4. Regulatory Developments

The evolving framework of regulatory requirements in areas like ESG, supply chain finance, capital-raising and accounting, presents an additional challenge to companies, including banks. However, regulators worldwide recognise that the plurality of reporting norms imposes a significant compliance burden on companies, and some are working to standardise taxonomies and disclosure requirements.

SUSTAINABILITY STANDARDS: REGULATORY PUSH INTENSIFIES

In June 2023, the International Sustainability Standards Board (ISSB) issued its inaugural standards – IFRS S1 and IFRS S2 – which prescribe a standardised language for companies to use in disclosing the impact of climate-related risks and opportunities on their bottom line. By aiding disclosure, it is hoped that the standards will enhance investors’ confidence in the sustainability practices of corporates.⁵²

Analysts can also expect more disclosures involving corporate ESG data. Yet, while it has become more common to report Scope 1 and 2 emissions as companies comply with standards like ISSB, Scope 3 emissions remain a challenge.⁵³

Because they cover the length and breadth of a company’s supply chain and its end users, Scope 3 emissions are harder to measure; a lack of data is a core challenge, which can, in turn, affect accountability and delay change.

But this is set to shift, says Ashok Devidas, Head of Supply Chain Finance, ANZ, driven by the ongoing standardisation of market requirements, making compliance more manageable and facilitating tangible advancements in sustainability and supply chain financing (see next section). This shift is crucial, considering research indicates that companies, despite allocating resources to comply with diverse ESG benchmarks globally,⁵⁴ grapple with translating their well-intentioned sustainability commitments into actionable results⁵⁵even as they collect data at every node of their supply chain to satisfy disclosure norms.

ACCOUNTING STANDARDS: GREATER TRANSPARENCY IN SUPPLY CHAIN FINANCING

Over the next few years, supply chains will be affected by influential regulations mandating accounting disclosures from corporates as policymakers work to clear the air around the reporting of supply chain financing arrangements.

Among these is the Financial Accounting Standards Board’s move to require U.S. companies to disclose details under GAAP of their supply chain finance arrangements, including payment terms, introduced in 2023.⁵⁶⁵⁷ The decision, which has been emulated by the International Accounting Standards Board for reporting periods in 2024, enhances transparency by mandating and standardising disclosure norms.⁵⁸⁵⁹

“For several years, supply chain financing was not reflected in accounting, so its effects were not visible to the market. We support more transparency, and these developments are a move in the right direction.”

Ashok Devidas – Head of Supply Chain Finance, ANZ

Clear disclosure of Green house gas emissions in scope of the net-zero commitment

PROTECTING SMALL AND MEDIUM-SIZED BUSINESSES

Regulations in some markets are seeking to shield small and medium-sized enterprises (SMEs) from the debilitating effect of late payments, which will have an impact on supply chains. As discussed in the previous edition of this paper, Australia’s small business ombudsman directs a maximum payment term of 30 days from receipt of invoices from small businesses,⁶⁰ a move that drove the Payment Times reporting scheme, which requires large businesses and government enterprises to report their payment terms and times for small businesses.⁶¹

In September 2023, the European Commission proposed a new regulation, mainly to protect SMEs, which proposes a single maximum payment term of 30 days (down from the current 60-day term) for a majority of commercial transactions; restricting the extension of payment terms for certain transactions; and mandating debtors to automatically pay interest on late payments.⁶²With more governments considering similar regulations too,⁶³⁶⁴ corporates will need to factor in the latest developments in the regulatory landscape while negotiating payment terms with their suppliers based on where they are located.

If adopted, such regulations will affect the ability of contracting parties to arrange commercial transactions – including making decisions around providing commercial credit through extended payment terms⁶⁵– and will be a part of the regulatory landscape that will need careful monitoring in the coming months.

BANKING REGULATIONS: FROM BASEL III TO BASEL IV

This is a major regulatory development that will affect banks and their capacity as trusted advisors and providers of financing and liquidity across supply chains – and will prove a net benefit to supply chain financing. Basel IV is expected to be transformative for corporates when it comes to accessing finance as the regulation seeks to overhaul global bank capital requirements and change the institutional lending space.⁶⁶

The staggered rollout started in January 2023 in countries including Australia,⁶⁷ with the UK set to go live in mid-2025⁶⁸ and the EU phasing in some elements from 2025.⁶⁹ This disparate application across markets will initially affect the competitive environment for banks compliant with Basel IV (or Basel 3.1, as it is also referred to) as they will need to adhere to more stringent capital conditions, which will, in turn, affect borrowing costs for clients. However, banks globally will ultimately be subject to these standards, and that should enhance the overall health and resilience of the global financial system.

As banks which support global trade like ANZ adjust to capital requirements mandated by new regulations, they are also supporting clients by educating them about the array of regulatory changes – helping clients to understand how these changes affecting banks and the broader supply chain financing sphere will impact the cost of financing and access to it.

“The more you educate people about the vast array of changes, the more comfortable they will get with the changes which ultimately increases adoption and understanding.”

Damian Kwok – Head of Trade Portfolio and Capital Management, ANZ

TAKING DIGITAL TO THE NEXT LEVEL

Regulators are also looking to address other risks affecting supply chains, such as the growing sophistication of cybercrime (with most countries enacting legislation to tackle this⁷⁰), money laundering, modern slavery, and the increasing risk of sanctions against governments, corporations and individuals. There is also a global push by policymakers to tackle greenwashing⁷¹ and aid the transition towards sustainable supply chains⁷²with the help of technology.⁷³This has brought opportunities for fintechs as banks increasingly partner with them to tackle issues like cybersecurity.⁷⁴

“As a new strategic relationship builds up with banks bringing their expertise in terms of trade, finance, risk management and compliance, and fintechs offering innovation, digital capabilities and agility, this collaboration will become an important avenue for the growth and development of supply chain finance,” says Jessica Iacobucci, Head of Trade & Supply Chain Sales, Australia & PNG, Institutional Banking, ANZ.

Cybersecurity and global legislation

However, as collaborations grow so has the need to comply with an evolving framework of regulations. For companies and banks alike, navigating the evolving regulatory landscape and staying compliant can be daunting. Here too, digitalisation can help. AI can assist, for instance, with the heavy data demands of Scope 3 disclosures by quickly processing terabytes of data to facilitate disclosure and enhance transparency across the supply chain.

“As regulators enhance their focus on digitalising the trade system, they will create efficiencies in the supply chain, enable greater transparency, reduce bottlenecks and ultimately help goods to flow safely, efficiently and sustainably.”

Ashok Devidas – Head of Supply Chain Finance, ANZ

Countries have set up digital economy agreements for more efficient data transfers and smoother digital trade cooperation,⁷⁵ and to get around rising digital protectionism,⁷⁶which curbs the flow of information between trading partners and hinders access to opportunities.

The first of these pacts, the Digital Economy Partnership Agreement (DEPA), was signed in July 2020 by Chile, New Zealand and Singapore. In December 2020, other pacts followed including a deal between Australia and Singapore that contains a range of initiatives to reduce barriers to digital trade, including new commitments on e-invoicing and e-payment, and smoothing cross-border data flows for business purposes.

However, as more operations go online, businesses are increasingly vulnerable to cybercrime and it is not always easy to keep pace with criminals whose methods constantly evolve. This makes cybersecurity an ever-higher priority for all, with governments around the world ramping up efforts to protect against an increasingly adverse threat environment.⁷⁷

Another permanent feature of the supply chain landscape is the advent of regulations designed to address specific market needs and ultimately increase transparency across the system, which will benefit everyone involved despite the many challenges. As Kwok says, “There are so many complex parts and varied interests. Banks and financiers are just one element, but you also have customs authorities, corporates, shipping companies – it goes on. So, you need a regulator to pull everyone together and push hard for change.”

Building a strong and supportive framework, Kwok adds, requires that all actors work together. And when each stakeholder plays their part, more transparent, efficient and sustainable supply chains should be within reach.

Cyber attacks are becoming more frequent

“Getting ahead of the cycle is difficult because sophistication is increasing by the day, which is why banks like ANZ are dedicating considerable resources towards addressing this challenge in order to help protect our communities.”

Damian Kwok – Head of Trade Portfolio and Capital Management, ANZ

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