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IASB targets increased SCF transparency - Industry roundup: 31 May

Digital euro exercise finds smooth path to integration with payments landscape

The European Central Bank has published the summary and the lessons learned from the prototyping exercise conducted from July 2022 to February 2023 to test how design choices for the digital euro could be technically implemented and integrated into the existing European payments landscape.

The tests showed that it is possible to integrate them smoothly while leaving ample scope for innovative features and technologies. The findings also confirmed that a digital euro would work both online and offline, using independent designs, thus increasing the resilience of the digital euro.

The prototyping exercise is an essential part of the investigation phase of the digital euro project. This project was launched by the ECB and the euro area national central banks to ensure that central bank money remains accessible in the digital age. The investigation phase commenced in October 2021 and will be concluded in autumn 2023. It aims to address critical issues relating to the design and distribution of a digital euro.


IASB targets increased SCF transparency

The International Accounting Standards Board (IASB) has issued disclosure requirements to enhance the transparency of supplier finance arrangements and their effects on a company’s liabilities, cash flows and exposure to liquidity risk.

The disclosure requirements are the IASB’s response to investors’ concerns that some companies’ supplier finance arrangements are not sufficiently visible, hindering investors’ analysis.

The amendments supplement requirements already in IFRS Accounting Standards and require a company to disclose:

  • The terms and conditions.
  • The amount of the liabilities that are part of the arrangements, breaking out the amounts for which the suppliers have already received payment from the finance providers, and stating where the liabilities sit on the balance sheet.
  • Ranges of payment due dates.
  • Liquidity risk information.

Supplier finance arrangements are often called supply chain finance, trade payables finance, or reverse factoring arrangements.

The amendments, which affect IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures, will become effective for annual reporting periods beginning on or after 1 January 2024.

“The new disclosure requirements will make visible a company’s usage of supplier finance arrangements and allow investors to make better-informed investment decisions by demonstrating how that usage has affected the company’s operations,” said Andreas Barckow, Chair of the IASB.


Deutsche Bank boosts investment in Vietnam to support growth

Deutsche Bank has announced a capital allocation increase for its Ho Chi Minh City branch of US$100m, bringing the total to more than US$200m. The increased capital will support the bank’s growth in the country and allow it to undertake more activity for its clients.

Deutsche Bank provides various corporate and investment banking solutions to multinational companies, large local corporates and financial institutions in Vietnam. These services include cash management, FX, custody, trade finance, corporate finance and advisory solutions. Since 2017, Deutsche Bank says it has raised more than US$1bn in debt, loan and equity capital annually for Vietnamese corporates.

“This capital investment in Vietnam is reflective of our confidence in this market’s rapid development and long-term growth trajectory,” said Alexander von zur Muehlen, Deutsche Bank Asia Pacific CEO and Member of the Management Board. “Vietnam is an increasingly strategic market for our clients and, therefore, an important part of our regional platform.”


BIS seeks to promote API harmonisation for cross-border payments

The Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI) has invited cross-border payment service providers, financial infrastructures, relevant industry associations and central banks to nominate API experts to join a newly established panel to work on the harmonisation of API protocols for cross-border payments.

Nominees should possess strong technical knowledge and experience in API development, open banking and (cross-border) payments, and familiarity with API standardisation initiatives at the jurisdictional and/or multilateral level.

Enhancing cross-border payments’ speed and transparency while increasing access to cross-border payment services and reducing their costs are the key objectives of the G20 cross-border payments programme. Payment systems and payment service providers alike are increasingly adopting APIs. APIs can facilitate more efficient and faster cross-border payments by reducing manual intervention and enabling more timely data exchange across the payment chain. APIs are already successfully used, among other things, for account validation, compliance screening, message repairs and investigations.

As APIs gain wider adoption, the fragmentation of API protocols stands to undercut the potential implementation benefits. Supporting greater harmonisation of API protocols has thus been identified by the G20 cross-border payments programme as a priority initiative for achieving cheaper, faster, more transparent and more accessible cross-border payments. Hence, harmonising APIs is a priority action for the implementation phase of the cross-border payments programme. 

The API panel of experts will be a joint group of private and public sector representatives to help: (i) assist in the evaluation of proposals for API standards in cross-border payment information exchange; (ii) propose areas for greater harmonisation of APIs used in cross-border payments; and (iii) develop a longer-term global governance proposal and process to continue updating harmonised API requirements. APEX aims to complete this work by July 2024.

The panel will be geographically and sectorally diverse and comprise approximately 20 members. Private sector institutions following different business models, financial infrastructures (e.g. payment system operators), API standards associations and public sector authorities are invited to submit nominations. The panel will meet virtually and at least quarterly. A senior CPMI representative will chair it. Further details on the draft terms of reference for the APEX can be provided on request.


NatWest commits £1bn additional lending to UK Manufacturing’s Net Zero transition

NatWest Group has announced that it aims to provide an additional £1bn in lending to the UK Manufacturing sector by the end of 2030, aiming to stimulate growth in the industry and help manufacturers invest in cleaner, more efficient forms of energy generation and use, with lending deployed through loans, asset finance, and overdrafts.

Manufacturing in the UK is responsible for nearly 10% of total economic output and over 8% of all employment in the UK. However, it significantly contributes to greenhouse gas emissions, with over 12% of the UK total attributed to the sector. With the industry likely to remain energy-intensive, NatWest aims to support those in the sector through lending, partnerships and tailored financial advice.

The bank is also partnering with Warwick Manufacturing Group (WMG) to pilot with customers to join their Business Energy Aid Toolkit programme, which identifies energy use in business processes and production. The programme then recommends actions to reduce emissions, alongside estimates of the impact these would have on overall emissions. The bank also offers its free Carbon Planner tool, which allows businesses to measure their carbon footprint and build a plan to reduce their emissions on a simple online portal.

“Manufacturing is a significant contributor to both the economy and UK carbon emissions, and so it’s important that businesses in this sector are supported to transition to cleaner, more sustainable operations in a positive way, where the benefits outweigh the costs,” noted Alison Rose DBE, Chief Executive, NatWest Group and Co-chair of UK Energy Efficiency Task Force. “That’s why we aim to provide an additional £1bn of lending to the manufacturing sector, to help businesses in transitioning to a net-zero economy. As part of my role on the UK Energy Efficiency Task Force, it has become clear that the best way of delivering change at scale is through public and private sectors working together. For NatWest, that starts with helping businesses move forward in an informed and supported way."

The £1bn manufacturing fund lending package will be deployed through various routes, including loans, asset finance and increased overdrafts.


ESRB publishes report on cryptos and decentralised finance

The European Systemic Risk Board (ESRB) has published a report outlining the systemic implications of crypto markets and proposing policy options to address the risks stemming from crypto-assets and decentralised finance (DeFi).

The report finds that while this past year has been turbulent for cryptos and DeFi, the impact on the financial system was limited. The crypto market has few interlinkages with the traditional financial sector and the real economy, and none of those links are currently significant.

However, given the exponential growth and high volatility of cryptos, they need to be closely monitored as they may come to pose systemic risks. These risks could materialise if, for example, interconnectedness with the traditional financial system increases over time, new connections are not promptly identified, or if similar innovations – such as distributed ledger technology – are also widely adopted in traditional finance.

To better understand developments in crypto-assets and their potential financial stability implications, the report proposes several policy options. First, the EU’s capacity to monitor possible contagion channels should be improved. This applies both to channels between the crypto sector and traditional finance and to channels within the crypto sector. To this end, it is vital to promote standardised reporting and disclosure requirements for (i) traditional financial sector institutions such as banks that are exposed to cryptos; (ii) investment funds with crypto exposures; and (iii) entities such as stablecoin issuers or e-wallet service providers in the crypto sector. The report also considers policy options to address risks arising from crypto conglomerates, crypto-based leverage, novel operational challenges, DeFi and crypto staking and lending.

These policy options could also inform any future regulatory initiatives.

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