While major banks have been ending correspondent bank relationships due to concerns over anti-money laundering and counter financing of terrorism (AML/CFT) compliance, HSBC has introduced new risk distribution options that could help slow the apparent disintegration of correspondent networks.

The bank says it has created offerings to attract new investors such as pension funds, asset managers and insurers to take part in trade finance deals.

Trade risk distribution

HSBC’s trade risk distribution options would allow the bank to meet the trade credit demand of a client when it exceeds an individual financial institution’s risk limits.

Traditionally one bank would request another bank to risk share, whereas the new HSBC offering invites other investors to participate in a transaction.

Investment prospects

Attracting investors to trade finance as an asset class is a relatively new market development spearheaded by an emerging cohort of smaller alternative trade finance providers, so the participation of a major bank could expand the market significantly.

Global trade receivable finance operations at HSBC generated over US$550 billion of documentary trade finance in 2015 for its customers.

Financial crime

The Asian Development Bank (ADB) estimates that the global trade finance gap is currently around US$1.6 trillion.

Some 45 per cent of banks according to ADB said in 2016 they are ending correspondent banking relationships due to the cost or complexity of compliance with regulations designed to tackle financial crime.