National Australia Bank's head of trade & working capital talks of trade finance compliance: How can a bank be truly effective?

Mark Borton reveals why the blame is usually on 'trade' when things go wrong and a bank is fined.

Mark Borton is a career banker with over 25 years of experience in the trade finance and cash management space, covering roles at all levels across sales, product management, operations, channel management and customer services with a number of blue-chip banks.

He has been with National Australia Bank for 7 years during which time he ran Trade Product Management for Australia before transferring to Singapore to establish an overall product management function for the bank in Asia. Mark now runs a combined team of product management and trade sales professionals dedicated to supporting their customers.

In an exclusive interview with Asian Banking and Finance, Borton shares his thoughts on how best Asian banks can manage all the requirements around compliance.

There has been a lot of discussion recently around sanctions, trade-based money laundering, countering terrorist financing and the increasing complexities involved with same. Is there more focus on trade finance versus, for example, payments when it comes to monitoring compliance and if so why?

Speaking personally, I don’t think that there is intentionally more focus per se however, it is true that when things do go wrong and a bank is fined, the cause of the problem is often referred to generically as “trade”. Also, I think that trade finance gets more scrutiny because there is more visibility around the details of the transaction.

For example, with a typical payment transaction you will be provided with only very basic details from a customer relating to it such as name and address of the beneficiary, amount, possibly a very high level description of what the transaction relates to that may be as basic as an invoice number.

However, for a typical trade finance transaction, not only will you have these but also copies of documents such as the invoice and bill of lading that provide more information regarding parties to the transaction, fuller goods descriptions and ports of loading and unloading – all of which the bank would be expected to check for compliance against sanctions lists and the like.

In short, the more information available, the more you have to check for compliance which is why trade finance gets more scrutiny.

How do banks with international footprints manage the requirements around compliance?

In all cases, it’s important that the bank understands not only their home country regulator’s requirements but also those of the countries in which it operates as there can be quite significant differences. We can certainly learn from the different regulatory bodies and potentially be ahead of what may happen in other jurisdictions going forward but it’s advisable for an organisation to be as consistent as possible across all the jurisdictions.

So, one approach is to form a framework that sets out the minimum standards for trade finance teams to comply with around money laundering and sanctions, for example, and then build on this core framework to take account of the more stringent geographies. That way, you ensure everybody follows the minimum standards and also capture the country nuances.

How does National Australia Bank approach managing requirement around Compliance?

We have a global framework laying down the minimum standards across the network, and have then added on requirements on a country basis. Besides this, we have also taken a risk-based approach when considering our requirements. What this means is that we have taken a hard look at our business in the geographies to really identify where we believe some of the key risk points lie.

From here, we have overlaid additional controls in some cases to allow us to manage them better. In all cases, we have also documented our approach so that internal and external stakeholders can understand why we have taken it. It’s important that we are able to explain why we have made decisions and demonstrate this actively.

With the increasing levels of requirements, how does technology play a part in Compliance monitoring/enforcement?

Ideally, best practice would be to have all aspects fully automated, which may happen over time, but for most banks, it’s currently a journey that will take them from a current semi-automated environment to a more fully-automated, integrated environment. Most, if not all, aspects of sanctions monitoring should be automated today as there are plenty of good solutions on the market to facilitate this.

Where there is possibly a divergence would be around some of the aspects that not all regulators call for, such as price monitoring for under/over-invoicing as well as vessel tracking and the levels of tracking required, and this is where technology is needed to play more of a part. There are certainly automated solutions available although recognising the complexity, these solutions may not yet be the perfect fit. Also, depending on the application of a risk-based approach, banks may be faced with decisions on when is the right time to move from a manual approach to a fully automated one.

How effective can a hybrid of automated and manual be?

Very effective, but it’s important to conduct that risk assessment to identify the non-negotiable aspects of a trade finance compliance plan that really need to be automated, which aspects can and need to be automated over time, and which aspects can be approached on a manual basis for the foreseeable future. Getting that assessment and risk-based approach right is crucial especially when focusing on the higher risk elements that may be manual. Ultimately, technology should help innovate new and more effective ways of managing the compliance burden but of course, will never replace the need for intuitive reasoning required to also assess.

Do you think it would be useful for banks to obtain more regular information from them of the results relating specifically to trade finance around the effect their efforts are having in combatting AML/CTF/sanctions/financial crimes?

Certainly! There is information around covering the payment-related aspects and what’s being seen in that space however, the information on trade finance specifically appears to remain limited. Sharing of successes achieved in combatting these issues together with live case studies demonstrating the use of best practices that others can follow would undoubtedly be beneficial. After all, banks absolutely want to do the right thing and play their part in reducing crime in these areas so more collaboration is a good thing in my view.

Do you have any final comments?

Yes, as I mentioned earlier I believe collaboration to be a positive so it would be great to see better coordination both between industry and regulatory bodies, and regulatory body-to-regulatory body in this space. I don’t see this as an area of competitiveness, so the more collaboration the better if we are to be truly effective in this aspect of trade finance compliance.