One of the fallouts of increasingly complex compliance measures has been the disruption of banking relationships. In a new trade finance survey, four out of 10 banks reported having terminated correspondent relationships due to compliance measures.

The new survey by the International Chamber of Commerce also finds that the cost and complexity of compliance requirements relating to anti-money laundering (AML) and know-your-customer (KYC) regulations are barriers to the provision of trade finance.

The percentage of respondents citing anti-financial crimes compliance as a significant impediment has been increasing over the years, and the vast majority (83%) expect compliance requirements to increase through 2016.

The ICC says that compliance regulation compelled 40% of bank respondents to sever banking ties. That was little changed from a year earlier when banking relations were disrupted for 44% of respondents. 

The ICC notes that global ‘consolidation’ or exiting of banking relationships has mostly already taken place and may be slowing. “However, the challenge for the trade finance community is now to both prevent further drawing down of existing relationships, as well as to re-establish broken links, especially in cases where global banks have completely withdrawn from operations in the affected countries,” says the report. 

ICC suggests that multilateral development banks can play a role in providing support and information to banks in emerging markets to upgrade domestic regulatory frameworks and encourage harmonization of compliance requirements across jurisdictions.

The survey also finds that the percentage of respondents citing anti-financial crimes compliance as a significant impediment to trade funding has been increasing, reaching 90% of respondents in this year’s survey, up from 81% in last year’s survey.

Difficulties remain due to differing standards being applied –  65% of respondents consider that the lack of compliance harmonization between jurisdictions is a great challenge to the trade finance industry, an increase from 53% reported last year.

Again SME’s are feeling the burden with 75% or respondents identifying SMEs as the customers most negatively impacted by more strict compliance standards. The Asian Development Bank puts the global trade finance gap at US$1.6 trillion, US$693 billion of which is in developing Asia.

Other impediments to trade finance noted by the respondents included low issuing bank credit ratings (86%), low country credit ratings (82%), regulatory requirements (76%) and low obligator or company ratings (70%).