IFA to work with ICC to make global forfaiting rules

The International Forfaiting Association (IFA) has voted at its annual conference in Prague 83% in favour of working with the International Chamber of Commerce (ICC) to transform the IFA’s Market Practice Guidelines for forfaiting into a new international standard.

Following the vote in favour, the IFA is taking the question direct to its membership to seek their backing. Members have until the end of December to register their opinion.

Backed by the ICC, the hope is that the move will raise the profile of forfaiting and increase its recognition, encouraging the practice worldwide. The standardisation provided by globally applicable rules will also aid mutual understanding between forfaiters and with clients.

The overwhelming vote in favour marks a sharp contrast with the view of members just five years ago, when a majority were sceptical about the development of the Market Practice Guidelines, fearing that they would hamper the flexibility of the forfaiting product.

That fear remains, as the development of the Guidelines with the ICC would transform them into binding rules that forfaiters would be required to follow.

The enticing upside, however, trumping such fears, is the promise that such ICC support will legitimise forfaiting as a financial instrument and provide a stamp of uniformity. That will enable forfaiting to be widely understood and provide a body of rules around which staff could be trained.

“It [the conference vote] was not a formal vote because the proposal from the ICC came after the agenda had been circulated,” said IFA chairman Lucio Matassoni. However, that will enable every member to vote – not just those who attended the annual general meeting in September.

While generally in favour, some members had mixed views. “Factoring is a very well structured market because it has rules… It’s easier for us to operate in a well-structured market, but I’m not sure whether it’s possible with forfaiting or whether it will turn forfaiting into factoring,” said one independent forfaiter who preferred not to be named.

The next step will be to put together a committee of forfaiting specialists from among both banks and independent forfaiters, as well as the ICC, in order to thrash out a draft document. A consensus behind the rules that emerge will be required before it can be forwarded to the next stage.

In total, the process is expected to take only between one and two years because the IFA’s Primary Market Guidelines already provide a comprehensive basis for discussion.