Pole Star’s Global Head of Maritime Trade Technologies & ESG, Simon Ring, looks back at his predictions for the regulatory technology sector in 2021, and details what we should expect from the coming year.
While 2020 proved to be one of the most unpredictable years in so many regards, when we look at the regulatory technology landscape, 2021 seems to have been entirely predictable. This time last year I wrote that throughout 2021 regulatory scrutiny will continue to increase, the shipping industry will face decarbonisation challenges, and the digitisation of maritime trade will accelerate; all of which has happened.
1. Regulators will continue to focus on all industry stakeholders
As current affairs continue to drive sanctions, the whole maritime trade supply chain has remained firmly in the sights of global regulators, from the UN, to the U.S. Office of Foreign Assets Control (OFAC), and more. In this regard nothing has changed this year, but regulatory fines have skyrocketed, with financial institution fines reaching $100 million USD in some cases. As a result, all players must continue to stay alert, monitoring for suspicious vessel activity, shipping documentary fraud, and sanctioned entities and assets within their supply chains.
With no sign of change and regulators maintaining their stance and tactics in identifying and preventing illicit shipping activity, the sanctions landscape in 2022 will remain as heightened as today. Plus, after the global pandemic, we can’t know for sure what global event is around the corner that could trigger even tighter regulations.
2. Maritime trade digitisation will accelerate
With a new wave of technologies for processing and financing coming to the fore, more efficient and cost-saving processes are emerging throughout the industry. As a result, visibility over areas of sanctions and regulatory risks has been increased, with industry players benefiting from greater transparency across their supply chains. Yet, it has become increasingly clear this year that more holistic and effective solutions of this nature are essential to tackling some of the industry’s key challenges, including illicit trade, efficiency, and cost effectiveness.
There are also large portions of the maritime trade infrastructure yet to be tackled by RegTechs, leaving the likes of ports, canals, and other centres of shipping with procedural inefficiencies and vast areas for improvement. This next year will see a focus on ports following the path set by financial institutions, by utilising secure and scalable Distributed Ledger Technology (DLT) applications to streamline maritime transactional processes. With this, key areas of risk will be reduced, including the securing of sensitive data, the visibility of global trade flows, documentary fraud, and business relating to sanctioned entities and assets.
3. Sustainability efforts will be expanded and prioritised
While regulation is the key driver for most of my predictions, there’s a new kid on the block in the form of environmental consciousness. This has transformed my predicted decarbonisation battle into the all-encompassing challenge of accelerating end-to-end Environmental, Social, and Governance (ESG) initiatives globally. With extreme weather conditions making weekly headlines this year, alongside key events taking place, such as COP26, the impact of humanity and our trade habits have been at the front and centre of the media. As a result, governments and regulators are now hot on the tail of key players, from banks, to shipping companies, and major retailers, with no signs of letting up.
Already environmental impact disclosure regulations are being put in place, with the UK mandating climate disclosures for 1,300 of the largest UK-registered companies and financial institutions as of April 2022. Additionally, the International Sustainability Standards Board (ISSB) have created a global baseline of sustainability disclosure standards, which we will no doubt begin to see being implemented across the world very soon. With more regulators and countries on board with similar initiatives, I firmly believe that 2022 will be the deciding year for environmental impact monitoring, with net zero requirements coming into play over the following few years.
4. Collaborative end-to-end solutions will gain traction
With my predictions so far come the drivers for digitised end-to-end solutions. Building comprehensive solutions in the timeframe that the industry requires is almost impossible without collaboration. As technology providers form key partnerships to leverage and combine existing solutions, new, well-rounded programmes will be created, enabling one-stop-shop solutions for sanctions and sustainability risk. Through this, users will be able to evaluate the full spectrum of risks affecting their business with more data increasing transparency, while the use of single platforms speeds up compliance procedures, saving time and money.
5. Trade platforms will bridge the financing gap
With alternative lending and trade finance platforms emerging a few years ago now, the gap between buyers, suppliers, and investors is decreasing by the day. In 2022, I expect this gap to close even further, with more players understanding the benefits of using trade platforms as intermediaries in a transaction, from greater transparency for both lenders and borrowers, to the reliability and verification that comes with Blockchain and smart contracts.