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Industry roundup: 12 March

Kantox looks to provide FX STP for international companies

Kantox, a provider of currency management automation software for businesses, has announced it has formed a global partnership with 360T, Deutsche Börse Group’s foreign exchange (FX) unit, and multi-dealer platform (MDP). This collaboration provides straight-through processing (STP) integration for Kantox’s corporate clients. 

Kantox’s Currency Management Automation solution allows end-to-end automation of the FX workflow for corporate treasury customers. Starting from the pre-trade, clients can collect and aggregate their complete exposure data in real-time. The platform then drives a custom, rule-based hedging decision to automate the FX hedging programme.

Through this strategic collaboration with 360T, Kantox clients can now benefit from an integrated workflow solution using 360T’s MDP to automatically execute trades. Kantox users will also have an analytics tool available to them, including post-trade information sourced from 360T’s platform. 

"Together through the connection and integration of our products, we will be able to provide the most innovative end-to-end solution to clients looking to easily manage the full spectrum of their business’s foreign exchange," commented Philippe Gelis, co-founder and CEO of Kantox.

 

Fund conversions drive strong growth in global ESG MMFs

Fitch Ratings estimates that assets under management (AUM) in global ESG-oriented money market funds (MMFs) increased by around 50% to €123bn by end-2020. In contrast, growth of all global MMFs was only around 20% in the same period. The ESG MMF growth was driven primarily by funds converting to an explicit ESG approach.

AUM remain concentrated in France. The largest French ESG MMFs are 'standard' MMFs under applicable European regulation and typically have a broader pool of investible assets than US 2a-7 or European 'short-term' MMFs, including more corporate exposure. Fitch-rated ESG MMFs explicitly present themselves to the market as ESG MMFs, whether through the name, stated investment objectives or stated investment characteristics.

Traditional MMFs have responded to growing investor interest in ESG by describing how they address ESG considerations in their prospectuses. Nine Fitch-rated European short-term MMFs featured ESG language in their prospectuses as of end-January 2021 - an increase of around 10% year-on-year. Many MMF managers now incorporate ESG considerations in their investment processes to some extent.

ESG MMFs primarily employ exclusionary approaches, based on varying criteria, and so the amount of exclusions may vary considerably between funds. The implementation of the Sustainable Finance Disclosure Regulation in Europe on 10 March 2021 will force funds to provide additional disclosure on their approach to sustainable investment. Related information may improve investors' ability to differentiate between funds.

ESG considerations are typically a neutral factor in Fitch's fund rating analysis. However, in an extreme scenario Fitch may elect not to rate an MMF where it believes the fund's ESG investment approach has negligible materiality. This could lead to reputational or regulatory risk to the fund if investors or regulators were to conclude that the fund's ESG characteristics are misleading or exaggerated. 

 

International Chamber of Commerce and Finastra target the trade finance gap

The International Chamber of Commerce (ICC) and Finastra have committed to a strategic initiative to tackle the growing trade finance gap. Both organisations are orchestrating an ecosystem and exploring the development of a financing marketplace that will provide micro-, small, and medium-sized enterprises (SMEs) with access to a broader set of alternative finance resources in order to help keep the global economy moving forward.

The ICC TRADECOMM marketplace, powered by Finastra, aims to reduce trade finance barriers for SMEs and enable all parties to benefit from improvements in matching supply and demand.

There is a large and growing trade finance gap representing a mismatch between demand for and supply of trade financing, estimated at US$1.5 trillion pre-COVID-19 and potentially reaching US$2.5 trillion by 2025. Coupled with the effects of the COVID-19 pandemic, SMEs desperately need short-term liquidity and access to international trade to survive the ongoing economic crisis. Alternative financing options will be required to address this gap and provide SMEs with the immediate capital required to carry out cross-border transactions. ICC TRADECOMM will allow investors to finance trade transactions against title documents and equip SMEs with a broader set of solutions to mitigate perceived risk, the burden of compliance, and enhance access to finance.

"If SMEs are going to survive the ongoing economic crisis, they need tools and solutions that will enable them to trade now," said John W.H. Denton, secretary general of the ICC. "Only then will many micro-, small-, and medium-sized enterprises be able to seize new business opportunities and build back their activity post-pandemic. We are extremely pleased to partner with Finastra on ICC TRADECOMM, one of the solutions that ICC will unveil as part of its commitment to connect investors and SMEs looking for short-term liquidity for their international trade operations."

In the coming months, ICC and Finastra plan a series of pilots across select markets before launching the platform globally. During the initial launch period, bank and non-bank financers will be given the opportunity to transact on invoices from SME suppliers from select marketplaces. Subsequent versions of ICC TRADECOMM may include other trade documents, such as letters of credit, bills of lading, and other bank-syndicated products, in a move towards creating seamless documentary flow.

 

Over 50% of banks admit LIBOR transition plans delayed by COVID-19

A research report from SDL, part of RWS Holdings plc, highlights the immense pressure that major financial services organisations are under to ensure they are ready to transition away from the London Inter-bank Offered Rate (LIBOR) - which underpins approximately US$400 trillion worth of contracts - by the end of 2021. The research, involving tier one financial organisations across APAC, EMEA and North America, explored how they are preparing to transition away from the LIBOR interest rate-setting mechanism to the Risk Free Rate regulatory framework.

The research found that 54% have experienced disruption to their LIBOR transition due to the impact of Covid-19, placing them behind schedule or requiring assistance to meet the deadline. Despite 88% needing to update documentation in multiple languages for at least one region globally, 40% only started planning for the transition within the past year or have not yet started the process.

Over four out of every five respondents (82%) said they also use additional Inter-Bank Offered Rates (IBORs) in other international markets, particularly in the Americas and EMEA, which will increase the workload and extend the complexity of the transition for years to come. 54% said they will need third-party assistance from legal advisors with 22% working with translation specialists to make the deadline and meet the complex regulatory cross border document challenges. 

“The global pandemic has made an already mountainous undertaking even more difficult for investment banks, market-makers and asset managers to get their internal processes aligned and ready for this change,” said Jon Hart, president of RWS’s Regulated Industries division. “While it is encouraging that the majority of respondents have been transition planning for over a year, 40% have struggled with the implementation timelines or have not yet started to plan. The task at hand should not be underestimated, but the impact that the transition will have on operations can still be mitigated with assistance from external agencies - companies like ours stand ready to help.”

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