PODCAST | Running the distance: Why trade finance needs smarter regulation and broader voices - Trade Treasury Payments

Marathons are not won in the first few miles. They are a test of endurance, pacing, and the discipline to keep momentum no matter what happens on the course. Trade finance, as the International Chamber of Commerce’s (ICC) Banking Commission sees it, requires the same long-distance mindset. Rules must endure beyond economic cycles, frameworks must remain practical as business models evolve, and advocacy with regulators must be measured in years rather than moments.

That was the backdrop for a conversation in Singapore between Trade Treasury Payments (TTP) and Tomasch Kubiak of the ICC Banking Commission. Over breakfast, Kubiak reflected on the Commission’s legacy and outlined its present focus on the rules that underpin global trade, the principles shaping sustainable finance, the data that underwrites advocacy, and the final regulatory hurdles of Basel 3.1. 

A rules-based approach to building a common business language

The ICC was founded in 1919 by business leaders who called themselves the “merchants of peace.” Born in the immediate aftermath of the carnage from the First World War, the founder’s idea was simply that if businesses from different countries could trade together under shared rules, commerce could help prevent the fractures that led to conflict.

More than a century later, the Banking Commission still develops the frameworks that make cross-border trade possible. Its best-known contribution, the Uniform Customs and Practice for Documentary Credits (UCP), provides detailed rules for letters of credit. Others, like the International Standard Banking Practice (ISBP) and demand guarantee rules, extend this framework to other instruments as well.

Rather than replacing national law, these rules instead provide a shared language for private actors. “Commercial law exists everywhere,” Kubiak said, “but it does not describe the instruments in detail. ICC rules are not law, they are practices that private actors agree to follow. That creates a common language.”

That language matters because it makes trade predictable. A bank officer in São Paulo and a corporate treasurer in Singapore can refer to the same definition of a letter of credit. Where interpretation diverges, counterparties can turn to the ICC’s opinions and arbitration mechanisms to help resolve disputes. The intensity of those discussions speaks to their importance and Kubiak recalled debates on UCP interpretation where “experts argued almost like gladiators over the right reading of a clause.”

For practitioners, ICC rules provide resilience, which is a particularly comforting haven amid today’s sea of economic and trade uncertainty. They have survived wars, crises, and digitisation, and they remain the backbone of international trade finance.

Embedding sustainability principles with practicality

Having established common rules that give trade finance its resilience, the ICC is now applying the same ethos to sustainability. The challenge now is to create shared principles that banks of all sizes can adopt without fragmenting the system.

The ICC Banking Commission has taken up this challenge with its Principles for Sustainable Trade Finance, a framework developed over four years with input from more than 200 members across banking, corporate, and environmental sectors. Inspired by the green bond principles, it sets out how transactions can be assessed against sustainability criteria, with clear safeguards and definitions.

“The idea was to create an even playing field,” Kubiak explained. “The methodology had to be robust enough not to be seen as box-ticking, and practical enough to apply at both global and regional banks.”

In June, Commerzbank, ING, Santander, and Standard Chartered became the first banks to endorse the framework. Together, they account for roughly a quarter of global trade by volume. The challenge now is extending adoption. Smaller banks, especially in emerging markets, may not have the capacity to process sustainability frameworks designed for 20-year project finance deals. The ICC’s solution has been to ensure the principles scale. A 30-day letter of credit should be able to fall under the same approach as a long-term export finance facility.

This balance between rigour and flexibility is what makes the framework workable as it is designed to be embedded in the day-to-day mechanics of trade finance.

The ICC trade register

If rules provide the common language, data provides the evidence. Since 2009, the ICC Trade Register has collected information on defaults and losses across instruments. After 15 years, it now demonstrates with clarity what practitioners have long argued: that trade finance is a low-risk asset class.

The exposure-weighted loss given default rate for import letters of credit is just 0.1%, and for export letters of credit it is 0.02%. In practical terms, Kubiak explained, “99.98% of the time, the instrument fulfils its purpose.” As a comparison, the delinquency rate on US residential mortgages in the first half of this year was 1.79%, many order of magnitude higher than the trade instruments.

For regulators calibrating capital requirements, these numbers support the case for proportional treatment, which would allow banks to free up capital for lending rather than locking it against exposures that history shows are safe.

But the register also faces a fairly significant challenge in terms of its sample size as currently, only around 23 banks contribute data. Regulators accept the methodology as robust but note the limited representativeness. Expanding participation is therefore critical. The annual maintenance fee is €15,000, which one ICC leader once described as “the equivalent of one and a half letters of credit.” For large banks this is negligible, but for smaller ones it can be a hurdle. The ICC is exploring partnerships with multilateral development banks to widen participation and strengthen the dataset.

“The register allows us to have this conversation with regulators in the first place,” Kubiak said. “Without it, the debate is abstract. With it, we can show evidence aligned with Basel principles and backed by history.”

Basel 3.1

As Basel 3.1, the latest round of global banking rules, is reaching its final stages, regulators in Europe and elsewhere are issuing technical standards that will shape how trade finance exposures are treated for years ahead. The ICC’s priority has been to ensure regulators understand the mechanics of trade finance since a miscalibration could raise capital requirements unnecessarily, reducing banks’ ability to finance trade, and have considerable knock-on effects for the real economy.

“There was fear that trade finance would become a scapegoat,” Kubiak said. “We had to clarify what trade finance really is, and what it isn’t.” To address this, the ICC created a formal definition for trade finance, clarifying that, “Trade finance is a financial service facilitating the real economy, enabling businesses to finance, monetise, risk mitigate and settle trade flows, thus supporting the movement of goods and/or the performance of services regardless of maturity, both internationally and domestically.”

This may appear basic, but, by articulating trade finance as a facilitator of the real economy, it fills a gap and helps to anchors regulatory discussions in economic function rather than abstract exposure.

The broader point is that Basel 3.1 is not a finish line. It is one stage in a longer race. Advocacy will need to continue jurisdiction by jurisdiction, reminding regulators that trade finance’s low-risk profile deserves recognition.

Pacing for the miles ahead

Looking ahead, the ICC Banking Commission will measure success not only by how many banks endorse sustainable trade finance principles or contribute to the trade register, but also by how quickly the industry can move away from paper and towards digital. Just as importantly, it must engage the next generation of professionals.

“Younger colleagues need to know the Banking Commission is open to them,” Kubiak said. “Trade finance is changing, through sustainability, digitalisation, and global shifts. That creates opportunities for new voices.”

Like a marathon, the journey is long and requires steady discipline. The ICC has already covered remarkable ground since its founding in 1919, from codifying the UCP to building a global trade register. Today’s priorities (sustainability, data, proportionate regulation, and digitalisation) are the next miles in that race.

The finish line is not yet in sight, but that is the point. He marathon of trade finance, is about endurance and finding a way to keep pace and adapt to whatever conditions exist that day. For the ICC Banking Commission, the challenge is to ensure the industry keeps running in step with the needs of the global economy.