The majority of respondents surveyed for BNY Mellon's new global paper, Overcoming the Trade Finance Gap: Root Causes and Remedies, said that centralised know-your-customer (KYC) databases would hold the most value in reducing trade finance rejection rates and closing the trade finance gap.

Successful establishment of such a database could improve small- and medium-sized enterprises' access to trade finance and save banks providing letters of credit (L/Cs) millions of US dollars each year.

Technological reality

According to BNY Mellon's report, the prospects are good for centralised KYC databases because data sharing within trusted user groups is becoming a reality due to technology advances.

Such data is extremely valuable in improving the ease of doing business and helping to drive down due diligence costs linked to the trade finance gap.

LEIs hold potential

The report highlights the significant potential for Legal Entity Identifiers (LEIs), which store details of registered companies worldwide.

Each company is assigned with a 20-digit unique identification number while the database contains all the details needed to automate both KYC and know-your-customer's-customer (KYCC) checks.

LEIs are also affordable. The cost of an LEI could be as low as US$45.6 so it is possible for even a small firm with limited resources to obtain one and improve its chances of securing trade finance.

L/C savings

If LEIs achieve critical mass, this initiative could be transformative, with global adoption potentially able to save banks issuing L/Cs upwards of US$250 million annually according BNY Mellon's study.

It concludes that with clear support for centralised databases for KYC, there needs to be an agreed industry approach to help ensure such capabilities are utilised to support global trade.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.