Post-Brexit export drive hampered by UK trade finance regulations, ICC warns

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Britain’s financial regulators are failing to push through vital reforms needed to unlock some £22bn in trade finance for small businesses, the UK branch of the International Chamber of Commerce has warned.

In a letter to the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority, the ICC said there was an “urgent need” for reforms to regulations governing the raising of trade finance that is key to underwriting global transactions. 

The letter, seen by the Financial Times, warned that the “antiquated” regulatory framework for trade finance offset the benefits of a new law introduced in 2023 to digitise the paperwork for exporting.

“These gains are negated by an antiquated regulatory framework that remains bureaucratic and inefficient, with laborious compliance checks and overburdensome capital requirements,” wrote ICC boss Chris Southworth to the FCA’s chief executive Nikhil Rathi.

However, the FCA and PRA both pushed back against the criticism, saying they have already proposed an easing of compliance and capital rules in key areas of trade finance.

The ICC’s intervention comes two weeks after the UK government published a trade strategy that promised to boost the country’s flagging trade performance since Brexit.

The group has been lobbying in recent years for an overhaul of the Basel 3.1 bank capital rules and expressed frustration that regulators have not moved fast enough, despite pressure from chancellor Rachel Reeves this year for them to take a more pro-growth stance. 

Southworth said moves by regulators to rework Basel 3.1 regulations ahead of an implementation deadline at the start of 2027 were too slow and insufficiently far-reaching. 

“Reforms must be accelerated and deadlines brought forward to ensure the benefits are realised within this Parliament,” he wrote. “It is time for greater ambition and a smarter, more agile regulatory framework.”

The ICC said the UK, despite being a hub for global trade finance, had fallen behind competitors including Hong Kong, India, UAE and the US, which all “have more agile and responsive regulatory frameworks”.

It wants to see a lighter touch regulatory regime, with onerous “know your customer” rules streamlined, and a lowering of the capital requirement threshold for trading SMEs. These would help reduce the £22bn UK “trade finance gap” between gap between the demand for trade finance and the amount of financing actually available, it said.

The FCA told the FT it was already considering easing its compliance rules on financial transactions. In response to Prime Minister Sir Keir Starmer’s request for ideas to support economic growth and competitiveness, the authority said in January it would discuss ways to relax “anti-money laundering” checks on smaller transactions.

“Our letter to the prime minister set out one potential way of reducing anti-money laundering costs by relaxing know-your-customer checks on small transactions,” the FCA said. “We are testing this idea with the government.”

The PRA also rebuffed the criticism, pointing out that it had proposed a reworking of bank capital requirements to loosen them on lending to SMEs and on trade finance, partly based on information provided by the ICC.

“As announced earlier this year, we plan to implement Basel 3.1 rules, including those relevant to trade finance, on 1 January 2027,” the PRA said. “This date was chosen to give firms sufficient time to implement the final rules themselves.”

“Our implementation of Basel 3.1 is designed to lessen burdens on trade finance by reducing capital requirements for some relevant exposures, and incorporates feedback provided by the ICC in the consultation period,” the authority added.

The Department for Business and Trade said its new trade strategy would help UK business succeed in the global market.

It added: “The UK plans to implement these reforms in January 2027, giving our firms certainty to plan for the future and allowing more time for greater clarity globally.”