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International trade makes the world go round.
The extreme vastness of this industry is precisely what makes it so fascinating and, at the same time, so risky. It is easy to see how various risks can arise along the international trade process. Ranging from physical commodity trading to shipping, storage, distribution, and the final sale, the process can go wrong in many ways.
According to a PWC study across 53 countries, over 51% of companies have experienced some sort of fraud.
The ICC estimates that if even 1% of the $5 trillion global trade financing market is susceptible to fraud – and assuming only 10% of those transactions will lead to losses – this still means there will be an estimated an annual cost of around $5 billion in total business disruption.
That is why understanding risk and, more importantly, learning to mitigate that risk are some of the most important aspects of working in international trade.
To learn more about risks and risk management, Trade Finance Global (TFG) spoke with Peter Milne and Alex Gray, Director of Trade and Transaction Banking at the London Institute of Banking and Finance (LIBF).
International trade brings many inherent risks
The industry’s complexity means risks are always lurking around the corner. Each step in the intricate trade process – from physical commodity trading to shipping, storage, distribution, and the final sale – holds potential pitfalls that can jeopardise transactions.
Understanding these risks and having plans in place to address them should they arise, can make a large difference.
Gray said, “COVID-19 differentiated banks that were prepared for certain risks from those that weren’t. The banks that had those continuous emergency plans in place were able to adapt quickly.”
Traditional risks, such as credit risk (where a counterparty defaults on payment), performance risk (where a counterparty fails to fulfil its contractual obligations), and sovereign risk (involving a country’s political and economic instability), remain ever-present dangers, but newer risks are also emerging.
Contemporary issues like cyber risk have gained prominence in the industry. Cybersecurity breaches can compromise sensitive trade data and disrupt operations, posing severe threats to all parties involved.
Additionally, the increasing emphasis on ESG factors introduces new dimensions of risk that must be navigated carefully.
Gray said, “More people – even those not in the industry – are becoming more aware of those risks than they would have been in the past. It’s becoming a lot clearer that the risks in trade affect people every day.”
Given the industry’s evolving risk nature, the LIBF has released its latest certification, the Certificate in International Trade Risk (CITR).
The CITR for trade finance professionals
The CITR is a Level 4 certificate designed to equip learners with specialist expertise in international trade risk.
The program offers a comprehensive framework for professionals seeking to master the intricacies of trade risk management and equips participants with the skills to identify, understand, and mitigate these risks effectively.
The CITR program covers both traditional and contemporary risks and is tailored to meet the needs of professionals at different stages of their careers.
Gray said, “The audience, for most of our qualifications, is split into two groups. There are the people who have the knowledge already and need a way to display it, and there are the people who want to learn about it.”
For those familiar with trade risk, the CITR formally recognises their expertise, enhancing their credentials and demonstrating their proficiency to employers and peers. For newcomers, it provides a solid foundation, equipping them with the tools and understanding needed to deal with trade risks.
Notably, the CITR program focuses on practical applications, emphasising real-world scenarios and case studies, and allowing participants to apply theoretical concepts to actual trade situations.
This practical emphasis ensures that the knowledge gained is comprehensive and directly applicable to day-to-day professional activities.
Adaptability and international scope of the CITR program
The risks present in international trade are always changing, which means that a strong trade risk education offering must be able to change just as fast.
Technological advancements like blockchain and artificial intelligence (AI) are transforming trade finance and introducing new risks that must be managed.
The CITR program is designed to keep pace with these developments, incorporating the latest trends and emerging risks across a range of global markets through its updatable online delivery format.
Milne said, “The beauty about this program is that it is broken down into sections and modules, and they can be adapted, or new modules included so that those coming to do the qualification will be getting the latest input on what the current trends are.”
Developed with contributions from experts worldwide, the CITR program offers a global perspective on trade risk, allowing it to reflect the latest changes and regional differences, making it applicable to professionals operating in various markets.
Its holistic approach, practical emphasis, and adaptability make it an invaluable resource for those seeking to better understand and manage the risks associated with international trade finance.
The CITR course will be available to study from 24 June 2024. If this sounds like the certification you have been looking for, you can learn more about it here:
