On 19 May 2021, the Joint Money Laundering Steering Group (JMLSG) published provisional updates to its Part II Guidance Trade Finance chapter (chapter 15).
A number of the proposed changes clarify the definition of trade finance products/services, and how these can be used to facilitate global trade. In addition, material updates to the financial crime risk-related content of the guidance centres around the following:
- Inclusion of a non-exhaustive inventory of general financial crime red flag risk factors associated with trade finance activity specifically (point 15.12 and Annex 15-IV). These replicate the “Trade-Based Money Laundering: Risk Indicators” published by the Financial Action Task Force (FATF) earlier in 2021.
- Reference to (other) industry publications, such as those by the FATF, Financial Conduct Authority (FCA) and Wolfsberg Group, relating to the proliferation of financing risks and dual use goods (e.g. points 15.20, 15.22 and 15.30). This content stems from the previous Annex 15-III but has been significantly expanded in the proposed amendments, indicating that the UK regulator evidently expects firms involved in trade finance activity to be well-versed and self-educate using the wider reading available to the sector.
- Enhanced guidance with regards to factoring the inherent risks associated with trade finance activity within the business wide risk assessment (point 15.33).
- Clarity around which party/ies are considered as the “customer”, and thus must be subject to customer due diligence (CDD), for different types of trade finance products (point 15.38).
- Additional guidance pertaining to the application of the risk-based approach with respect to CDD in the context of trade finance (points 15.39 to 15.44 inclusive and point 15.75).
- Inclusion of specific and explicit statements which indicate the need for firms to regularly assess the operating effectiveness of their anti-financial crime controls with respect to trade finance (points 15.44 and 15.61).
Within the “Glossary of trade finance terms and definitions used in this guidance” section of the chapter, multiple new terms have been added to help the sector to gain a shared understanding of trade financing operations.