British regulators cautioned the leaders of the greatest UK banks that they are not putting sufficient effort to remove expected fraud and crime when facilitating trade finance.
As per the Prudential Regulation Authority and Financial Conduct Authority, “During the past 18 months, there have been various striking failures of commodity and trade finance organizations with huge financial loss. Our latest evaluation of individual organizations has demonstrated various critical issues identifying with both credit risk analysis and monetary crime controls.”
Banks that provide trade finance should conduct proper checks for illegal tax avoidance, ie. money laundering, sanctions avoidance, terrorist funding, and fraud, as per the regulators. Lenders are also not properly performing to detect when a credit might be funding “dual-use” goods that can be utilized for both regular citizen and military purposes, regulators said.
The remarks come a long time after the breakdown of Greensill Capital, which provided trade finance to organizations and afterward offered the credits to investment funds. Its failure demonstrated worldwide investigation of its relationship with steel tycoon Sanjeev Gupta and initiated a shakeup at Credit Suisse Group AG, which needed to freeze a $10 billion group of assets that invested in assets sourced by Greensill.
Last year, the breakdown of oil broker Hin Leong Trading (Pte) Ltd. left banks including HSBC Holdings Plc attempting to recover some $3.5 billion, following a default that revealed years of hidden losses and claimed fraud by founder Lim Oon Kuin.
The British regulators explained that banks were still initiating loans based on risk evaluation that was “too conventional to cover the various types of risk exposures that might exist in trade finance client relationships.” Lenders are required to look for warnings towards the end purchaser of the item, credit insurers, and other parties, they explained.
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