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Securitisation in supply chain finance to see bumper 2023 thanks to automation

31 March 2023

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Salvatore Rosato, Head of Capital Markets, Intertrust Luxembourg, and Constantinos Kleanthous, Director, CSC Global Financial Markets, provide insights on the industry trends driving supply chain finance—and technology solutions to reduce its complexity.

Supply chain finance (SCF), also known as reverse factoring, is crucial in keeping commerce moving for multinationals and their suppliers—particularly in these testing times. But it is also a complex financing solution, often processing thousands of trades each day.

When finance flows seamlessly throughout a supply chain, companies thrive rather than survive, creating scope for increased product development, sales, and even job creation.

The Covid pandemic and the Ukraine-Russia conflict had a huge impact and caused acute disruption to the global supply chains. This is also reflected in the significant growth of the SCF volumes in 2021 and 2022: global volume of SCF increased by 21% to USD 2,184bn between 2021 and 2022 and in the same period funds in use also rose by 20% to USD 858bn.[1]

This is reflected across Intertrust Group’s client portfolio too, with healthy, steady growth in SCF securitisation mandates over the past 12 months, especially in Luxembourg. Our portfolio figures in Luxembourg show a significant increase in size: up by 145% in 2022, and by a further 115% the first two months of 2023. And this growth is expected to continue.

Factors that helped propel this in Luxembourg were our specialised Capital Markets solutions dedicated to SCF, including a robust, fully-automated process for daily transactions, our proven track record, as well as the new Luxembourg’s Securitisation law, which came into effect in March 2022. This new law could provide an important boost for the local market. It allows for greater flexibility, offering many options for structuring the securitisation of SCF receivables.

Since the law was put in place, Luxembourg has become an even more favoured European financial hub for the domiciliation and administration of SCF platforms.

With this in mind, we see SCF as being one of the fastest-growing asset classes to watch this year. And based on our client activity we are confident that Luxembourg, Ireland, and Italy will be especially active marketplaces for supply chain finance administration.

Industry trends impacting supply chain finance

When the movement of goods gets delayed—as we have witnessed throughout the Covid pandemic, the energy crisis, Brexit, rising freight prices, raw material shortages, and the conflict in Ukraine—any consequential delay in funding flows has a compound effect on all parties.

These supply chain challenges to the global movement of goods, along with growing pressure on sustainability, have collectively made most products and services more costly.

Rising interest rates have also driven up the cost of traditional corporate lending, making it less competitive.  But supply chain finance has been able to offer a helping hand.

It is very unlikely that trading companies will go back to the pre-pandemic days of being reliant on a smaller number of suppliers, in one region, or “just-in-time” inventory strategy.

This means supply chain finance will have added complexity as the number of parties in the supply chain and the number of daily trades across multiple jurisdictions and currencies increases.

The more proactive, post-pandemic “just-in-case” inventory trend is likely to remain for 2023 alongside greater reliance on supply chain finance. That is because, in our experience, supply chain finance is benefiting from the shift away from paper-based models to SCF automation tools provided by platform developers and securitised by platform administrators.

Overcoming SCF pain points with automation and skilled talent

For clients in this asset class, SCF’s growth is not a singularly positive thing—high volumes, high complexity, and stress on capital and human resources means there is a need, and opportunity, for innovation.

Let’s paint a picture of trade complexity. A single mandate on an SCF securitisation platform will easily perform 500 trades per day, and for others this figure is higher. With growing numbers of mandates, it is clear that a supply chain finance securitisation platform will help clients focus on what they do best.

Technology solutions can vastly improve how SCF is managed. But with such complexity underpinning these mandates, investors understandably look for proven track records.

Why Intertrust Group?

  • CSC completed its acquisition of Intertrust Group in November 2022. Together we offer a global solution for subsidiary governance, fund strategies, and capital markets transactions, and navigate the ever-changing compliance and regulatory environment that our clients face. With capabilities in more than 140 jurisdictions, we are capable of doing business wherever our clients are—and we accomplish that by employing experts in every business we serve.
  • We offer a proprietary automated solution for the administration of SCF securitisation platforms with a multi-year track record of mandated multi-currency daily trades.
  • Dedicated SCF administration and domiciliation teams with expertise in the main jurisdictions, including Luxembourg, Italy, and Ireland.
  •  Our accountants ensure multi-currency trades flow seamlessly.
  • Integrated compliance monitoring for AML and KYC requirements.
  • Investor-relations software ensures client reporting obligations are updated and delivered on time.

Our clients are already seeing the benefits of using our platform:

  • Robust, fully-automated process for daily transactions, that can support thousands of trades on a daily basis. This includes covering new issuance and acquisitions, partial repayment, and redemptions. This removes the need for human intervention and reduces both operational risk and transactional business interruption.
  • Standardised and automated transaction monitoring that screens counterparties automatically on an ongoing basis and facilitates the processing of high-volume transactions in compliance with AML and KYC requirements.
  • Tailor-made support for late shifts with trained accountants enables our clients to be reassured that we can assist on multi-currency platforms.
  • Our investor portal also keeps our clients’ investor-relations obligations running smoothly and up-to-date.

[1] World Supply Chain Finance Report, 2023 Page iv