Expert briefing: Financial education - train hard to fight easy

Professional training and education are designed to concentrate minds. Doctors need to be able to diagnose and treat diseases. Engineers are tasked with designing brakes that work. Bankers have to be prudent, flexible and trustworthy in dealing with other people’s money. 

In trade finance that means getting trade documentation right, operating in a global environment and serving each individual client effectively. After all, not only the banks’ revenue and balance sheet depend on it, global trade does too.

Few things, however, really concentrate minds like a global crisis. The Covid-19 pandemic has left markets scrambling. Global supply chains have been severely disrupted. Central banks are pumping liquidity into largely unresponsive economies hit by the double whammy of supply and demand shocks. And banks are looking hard at their operational resilience as they grapple with sudden and unprecedented changes to working regimes. 

Sharpening performance

Trade finance banks are juggling many urgent priorities at once. They are also, however, starting to prepare their staff and systems for the anticipated bounce-back in business volumes.

No-one knows what the economic effects of locking-down economies for an extended period will be. What is certain is that financial services staff and systems will face intense pressure to do more with less. Once the dust settles, they will also have to demonstrate to regulators that their businesses really are resilient. 

That won’t just mean ‘can you run an operations centre remotely?’ or ‘do you have resilient core systems?’. It will go much deeper and wider to resilience in its broadest sense. Regulators will want banks to be able to demonstrate that individual employees are knowledgeable and functioning well in their roles, with minimal supervision. They will want to see that there are fail-safe hand-over regimes in place. All banks will have to be able to show that the loss of certain staff does not mean losing institutional capability and expertise. 

Like the forester who tries to ensure that he spends more time sharpening his axe than hacking at the trunk of a tree, thoughtful banks are already starting to put targeted, effective and audited training regimes in place.

Trade finance in a global crisis: this time it’s different

This is not a financial crisis in the way that the 2007/2008 crunch was. Banks are squaring up to the challenges they face with stronger liquidity and capital positions – thanks to the much stricter financial regulatory requirements of the past 10 years. They also benefit from a temporary easing of some of those same regulatory requirements, such as levels of counter-cyclical capital buffers.  

However, bank strength does not mean that counterparty risk has gone away. Global supply chains have suffered extreme shocks in the face of Covid-19. Even if borders had not been closed, lock-downs in many Western European countries mean a slump in demand for goods. Shoppers who would usually be out in the sunshine buying summer wardrobes, for example, are stuck at home. Normal market functioning has also stalled. This is because the essential trade documents that are normally couriered around the world much faster than the physical goods they support, are being delayed. 

Many exporters and importers will suffer deep wounds from this – despite government support – and particularly in emerging markets. Export credit agencies are assisting, but a lot of the heavy lifting will have to be done by commercial banks – particularly when restrictions are lifted and demand spikes. 

Digital differentiates

When that spike in demand comes, banks will need to be prepared. They will also have to be prepared for searching questions from regulators around the world about what the crisis has meant for trade, for the global economy and for the way that banks serve it. Being able to readily answer those questions and meet the needs of clients means starting to train trade finance staff now.

One of the benefits of a globalised and digitalised world is that banks can gather a lot of market and internal business knowledge from transactional data flows. They can run models and contact staff remotely to help understand what the current crisis has meant and might mean. That should help them rise to the regulatory challenges.

What, however, about meeting training needs? In a crisis, the institutional and market knowledge of experienced staff is of paramount importance. Many have seen other crises and other market dislocations. However, even when social distancing is not required, it is hard to share local and individual knowledge beyond immediate teams – and in a coherent way. More fundamentally, it can be hard for senior staff to understand exactly what it is that they need to explain to others – even when they are dealing with them face to face.

That is why formalised online training, such as offered by specialist organisations like The London Institute for Banking and Finance, is needed. Learning devised and monitored by their faculty of industry experts, ensures that staff who cannot be overseen really know what they are doing. And it relieves senior bank staff from the burden of trying to share their knowledge; particularly at a time when they have many other challenges to grapple with. 

Out of sight, out of mind?
Not everyone is convinced of the value of online training – even now. One of the concerns is that it does not always engage students in the way that classroom-based, or on-the-job learning does. After all, there is no teacher or supervisor picking up on individual needs and ensuring that learners keep up.

However, over the past ten years, as more organisations have used e-learning at scale, firms have been able to benchmark its performance.   It is not just a fall-back, or a make-do. It allows people to engage in depth with a subject at their own speed and at a time that suits them. If, for example, a student hasn’t understood a topic, they can replay the unit – without embarrassment – until they do understand it. It is easy to find further information to read around a subject in depth.

Courses can also be nuanced to respond to existing levels of expertise.  Another advantage – often overlooked – is that an online course has no ‘teacher’s pet’. If they have been well-designed, they are fully inclusive. Students are assessed solely on the basis of their performance. That helps firms build the sort of well-trained, diverse workforce that boosts productivity. 

Coming out the crisis stronger – and leaner
 Productivity will be paramount for banks and their clients in the months ahead. They will all have to do much more with much less as the global economy stutters.

In trade finance, no jurisdiction has yet fully implemented the ICC’s rules on e-documentation. Most, for example, do not recognise e-documents as a title to goods in the way that they do a physical bill of lading. That will change. There will be a permanent shift to digital. At the same time, compliance requirements and costs will not go away. 

All of this means that banks will need staff who can quickly move to a digital environment and keep up with fast-changing regulatory and economic demands. Successful trade finance bankers will need to be ready to serve the needs of clients quickly, flexibly and fairly in what may prove to be a bigger and harder fight for the well-being of the global economy than the global financial crisis of 2008.  Now is the time to redouble the focus on training and be prepared.