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Fundamentals of International Trade Finance

Gain a solid foundation to the key concepts of trade finance

Drafting & Negotiation Real Estate Finance Term Sheets Training Course

A one-day course

  • The trainer has 40 years of practical trade finance experience with a major international bank.
  • The course reflects the trainer’s trade finance experience in structuring trade deals, corporate relationship management, credit risk assessment and trade operations.
  • The examples/case studies used are taken from the trainer’s personal experience.
  • The varied case studies are practical examples which will greatly assist delegates in understanding this subject.
  • This course is a ‘must’ for any financial, legal or corporate professional seeking an understanding of International Trade Finance.

  • Identify customer needs and recommend appropriate trade product solutions.
  • Assess various risks to both bank and customer in international trade transactions.
  • Explain and identify ways of mitigating the underlying risks associated with trade finance transactions.
  • Understanding the processes involved in documentary collections, documentary letters of credit and guarantees, including the responsibilities of the various parties.

Introductions

  • Trainer & participants
  • What do you know?
  • Aims and objectives
  • Course context 

What is Trade Finance?

  • Benefits of trade finance to businesses and banks
  • Introduction to the trade cycle
  • Incoterms
    • Summary of terms
    • The advantages/disadvantages to importer/exporter in the use of Incoterms
    • Principal methods of settlement
  • General Risk Considerations
    • Trade finance products vs open account
    • Financial Crime Compliance - AML, CFT and Sanctions
    • Know Your Customer (KYC) and Customer Due Diligence (CDD)
    • Correspondent Bank risk
    • Counterparty risk
    • Credit risk 

Group exercise to understand Incoterms application. 

Key characteristics of Commercial Documents used in international trade

  • Invoices (commercial, tax, customs, consular, Pro-forma invoice)
  • Marine/Ocean Bills of Lading
    • Title, transfer
    • Control of goods
    • Delivery considerations
  • Other forms of the transport document
    • Multimodal Transport Document
    • Air Transport Document
    • Road, Rail or Inland Waterway Transport Documents
    • Non-negotiable bills of lading
  • Insurance Policy/Certificate
  • Other certificates (Certificate of Origin, Inspection Certificate, Phytosanitary, etc)
  • Bills of exchange

Exercise - using examples of commercial documents to help participants to understand their technical content, the significance and importance of particular documents. 

Core Trade Products

  • Import / Export Documentary Collections
  • Letters of Credit
  • Guarantees 

Import / Export Documentary Collections

  • Principal parties – roles and responsibilities
  • Benefits to importers and exporters of Documentary Collections
  • Relationship between principal and bank(s)
  • Role of banks (incl. correspondent banks/agency arrangements)
  • Legal and practical issues re the duties of the banks involved in handling collections
  • Conditions for release of documents
  • Areas of risk:
    • Usance collections
    • Partial payments
    • Avalisation
    • Release of goods on trust
  • Procedures for Protest of Bill of Exchange (B/E) and underlying risks
  • Complexities of the ICC Uniform Rules for Collection (URC 522) 

Case Studies

a)  Alpha Ltd considers the needs of an exporter and importer and the benefits of using Documentary Collections in a cross-border transaction

b)  Beta Ltd covers the collections procedure and the practical application of the URC 522 

Documentary Letters of Credit

  • Principal parties – roles and responsibilities
  • Benefits to importers and exporters of Documentary Letters of Credit
  • Relationship between principal parties
  • Advantages/disadvantages of letters of credit
  • Risk factors when issuing letters of credit
  • The autonomy of letter of credit operations (Independence Principle)
  • Importance of the application form (legal issues)
  • Instructions to issue/amend credits
  • Workability of the credit
  • Jurisdiction 

Introduction to the International Chamber of Commerce UCP 600 Rules

  • Structure and obligations under letter of credit;
  • Availability of credits, expiry date and place for presentation
  • Availability by payment, deferred payment, acceptance, deferred payment standard for examination of documents; dealing with discrepant documents, waiver and notice of refusal; 

Examination of documents

  • Key elements of the main articles of UCP 600
  • The standard for examination of documents: “no conflict” rule – article 14
  • Processing non-compliant documents as Nominated/Confirming Bank
  • Processing non-compliant documents as Issuing Bank
  • Risks arising from non-adherence to UCP 600
  • Legal cases and ICC Banking Commission opinions
  • DOCDEX – dispute settlement mechanism of ICC for trade finance
  • Analysing irregularities in documents 

International Standard Banking Practice ISBP 745 (2013 Rev)

  • What constitutes an “alteration” or “addition” to a document, when and how should these be authenticated?
  • How should documents be signed, if this is not explicitly stated in the credit?
  • How should one handle typing errors on documents regarding the name and address, different addresses of the same company, etc.? 

Advising, confirming, reimbursing credits

  • Obligations and Risks associated with the Advising Bank, Nominated Bank, Confirming Bank
  • The use of the Bill of Exchange in Letters of Credit
  • Application of the Uniform Rules for Bank-to-Bank Reimbursement ICC 725
  • Assignment of proceeds 

Case Studies

a)  Gamma Ltd considers the needs of an exporter or importer and the suitability of using a Letter of Credit in a cross-border transaction

b)  Theta Ltd looks at the Documentary Letter of Credit procedure and the practical application of UCP600 

Other forms of Letter of Credit

A review of the purpose, procedure and risks associated with:

  • Irrevocable/revocable
  • Usance credits
  • Transferable Credits
  • Back-to-Back Credits
  • Red and Green Clause Credits
  • Revolving / Reinstatement Credits
  • Standby Credits
  • Synthetic Credits

Guarantees

  • Types of guarantees:
    • Tender/bid bonds
    • Advance payment guarantees
    • Performance bonds
    • Retention money guarantees
    • Warranty Guarantees (Maintenance guarantees)
    • Bail bonds
    • Payment guarantees
    • Indemnities/counter guarantees
  • Risk Assessment (including risk weighting)
  • Wording of Guarantees
  • Demand under guarantees: issues
  • Extend or Pay demands
  • Expiry and Cancellation Uniform Rules for Demand Guarantees 758: main principles, URDG 758 guarantee sample wording, sample clauses 

Case Studies

a)   Sigma Ltd reviews a business’ need for guarantees, the identification of the appropriate product and the practical application of URDG 758,  the effect of local banking practice and different legal jurisdictions. 

Financial Crime Compliance

  • Constituent parts (money laundering, terrorist financing, sanctions breaches)
  • Current examples
  • An introduction to the nature of compliance risk in cross border transactions
  • Why are international trade transactions increasingly a target for abuse?
  • The consequences of non-compliance (for banks, corporates and individuals)
  • Risk assessment from FCC perspective

Case study; Omega Limited,  the assessment of a potential AML / CFT / sanctions breach through the use of one of the above trade products, requiring the delegates to identify key compliance risk issues and the need for further information to make a risk-based assessment

  • Summary of day’s learning
  • Opportunity to refresh clarify key points, clarify
  • Review main learning points.

The trainer is a highly experienced banker who worked for HSBC (and the legacy bank, Midland Bank before that) for 40 years from 1977 until 2017.

The trainer has been passionate about international trade and financing, ensuring good outcomes for both the bank and its customers. He has experience of many industry sectors, international businesses, debt syndication, acquisition finance, and credit risk and debt recovery management. His principal specialism is trade and commodities financing. During his career, he was selected for a number of key roles involving complex problem identification, analysis and resolution, leading to reductions in risk and loss and improved processes and compliance.

During his first 16 years with the bank, the trainer undertook junior, then subsequently management roles in business, commercial and corporate banking. Then, in 1993, he became a divisional credit manager, working in that role until 1995. He assisted in the structuring of new business proposals and had credit approval responsibility for business lending in Kent and Sussex. He then spent five years as a senior business banking manager (Windsor and Slough) where he led a team of 16 managers and support staff, and was responsible for relationship management for the UK subsidiaries of overseas corporations. He moved into trade finance in 2000, in London, as a senior relationship manager, working with a team of specialist trade services managers and support staff. His team’s portfolio comprised around 80 different relationships.

In 2002 he was promoted to the role of senior corporate banking manager, a position he held until 2010. The role included responsibility for around 20 large relationships, where the turnover of the clients was up to £6 billion. The portfolio was predominantly trade intensive (import / export and commodities), with the business having overseas parent companies, or overseas operations. In this role the trainer had to liaise closely with specialist departments and was also involved in marketing the bank’s business products. He was also responsible for credit risk management aspects and it was, during this time, that the trainer began running training courses, initially on the subject of credit.

The trainer spent his final seven years at HSBC (2010-17) as a senior portfolio risk manager at the Trade UK department in London. His roles there included:

  • overseeing the UK commercial segment’s trade portfolio, monitoring general performance and quality assurance;
  • providing expert advice to sales managers, credit officers and other stakeholders on debt structuring and the use of appropriate products;
  • developing analytical and monitoring models to support increased facilities or to identify adverse trends;
  • assisting corporate recovery managers in minimizing potential losses due to debt exposure or from an operational perspective; and
  • delivering trade finance training courses to stakeholders (in debt structuring and products).

In 2014 The trainer was awarded a Certificate in Trade Based Financial Crime Compliance, further to completing a course and passing an exam run by Manchester University Business School.

Despite the increasing movement to unstructured open account trading, Trade Finance remains an important option for businesses of all sizes.  For small and medium-sized enterprises which either import or export, there are a number of significant benefits.

This one day course will provide a firm foundation to participants new to the concepts of trade finance, as well as reinforcing and consolidating the knowledge of those participants who already have experience.  In learning how to identify customer needs, participants will be better placed to recommend appropriate product solutions.

Included in the course are practical sections covering documentation and practical issues relating to core trade finance products, (documentary collections, documentary letters of credit and contract guarantees), as well as the importance of the various International Chamber of Commerce (ICC) rules together with a high-level oversight into Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Sanctions considerations.

The International Trade Finance Course course is highly interactive and centres around the use of a variety of case studies, predominantly based on actual files and ICC opinions.

This is a foundation level course which can be supplemented by our Advanced Trade Finance, Letters of Credit and Trade-Based Money Laundering & Sanctions courses.

  • The instructor was highly experienced, the course was well organized and structured

  • The presentation was clear and the instructor demonstrated a good use of cases and questions to get participants actively participate 

Have this course presented In-House

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