Prospects for Drafting Supply Chain Finance Rules Explored

While recognizing market demand among trade finance practitioners for supply chain finance (SCF) rules, the Global Supply Chain Finance Forum (Global SCF Forum) in September 2022 determined that conditions for drafting such rules are “pre-mature at this stage”. The Global SCF Forum’s stance was explained in a “Position Paper on Drafting ICC Rules for Supply Chain Finance” released by the ICC Banking Commission.

In 2016, the Global SCF Forum first developed “Standard Definitions for Techniques of Supply Chain Finance” which covered eight core SCF techniques and one enabling framework for SCF. Since that time, the importance of SCF overall in domestic and cross-border commerce has surged and definitions for other SCF techniques have been formulated.

The Position Paper presents statistical evidence supporting the significant rise in reliance on certain SCF techniques such as receivables discounting, payables finance, loans/ advances against receivables, and factoring.

Although the advantages of SCF are widely considered to be valuable means of assisting buyers and sellers in enhancing their trade efficiency and SCF techniques offer significant promise for narrowing the world’s estimated USD 1.5 trillion global trade finance gap, the Position Paper states that “SCF is still in an early development stage, and SCF propositions have evolved differently by region and individual providers. Varying levels of evolution can be observed e.g. in terms of market awareness, product maturity, standardization (pricing, operating models, etc.), and technology.”

The Paper goes on to discuss ICC’s focus on SCF in its rule-making efforts in recent years and other international initiatives (Conventions, Model Laws, industry rules) directed at SCF. It next addresses SCF techniques definitions, guidance, and reports. The Paper then presents its findings of premature conditions for drafting ICC SCF rules.

In its conclusion, the Paper states that “industry-wide adoption of the standard definitions of SCF techniques and common practice has made considerable progress through advocacy efforts; however, wider adoption of such definitions and common practice must be evidenced before meeting the requirements of rulemaking. “

In its release of the Position Paper, ICC invited comments on the Paper from ICC National Committees, Groups, and ICC Banking Commission members. The matter of ICC Rules for SCF will also be revisited in more detail at the upcoming ICC Banking Commission Meeting on 19-20 October 2022.