Brexit impact on Investabill ETR & Credebt Exchange®

The result of last week’s referendum in Britain was shocking. Like most other financial institutions, Credebt Exchange® had an action plan in place, but did not expect we would ever have to implement it. As you know, Investabill® is a simple product that is based on traded invoices/ETR.

As with the Brexit referendum itself, there are strong arguments as to the impact of Brexit on the Originators, or sellers, of ETR. These Originators will already have been affected by the drop in the value of Sterling against the Euro. However, as Credebt Exchange® buys, sells and settles ETR ‘in currency’ on a spot basis, this has no effect on Investors.

Foreign exchange [Fx] is a complex financial area that should not be simplified in this article. Credebt Exchange® must adhere to accounting standards by reporting its Fx position and does so under what is called Translation Fx. This may impact the Exchange’s year-end trading profit as a ‘paper loss’ and should not be confused with a real or true loss.

For Investors, regardless of where the ETR debtor/obligor is located or the currency that the ETR is settled in, the 4-Tier Capital Protection remains unchanged. Moreover, Credebt Exchange® does not offer foreign exchange hedging or protection to its Members. This means that any real Fx loss (called Crystallised Fx), must be borne by the Originator. This may impact the Originator harshly in the coming months and this is the commercial reality of all Euro denominated suppliers that sell and settle in Sterling.

Specifically, if an Investor invests in Euro, regardless of the currency of any ETR they may own, they are traded and settled in Euro. This means that regardless of how severely ETR Originators are affected by Brexit, Investors remain immune. The same is true of Investors that invested in Sterling or US Dollar.

Brexit may bring new opportunities to Credebt Exchange® as Britain comes to terms with the commercial reality of its decision. A shrinking British credit market would create a vacuum that the Exchange may choose to help fill. Whilst Euro based Originators may require additional working capital from the Exchange as they seek out alternative markets away from Britain. Also, EU and British organisations may decide to relocate some or all of their operations across both jurisdictions and in doing so will again require increases in the investment/working capital that Credebt Exchange® offers.

Credebt Exchange® does not offer any opinion as to the Brexit outcome or indeed what lies ahead. It does however remain firmly committed to its continued support of all its Members and particularly to its Originators as they grapple with this unprecedented Brexit event.