Providing Solid Solutions in an Everchanging Landscape

Today I would like to elaborate a bit on the challenges I am facing in the office when it comes to the volatile landscape we experience and what the professional impact is on our product, my colleagues, and myself in relation to our customers' needs and requirements.

One of the greatest challenges for financial applications today is providing the stability and consistency of a more or less ‘static’, delicately configured system on the one hand, and flexible able-to-cater ad hoc changes driven by current local and global affairs on the other hand.??The energy market, KYC matters, the sanctions landscape, Covid-19, TBML regulations, and the increasing prices of goods and/or commodities, to name but a few usual suspects, are all matters of great concern to all banks. In general, the risk and regulatory side of things, and specifically how to handle these activities and still conduct Business as Usual, without having your staff working 24/7…?

if anything became clear in the last few months, it is that a lot of parties had to “ put their money where their mouth is” and prove to be able to adapt to these circumstances in order to tackle the above issues.

Perhaps it is useful to put some context to the current Global situation in relation to Trade Finance and the operational effects of handling such transactions within banks, versus the International Standards and Regulatory Obligations dictated by the current Global situation.

When it comes to facilitating Trade Finance transactions, banks are often faced with a number of different challenges. Banks know how to handle Import and Export transactions, and how to provide credit, it has been their core business for over a hundred years. The average onboarding process and handling of their customers’ Trade Finance transactions (Collections, Letters of Credits, Guarantees, and what have you) would traditionally include a KYC check, an analysis of the companies’ financial situation with respect to the credit they were about to provide to them. But that was about it.?????????

Over the cause of the last few decades, however, matters have increasingly become more complex, expanding the responsibilities of banks to control and check elements that were traditionally of no interest to them. Even I remember that very well from my early days in banking.

At a later stage, there was the KYC component added, whereby banks extensively needed to check their own customers and the companies in their books.??And in more recent years they also need to make sure the parties involved in the overall transaction(s) are legitimate and not sanctioned or related to entities/countries with (OFAC/UN/Local) restrictions.??The type of goods handled must fit into the overall picture of their onboarded customer; ‘Do the goods in the next transaction comply with their production or trading profile?’?‘Are the Unit prices and/or bulk prices for those goods market conform?’,??and 'Do they not differ too much from the standards? Some of these checks tie directly into TBML matters as well. Which is another component added to the bank's palette of fraud preventing activities.

Also, the transport means are subject to extensive checks these days.??

The routes traveled by the vessels/trucks/trains/planes that carry the relative goods represented under the transaction should be checked. Additionally, the vessels themselves need to be checked for owners and flags. (KYV - Know Your Vessel)???

Even the container numbers and the whereabouts of the containers mentioned on the commercial documents have to be checked. And if you thought this would stop after the bank has approved the presentation of these documents, I got news for you…it not necessarily stops there.

In specific cases, the vessel or the containers must even be tracked until they have arrived at the (correct) discharge port or until the actual future deferred payment will be effected.??It even goes as far as that the bank not only checks the actual route but also the possibility for certain routes to be used to conduct sanctioned activities near- or close to that route.???For example, when the goods travel by truck from A to B to C,??whereby A, B, and C are all legitimate none sanctioned countries. It could be the case that country B, is in direct proximity to country D, which is a sanctioned country.?This means that potentially the truck could make a stop in or near that sanctioned country,?and conduct illegal activities. It is up to the bank to,?at least, identify this and raise a potential (red) flag.??????????????????

This clearly shows that these (traditionally none banking) activities pose a heavy additional responsibility (burden if you wish) to the banks. Both operationally and risk-wise.?Therefore it is only natural that banks are desperately looking for solutions that can reliably automate these laborious tasks for them and contain an extended audit trail that can prove ‘which checks’ were performed against ‘which parameters’ at ‘which point’ in time.

That brings us to the other party at 'the diner table':?‘ Us, providers of software’.???Often companies with multiple applications available, with large portfolios, complex applications, and slow-moving product management lines and processes with underlying long- and short-term roadmaps.?Not very flexible by nature, and historically 'in their own little world'. But the days of keeping their own paste, and telling customers ‘it will be in there once it’s in there’ are long gone.????????

As much as anyone they needed to adapt and join that rollercoaster of a rapidly changing landscape that banks are operating in, delivering fast and solid solutions to their newborn challenges.??‘Just’ being visionary where you want to go and paint a picture at the horizon doesn’t suffice any longer.?More than ever it is of vital importance to stay ahead of the game and be able to maneuver between- and adjust to the whims of Mother Earth with its environmental challenges and its geographical escapades and conflicts which result in social issues, such as large streams of refugees being adrift, sanctions occurring at many different levels, and risk profiles for transactions changing overnight. These are sheer facts, no longer contingencies to be mitigated for fictive scenarios and they need to be dealt with, pronto.

Having painted the context above of the current landscape both banks and software providers are dealing with, and the problems that occur because of it, let’s now focus on the solutions available. Which is ultimately what we are all looking for.

On a daily basis, our company is busy adding value to our product and is trying to enhance the application so that banks can improve their efficiency, reduce their risk, and streamline or change their processes in order to face the issues mentioned earlier. It is exactly those tools we are trying to provide the banks with.

Let's pick out a specific example of such a tool. Vessel checking.

It is no secret that most banks are currently bound by the imposed sanctions against Russia in some way, shape, or form. This has a huge impact on almost all transactions in the bank’s books.?

Below are a number of things that were most likely part of the overnight checks that banks had to process, after being faced with the various governments sanctioning Russia. ?????????????

Without turning this post into a commercial, and without claiming that we can solve all of the above checks out of the box, I would like to show how we, for example, can deal with the Vessel check component in this story.

We offer a module called Vessel Checking/Tracking. In collaboration with Lloyds Informa (we interface with this data provider), we are able to obtain general information about a particular Vessel, part of an uploaded transaction and subsequently check this Vessel on a number of key elements, such as:

On top of that, we have various lists in our system (both public lists and/or bank-specific lists) containing either sanctioned or 'to-be-alerted countries', specific ports, even routes, and/or specific geographical areas, and/or specific parties of interest.

This enables us to build a rule set whereby the publicly available data obtained from Lloyds Informa / Seasearcher, as well as the obtained data from the Commercial Documents, processed by our application through OCR technology, can be used to perform specific and generic checks and thus create possible alerts, based on the results of such checks.

To make a long story short, we can recognize a Vessel from a paper document and tell you all about its owners, (are they sanctioned or not?) history (did it change flag or name recently?), and routes, and show you if it has been anywhere near a sanctioned, or alert-worthy country. We can even see where and when the GPS system was switched off (which could in certain areas be very suspicious and deserves an alert).

In the UI we can present static data of the Vessel, as well as the actual ruleset checking the whereabouts and the characteristics of the Vessel.? The system automatically classifies possible red flags and shows the actual routes and the countries on the uploaded 'sanctioned or alert-worthy countries.

We can also visualize the actual route traveled by the Vessel.

The User can then decide to either flag this transaction for further investigation, escalate it to a compliance officer, or even flag it for further tracking. In which case we can check the same rule set on a daily basis for a designated period of time.

The sky is the limit. Or should I say, the sea?

So when people ask me what I do for a living, it’s basically coming up with solutions to those kinds of Trade Finance related problems and making sure that we understand and solve the bank’s problems, and at the same time stay ahead of the game by innovating the product.