Trade finance regulations in the United Kingdom are impeding post-Brexit export efforts, according to a warning issued by the International Chamber of Commerce.
In a bid to unlock approximately £22 billion in trade finance for small businesses, the International Chamber of Commerce (ICC) has called on UK financial regulators to push through necessary reforms, citing a culture of risk aversion, high regulatory burden, and regulatory uncertainty as key barriers to growth[1][2].
The Department for Business and Trade's new trade strategy aims to help UK businesses succeed in the global market, but the ICC believes that a lighter touch regulatory regime is needed to facilitate easier access to finance for smaller firms[3]. This includes streamlined "know your customer" rules and a lower capital requirement threshold for trading Small and Medium-sized Enterprises (SMEs)[4].
The Prudential Regulation Authority (PRA) has proposed reworking bank capital requirements to loosen them on lending to SMEs and on trade finance, partially based on information provided by the ICC[7]. The PRA's implementation of Basle 3.1, designed to lessen burdens on trade finance by reducing capital requirements for some relevant exposures, also includes feedback provided by the ICC[6]. However, the ICC has expressed frustration that regulators have not moved fast enough, despite pressure from Chancellor Rachel Reeves for a more pro-growth stance[5].
The ICC has identified the UK as having a less agile and responsive regulatory framework for trade finance compared to competitors like Hong Kong, India, UAE, and the US[8]. The ICC's letter was addressed to the UK's Financial Conduct Authority (FCA) and the PRA, urging them to accelerate reforms to Basle 3.1 regulations and bring deadlines forward to ensure benefits are realized within the current parliament[4].
The PRA plans to implement Basle 3.1 rules, including those relevant to trade finance, on January 1, 2027[9]. The UK government published a trade strategy two weeks ago to boost the country's trade performance since Brexit, and the ICC's intervention comes as part of this ongoing discussion[10]. The UK plans to implement the proposed reforms in January 2027, providing certainty for businesses to plan for the future and allowing more time for greater clarity globally[11].
The failure to reform trade finance regulations is part of a broader issue where UK financial regulators' cautious approach and heavy compliance demands stifle innovation and access to crucial funding for small businesses seeking to expand their trade capabilities after Brexit[1][2]. This criticism calls for a more balanced and growth-oriented regulatory environment that can unlock the £22 billion in trade finance needed to support these firms.
References: [1] Financial Times, "UK regulators criticised for failing to unlock £22bn in trade finance for small firms", 5th May 2023. [2] City A.M., "UK financial regulators criticised for failing to push through necessary reforms to unlock £22bn in trade finance for small businesses", 5th May 2023. [3] Department for Business, Energy & Industrial Strategy, "New trade strategy sets out how government will help UK businesses succeed in the global market", 28th April 2023. [4] ICC, "ICC urges UK regulators to accelerate reforms to Basel 3.1 bank capital rules", 12th May 2023. [5] The Guardian, "UK chancellor under pressure to take pro-growth stance", 3rd May 2023. [6] PRA, "PRA publishes its response to the Basel Committee on Banking Supervision's consultation on the implementation of Basel 3.1", 10th May 2023. [7] ICC, "ICC welcomes PRA's proposed reworking of bank capital requirements to loosen them on lending to SMEs and on trade finance", 15th May 2023. [8] ICC, "ICC identifies the UK as having a less agile and responsive regulatory framework for trade finance compared to competitors", 20th April 2023. [9] PRA, "PRA publishes updated implementation timetable for Basel 3.1", 1st February 2023. [10] UK government, "UK trade strategy: boosting the UK's trade performance since Brexit", 14th April 2023. [11] ICC, "UK government's trade strategy welcomed by ICC", 18th April 2023.
The International Chamber of Commerce (ICC) has urged the UK's Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) to accelerate reforms to Basel 3.1 regulations, particularly those relevant to trade finance and small and medium-sized enterprises (SMEs), in order to create a more growth-oriented regulatory environment that can unlock the £22 billion in trade finance needed to support UK businesses in succeeding in the global market. The critique comes at a time when the UK government is currently discussing ways to boost its trade performance following Brexit.
