industry remains a challenge as governments seek further transparency in the use of SCF and fear that facilities may be withdrawn at a critical point for the global economy.
- Documentary issues – The pandemic has made many in the trade finance industry reexamine the contents of their contracts to check force majeure clauses and any other provisions that may be helpful if problems arose. However, it is also important to understand concepts such as force majeure, frustration, material adverse change and reasonableness when negotiating contracts.
- Brexit – As the end of the transition period is approaching, the likelihood of a UK-EU deal reduces every week and once again the UK has taken steps to accede to the 2005 Hague Convention (Convention on Choice of Court Agreements). It is more important than ever for the trade finance industry to undertake due diligence in relation to the impact of a no deal Brexit on jurisdiction clauses, the UK's implementation of the Bank Recovery and Resolution Directive and any future UK equivalents to GDPR and the CRR regime.
- LIBOR – There are more than $370 trillion of existing financial contracts pegged to LIBOR, so the move to SONIA, SOFR and other benchmarks must be carefully considered. There has been some progress with £16 billion of SONIA linked bonds being issued in 2020, but there are still concerns about the need to update financial services infrastructure to implement changes and how those changes should be documented.
Please click here for a link to a video of the seminar to find out more about challenges in the trade finance.
For further information on the challenges to trade and commodity finance please don't hesitate to get in touch with Sam Fowler-Holmes or your usual contact at the firm.
