New regulations requiring greater disclosure of supply chain finance programmes are “unquestionably a good thing,” says Thomas Dunn, chairman at Orbian and panellist at the Working Capital Forum Europe in Amsterdam.
Both the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have put together new and much-anticipated regulations in the past few months to help investors and rating agencies better understand why companies are using SCF programmes.
Dunn said the rules reflect a wider trend towards greater corporate disclosure, such as corporates potentially being asked to provide more detailed data on compensation packages or scope 3 carbon emissions.
“It will be more level playing field for disclosure and this level of transparency is beneficial for the market,” added Frederic Gits, group credit officer, corporates at rating agency Fitch Ratings.
Sean Edwards, CEO of the industry body International Trade and Forfaiting Association (ITFA) reflected that “more competent providers of SCF will be at a premium with the amount of reporting and data that will be required by corporates.”
The industry has perhaps taken a collective sigh of relief that the disclosure regulations are so far not calling for the reclassification of debt – which would potentially make SCF programmes less appealing to set up.
However, what the regulations will do, Edwards says, is “put the ball in the ratings agencies’ court” in that they will now have much clearer information to make their own decisions on whether a SCF programme should be considered debt or not.
“Now agencies will be able to look at a programme’s characteristics. Are there any unusual factors? Are DPOs over industry norms,” he explained.
While increased regulation of the SCF market has been in the pipeline for a long time, panellists agreed that their introduction will only help improve transparency in a market that had been threatened by scandal in recent years.
The collapse of supply chain finance firm Greensill Capital last March did have the potential to upset the market. However, panellists agreed that SCF market had swiftly recovered.
“It was a ripple and the waters closed over it extremely quickly,” said Dunn, praising the efforts of some banks and tech firms to “minimise the chaos” around the collapse.
However, panellist Duncan Mavin - the author of The Pyramid of Lies – Lex Greensill and the Billion-Dollar Scandal – warned that future scandal is always a possibility.
“There are still ‘Greensill Capitals’ everywhere - cropping up”.
Mavin’s book was published this year and charts the rise and fall of the company’s founder Lex Greensill.
His investigations into Greensill revealed that while the company was involved in some straightforward legitimate trade or supply chain finance, it had other business that fell out of the scope of SCF.
“The sources I developed said we want you to write about this so supply chain finance isn’t tarred with same brush as Lex,” he explained.
“Some really smart sources on Greensill said they didn’t invest – it was just too complicated – 200 pages of documents for couple of basis points,” he said.
He called on delegates and the wider investment community to remain alert to new and potentially questionable business propositions.
To read more about regulation and Duncan Mavin’s investigations into Greensill Capital – click here.
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