Cash is king. Profit is an opinion.

| 23-09-2016 | Lionel Pavey |

business-361488_960_720Afgelopen week stuitten we op het bericht dat ruim 20 miljard aan liquide middelen vast zit in het werkkapitaal van toonaangevende organisaties in Nederland en België. PwC deed een werkkapitaal onderzoek en ontdekte dat er nog genoeg mogelijkheden zijn om de werkkapitaal situatie van deze organisaties te verbeteren.(Bron: creditexpo.nl) treasuryXL vroeg expert Lionel Pavey naar zijn visie op dit onderwerp.

Het is zeer belangrijk voor bedrijven om liquide middelen vrij te maken. Meestal concludeert men dat dit leidt tot een verbetering wat betreft de openstaande posten op crediteuren en debiteuren.

Echter, er zijn veel meer voordelen: Operationeel gezien leidt dit tot een verbeterde relatie met klanten, hogere waardering van de data rapportages en vaak een goed inzicht in de juiste processen, die ook efficiënter worden.

Qua geld gezien, wordt minder vreemd vermogen nodig in de vorm van leningen, bestaande leningen kunnen sneller afgelost worden, geld komt vrij voor eigen investeringen en het behaalde rendement op eigen vermogen kan hoger liggen.

Om dit allemaal te realiseren moet er een goed plan komen met directe input van inkoop en verkoop afdelingen, voorraden, crediteuren en debiteuren administraties. Hierna moet er 1 eigenaar zijn van het hele proces die input krijgt van controllers, business managers en inkopers.

Nil volentibus arduum – of – niets is onmogelijk voor hen die willen

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

Treasurer en controller; een paar apart ?

| 22-09-2016 | Jan de Kroon |

collaboration-1106196_640De treasurer en de controller zouden twee handen op dezelfde buik moeten zijn, maar de vraag is of dat in alle, of zelfs de meeste, gevallen wel zo is. Enkele uitzonderingen daargelaten, zijn de verschillen groter dan de overeenkomsten.

Kort door de bocht zou je kunnen stellen dat de treasurer zich met het financieren van de operatie bezig houdt aan de passiefzijde van de balans. De controller houdt zich dan bezig met vooral de operatie waarvoor die middelen aan de actiefzijde zijn aangewend en zorgt ervoor dat die cash ook weer beschikbaar komt voor de verschaffer van die middelen. Beiden spelen een belangrijke rol in de cash conversion cycle en als het goed is, stemmen ze hun belangen onderling goed af. De praktijk leert echter dat het in veel gevallen niet zo rooskleurig verloopt in de afstemming.

De treasury functie onderhoudt een brug tussen de financiële belangen van de eigen organisatie en ontwikkelingen op de financiële markten er buiten. Hij zorgt voor blijvende toegang tot bronnen van geld, beschermt vermogen en resultaat tegen financiële risico’s en beheert een superieure en kosten-efficiënte financiële infrastructuur. Daar is weinig op tegen te hebben; voorwaar een nuttige rol die op begrip van iedereen kan rekenen. Althans, dat zou je denken.

Toch gaat het in de relatie vaak verre van soepel. Meestal omdat ze niet alleen een andere taal spreken, maar ook elkaars wereld niet echt lijken te kennen; laat staan echt begrijpen. De treasurer heeft een groot belang bij juiste, tijdige en volledige positie informatie en verwacht die van de controller te ontvangen. Zich niet realiserend dat de controller het belang vast wel onderschrijft maar in zijn eigen business unit met een vergelijkbaar vraagstuk worstelt; hoe krijg ik in des hemelsnaam tijdig betrouwbare informatie uit de lijn en het primaire proces. Voor eigen gebruik in het veld, maar ook om een collega op het hoofdkantoor een plezier mee te doen.

Anders dan de gemiddelde treasurer is echter de controller een vogeltje dat minder goed gebekt is en mede daardoor niet altijd lijneenheden kan overtuigen van nut en noodzaak van tijdige prognoses op basis waarvan de treasurer zijn randvoorwaarden beter kan inregelen. Om dat op te lossen en betere positie-informatie te verkrijgen uit de operatie, is een aantal elementen van belang:

1. Zorg er voor dat treasurer en controller elkaar beter leren begrijpen. Dat kan door meer in te spelen op business partnership dan ‘leverancier-afnemer’;

2. Zorg voor een beter financieel economisch bewustzijn bij de lijn. Dat kan door bijvoorbeeld het hanteren van feedback en feed forward technieken maar ook door het benoemen van lokale treasury referenten in het primaire proces;

3. Zorg dat de verantwoordelijkheden scherp zijn gedefinieerd. Daarmee zorg je dat tenminste iemand zich verantwoordelijk voelt voor de juiste positie op het juiste moment;

4. Een periodieke treasury nieuwsbrief kan helpen bij het vermijden van ‘ver-van-het-bed-shows’ en het verkleinen van de communicatie-kloof.

Zo komen de handen weer op één buik.

Jan de Kroon

 

Jan de Kroon

Owner & Managing partner of Improfin Groep

Budget, een jaarlijks terugkerend fenomeen

| 21-09-2016 | Maarten Verheul |

budgetNa de vakantie is het tijd om de eerste stappen te zetten voor het budget voor het volgend jaar. Toevallig kwam budget ook aan de orde in de discussie over CF Planning. Kosten overschrijdingen in het budget verstoren de CASH. De CF Planning is grotendeels op het budget gebaseerd. Het banksaldo moet aansluiten op de gebudgetteerde balans, want maak niet alleen een budget op W & V niveau, maar ook op Balans niveau. Denk daarbij ook aan uw Investeringsbudget voor de balans, investeringen, desinvesteringen en afschrijvingen.

Pas je niet goed op je budget dan wordt je CASH slechter. Daarom is een strak budget belangrijk met maandelijkse controle van budget en actuals. Met de nodige maatregelen op de vergelijking.

Bij budgetoverschrijdingen heeft dat gevolgen voor de Winst en Verliesrekening, maar vergeet ook niet dat nog belangrijker is, dat de Cash Out scheef gaat lopen. Hoe ga je daar mee om? Dat kan als het budget een flexibel budget is en dus geen zak met geld voor het hele jaar, die je op mag maken. Na het snijden in het budget is het de bedoeling om zodoende alsnog de EBITDA voor het jaar te halen.

Dat de werkelijkheid altijd anders is en dat weet je alleen als je een begroting maakt en real met budget vergelijkt. Weten is meten. Dus binnenkort toch maar weer aan het budget 2017 beginnen!

Nog even waarom het belangrijk is, dit is wat ik schreef voor FP & A( Engelse versie):
“You can’t improve what you don’t measure” – Lord Kelvin” Therefore not only the ratios are necessary, but also monthly statements and analyses and proposals to improve. Also good analyses monthly of budget/ real/ last year, that monthly and cumulative and than again budget/real/last year. With again analyses and proposal to improve. For the analyses go to the details in the GL. Catch the evidence.”

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maartenverheultxlMaarten Verheul – Treasury Consultant

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Blockchain, financial regulatory reporting and challenges

| 20-09-2016 | Carlo de Meijer |

blockchainIt is always challenging to look for new topics worth mentioning related to blockchain or distributed ledger technology. One issue that needs special attention is financial regulation reporting under blockchain. In June, the European Securities and Markets Authority (ESMA) published a consultation (or discussion) paper “The Distributed Ledger Technology Applied to Securities Markets”,  about the relevance of using distributed ledger technology (DLT) for the securities markets (see my blog “ESMA and Blockchain: Governance, how to deal with ,…”, June 27).

They thereby raised various questions regarding regulatory reporting activities using this technology. ESMA asked how blockchain would fit within EMIR and reporting. In the meantime,  Deloitte, one of the “Big Four” professional networks in the world, developed a pilot solution for the management of regulatory reporting in a blockchain environment. This looks very promising.

The reporting challenge

One of the main challenges of financial institutions is complying with existing reporting regulations: EMIR in the EU and Dodd Frank in the US. This puts a heavy load on the industry and consumes substantial resources. The reporting infrastructure currently in place is rather complex due to the myriad of regulatory obligations on securities market participants. These requirements are process intensive and are increasingly needing additional innovative technology infrastructures.

EMIR

Under the European Markets Infrastructure Regulation (EMIR), all counterparties involved in trade transactions must ensure that the details of any derivative contract – OTC or exchange traded – are reported to a trade repository no later than the working day following the contract. And that is rather complicated. The main challenges faced by financial institutions reporting their transactions are related to data quality, cost of reporting, timing issues and more importantly, data reconciliation. Regulators are pushing trade repositories to improve the EMIR report data that they collect from reporting firms.

New regulations like MiFIR (Markets in Financial Instruments Regulation) and SFTR (Securities Financing Transactions Regulation), are planned to be enforced in the coming years. These will dramatically increase the scope and the volume of transactions to be reported by financial institutions to the competent authorities on a daily basis. This is the challenge Deloitte is trying to address through its DLT solution, which aims to support current and future regulatory challenges when it comes to OTC transaction reporting.

Dodd Frank

But also on the other side of the Ocean, the derivatives industry is still grappling with the post-trade requirements imposed by the Dodd-Frank Act including swap data reporting. Major banks are struggling to get ongoing regulatory feedback if they are reporting correctly. The Dodd-Frank Act requires all swaps (whether cleared or un-cleared) to be reported to swap data repositories (SDRs). However each of the four registered SDRs, has different system architecture and regulating technology.

Non-consistent regulation

Financial institutions have to report enormous “quantities” of data to different regulators. This creates a lot of headache, as reporting is not necessarily consistent between US and EU regulators. Often times, these reports may have a similar purpose (i.e. identifying customers and counterparties, risk exposures, details of trades) but could have different methodologies behind the calculations. Some of the reports may have different formats or definitions, which can occasionally lead to regulatory arbitrage, fragmentation, and often to confusion.

Distributed ledgers and regulatory reporting: the benefits

Distributed ledger technology has the ability to take away a number of  pain points for both financial institutions and regulators. This technology offers various new opportunities when it comes to trade, post trade and related regulatory reporting.

– The distributed ledger would represent a golden source or “single source of truth” on all financial institutions’ reporting.

– With a distributed ledger, the transaction data will be readily available to the trade repositories and regulators in a unified form and there will no longer be any need for time-consuming reconciliation.

– And thanks to smart contracts the quality and transparency of reported transaction data may further increase and the reporting costs substantially reduced.

Financial institutions

Meeting regulatory reporting requirements would be less of a problem for financial institutions. As the distributed ledger would act as both execution platform and as place to store the record of transactions, it would certainly improve, simplify and add efficiency to regulatory reporting.

As all the information would be on the distributed ledger, organisations could make their regulatory reporting obligations in a more efficient way:

– facilitating the collection, consolidation and sharing of data for reporting, risk management and supervisory purposes,

– while enlarging the scope of information available from a single source

As a result, regulatory reporting could be done automatically and in near real-time.

Regulators

Distributed ledgers could also make access for regulators to this information easier and faster. As all such transactions data and information are directly and electronically available on the distributed ledger, regulators can easily access detailed movements of assets. They could keep track of transactions and positions directly on the ledger. As a result less time-consuming regulatory reporting will be needed

Improvements in regulatory reporting

Blockchain technology could contribute to many improvements in regulatory reporting. This especially is true for reporting reconciliation and validation, while it could lead to unified protocols (in the longer term!)..

Reporting reconciliation

Through blockchain more shared data of reports may be used. As a result so-called unique trade identifiers used by counterparties to a transaction, that don’t have a matching counterpart can be more easily identified and fixed. This would replace the current costly and time-consuming system where each independent trade repository sends submitted reports to each other for reconciliation.

Validation

One of the most basic efficiencies to be gained by using distributed ledgers could be in the area of reporting swap transactions. Validating reports is currently a big issue especially in the US under Dodd-Frank’s derivative reporting. Blockchain could create “a window of transparency” into selected classes of swap positions and exposure. By building a blockchain where participants share validation information that they use to analyse reports, it would be able to more properly identify faulty reports across submitting firms.

Unified protocols

Nowadays many individual trade repositories are used, with multiple variations of message type names. As such, even though the EMIR framework requires certain data fields per trade report, the names and explanations of them can be different based on the trade repository collecting the information. By creating a shared report submission platform using blockchain technology, to be used by participants to input market data and benchmark information, that could force participants to adopt industry-wide definitions for naming and definitions of trade fields.

Multi-jurisdiction

Existing laws protecting data privacy of individuals or corporates restrict data storage beyond national borders. Adopting unified trade protocols, would enable to enlarge an EMIR transaction reporting platform based on blockchain to other regulations. Reports that for instance require ‘mark to market’ valuation, could then use the pricing data information to create their reports across multiple regulation types. Also, trades that are cross-border and need to be reported to multiple regulations could be submitted once and sent for each regulation.

Deloitte Proof of Concept

Deloitte Luxembourg has developed a proof of concept for regulatory transaction reporting in a distributed ledger technology environment. This delivers a far more efficient and lean processing of regulatory reporting using proofs of process and tokenized transaction reports, compared to the present situation.

In this innovative process of transaction reporting, counterparties of the transaction will seal and report their deal using a smart contract, whose terms include all the aspects needed for the transaction reporting. Through smart contracts, transaction reporting becomes even more transparent, reliable, fast and immutable. The regulators will be able to control and monitor the transaction data and their daily updates, which are stored in the distributed ledger. This Deloitte proof of concept will certainly be of great help in assessing the various issues on regulatory reporting raised by ESMA.

The way forward

Notwithstanding the various opportunities’ to be gained from distributed ledger technology for financial regulatory reporting, there are still a number of hurdles and bottlenecks to overcome. Given that this technology is being developed without much (non-consistent) regulatory oversight, it is still unclear how adoption of the distributed ledgers will handle international transactions and data flows.

Some regulatory bodies (such as FCA in the UK) have tacitly encouraged and embraced blockchain technology to help facilitate regulatory reporting. However, issues around a lack of standardisation and the ability of(a number of)  legacy technology systems to handle blockchain will need to be solved before distributed ledger technologies can be properly adopted en masse.

Also setting up a distributed ledger for reporting purposes under Dodd-Frank may prove to be problematic. One of the key mandates of Dodd-Frank is the creation of and reporting of all swap transactions to central databases. Any development of a ledger for reporting purposes must comply with this key statutory fact. Distributed ledgers however are decentralised!

carlodemeijer

 

Carlo de Meijer

Economist and researcher

 

Remarkable influx non-Dutch in the treasury labour market

| 19-09-2016 | Pieter de Kiewit |

This week it will be the second time I will give a guest lecture at the Hogeschool Utrecht. They offer a minor treasury management to students with a finance and economy focus. It is my role to describe the labour market they might enter. In preparation I made a quick scan of the treasury labour market and noticed that treasury in The Netherlands, especially in the junior role, is staffed by relatively many internationals. I dug in and have some hypothesises about the why and consequences.
 
The first and obvious is that treasury organisations are by nature international organisations. Possibly treasury hiring managers are not bothered as strong by the bias managers do in other job types. Treasury does not have a prominent place in the Dutch financially focused educational system. This is not different from other countries, the job type is a too strong niche. Graduates are educated in a system where controlling, accounting and audit dominate. Dutch graduates shape their career to what they want and know about, so these three job types (and “onbekend maakt onbemind”). Non-Dutch graduates in the Dutch labour market are bothered by the earlier mentioned bias and shape their career based upon what they can get: a treasury job. Hence both demand and supply strengthen the influx.

Separately from this I want to mention the difference in mentality between Dutch graduates and many non-Dutch ones. I notice that work-life balance, having a rewarding job and an employer with social responsibility are important aspects for Dutch graduates. Many senior and/or non-Dutch managers have a hard time dealing with this mentality. Graduates who came from China or India are often best-of-class, energetic and very dedicated. Work is for them their first priority. This often outweighs their different communication style, especially in more junior positions.

I don’t think there are any dramatic effects of this development. The likelihood of non-Dutch moving abroad is relatively high so a brain drain might occur. Furthermore Dutch post-graduate education like the Register Treasurer program will suffer in popularity in favour of the ACT, CTP or CFA programs. Personally I enjoy the international treasury business environment and contribute in getting the right man or woman in the job. Let’s see what will happen

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

Netting, simplifying your intercompany cash management

| 16-09-2016 | Jan Meulendijks |

nettingcashNetting is mainly used by global operating companies with a large number of subsidiaries; the reach of netting can however also include smaller company structures and save a lot of handling and costs.

A company with a number of (foreign) subsidiaries will inevitably face a lot of internal deliveries, invoices, payables, receivables between all these subs (in multiple currencies).

Of course each individual transaction can be handled on it’s own, but this results in a very large number of ledger entries, payments, transaction costs, currency handing.

A netting system in which all intercompany movements are registered (manually or, preferably, automated by your ERP system) sees to it that on the desired netting date (e.g. daily, weekly, monthly….) each sub is informed about the nett amount to pay or receive to/from the central netting account.

netting

Source: Netting – An overview

Today’s generation of ERP/ledger/treasury software will often provide a netting module. I notice however, that in daily practice only the larger multinationals use this solution. The availability of netting solutions has reached the level that also smaller company structures may profit from the netting technique and that it is worth investigating the efforts and consequences it brings to your company.

Jan MeulendijksJan Meulendijks – Cash management, transaction banking and trade professional

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How to improve your Cash Conversion Cycle part II

| 14-09-2016 | Olivier Werlingshoff |

credit-card-851502_960_720In my earlier article I wrote about how cash management can improve your cash conversion cycle and more specific the DSO. In this article I will focus on the DIO (Days Inventory Outstanding). This week I heard on the radio that successful retailers have a better DIO than other retailers. The trend to have your product made at low cost in the far East is changing. Companies tried to buy all their trade goods as cheap as possible and to reach this goal buying large quantities at a time was the best option.

What you see nowadays is that the demand of goods is changing very fast. What was “in” a month ago can already have changed. The problem you will have with a large quantity of goods is that it has to be stored and because of the change in demand it will be a problem to sell them for the price your calculations where based on.

This is what happened with a few fashion retailers. A large quantity of fashion products, enormous storing cost and because the production was made in the far East it wasn’t possible to be flexible when de demand of goods changed.

Retailers who are more successful, are looking for possibilities to be very flexible with their sourcing and look for opportunities to buy smaller quantities, which are made closer to their business. By doing so they are better prepared for a demand change. They will have lower storage cost and can change their products more than two times a year.

What is the role of the treasurer in all this?

In my opinion the treasurer has to overview the total cash conversion cycle and has to show the company (sales- and procurement department) what the financial consequences are of enlarging the cycle. A second role is that the treasurer can compare the cash conversion cycle with their competitors and also discuss this information with colleagues and the CFO.

Olivier Werlingshoff - editor treasuryXL

Olivier Werlingshoff

Owner of WERFIAD

 

Blockchain: Playing in the sandbox

| 13-09-2016 | Carlo de Meijer |

blockchainA new – but important – chapter can be added to the blockchain story. The World Federation of Exchanges , the WFE, recently urgently called for the creation of regulatory sandboxes for distributed ledger technology. This should help industry efforts “to explore and understand the impact of blockchain-based services in the capital markets”. The Federation added that regulatory bodies should collaborate with the industry on new developments to minimise unintended consequences.

Regulators enter the stage

This is a very important signal to the regulators that they should take this technology serious and needed to enter the blockchain stage in order the give regulatory clarity. Innovations like blockchain should be primaly industry driven, and “not be unnecessarily impeded by regulatory intervention”, said the WFE. (see also my Blog: “Blockchain and regulation: do not stifle ….”, published 4 April).
Collaboration with the industry will allow regulators to understand the technology, how the future infrastructure will look like and what the impact will be on the financial markets. But above all how they could most effectively perform their regulatory tasks. With the insight and knowledge obtained, regulators will be better placed on the changes necessary to evolve the regulatory environment to not only better regulate these businesses, but also continue to ensure that the legislation does not frustrate this innovation.

Regulatory sandboxes

Regulatory sandboxes have proven to be a useful tool for the wider fintech industry in various jurisdictions. “Promising innovations may be stifled and opportunities missed as firms may be unclear on whether a new product or service complies with legal and regulatory requirements, and consequently may choose not to pursue their new product or service further”.

That is where the ‘regulatory sandbox’ comes in. They have been formed to provide a safe environment for businesses to test their innovative products. These sandbox allow firms to experiment with fintech while providing the appropriate safeguards to contain the consequences of failure for the customers.

New entrants to the financial services market, can use the sandbox to test products, services, business models and delivery without first needing to meet all of the normal regulatory requirements and incurring the considerable costs of putting in place the complex structures and processes to successfully apply for regulatory authorisation.

This should allow appropriate collaboration and exchange of information between industry and regulators.

Regulatory sandboxes: an overview

Since this year these regulatory sandboxes have been extended to distributed ledger technology in a number of countries including UK, Hong Kong, Singapore, Australia and Abu Dhabi. And now also other regulators are thinking about introducing such a testing environment.

  • Regulatory Sandbox Open for Play in the UK

The UK regulator FCA launched a regulatory sandbox early May this year. This is a next step for the FCA, the Financial Conduct Authority as part of Project Innovate, which aims to boost competition and growth in financial services. Goal is to help banks and other financial service providers reduce the time it takes to bring innovative ideas to the market.

The FCA’s sandbox will allow business to test disruptive technologies including distributed ledgers in a live environment “without immediately incurring all of the normal regulatory consequences”. The FCA however said that consumer protection will be a significant focus, and will be considering appropriate consumer safeguards.

Application

Fin-techs could apply to the UK’s regulatory sandbox from 9 May till 8 July. The second ‘cohort’ will have an application deadline of mid-January 2017.this year

The FCA uses an inclusive approach to defining potential users. That means anyone from a start-up to a multinational can benefit from the sandbox. For authorised users and suppliers, the FCA has identified  three key tools to businesses on a case-by-case basis (individual guidance; waivers; and, no enforcement letters). Unauthorised business will use the sandbox predominantly to facilitate testing without the need for full authorisation from the FCA.

Accessing the FCA sandbox is however not straightforward. A firm must meet a number of key eligibility criteria including: be in an in-scope business; demonstrate a genuine innovation; deliver a consumer benefit; demonstrate a need for the sandbox; and, be ready for testing. It should also be noted that the sandbox will not be available for activities which fall outside of the Financial Services and Markets Act 2000. For example, payment service providers and e-money issuers already potentially benefit from the lighter touch regimes in the PSRs and the Electronic Money Regulations.

  • Hong Kong Monetary Authority (HKMA) plans to create a regulatory sandbox

HKMA last week announced plans to create a regulatory sandbox, where start-ups and banks can test solutions and express their ideas before applying for authorisation. The sandbox allows banks to conduct tastings and trials of newly developed technology such as blockchain on a pilot basis. Within the sandbox, banks can try out their new fintech products without the need to achieve full compliance with the HKMA’s usual supervisory requirements.
In a related initiative, the HKMA has set up a ‘fintech facilitation office’ with its own dedicated e-mail account to act as a platform for the exchange of ideas between the regulatory body and banks and tech firms. Industry players, such as banks, payment service providers, fintech start-ups, the HKMA, etc. can get together at this facility to brainstorm innovative ideas, try out and evaluate new fintech solutions, conduct proof-of-concept trials, and gain an early understanding of the general applicability of creative solutions for banking and payment services.

  • ASIC released consultation paper on regulatory sandbox

Also Australia plans a regulatory sandbox for fin-techs technology innovations including blockchain. The Australian Securities and Investments Commission (ASIC) released a consultation paper on this issue, detailing proposals for a testing ground for innovative robo-advice providers and other similar services.  It also highlighted ASIC’s views about some regulatory options already open to fin-techs under the current law.

The sandbox will allow new entrants to test a service for up to 100 retail clients for up to 6 months without holding an AFSL. The service can only relate to advice and “arranging” for dealing, catering primarily to robo-advisers.  Product issuers such as payment facility providers and marketplace lenders are excluded, as is advice about general and life insurance. Start-ups will not need to apply to ASIC to be admitted to the sandbox (unlike comparable sandbox arrangements in other jurisdictions), but may need to be vetted by a “sponsor”, such as a hub, co-working space or venture capital firm.

A final regulatory position is expected by December.

  • MAS proposes regulatory sandbox for fintech

Early June, the Monetary Authority of Singapore (MAS) released a consultation paper detailing guidelines for a ‘regulatory sandbox’. With this sandbox approach the MAS hopes to encourage and help firms experiment with innovative solutions to support their development, and bring fintech solutions to the mainstream.

Any interested firm can adopt a sandbox to experiment within a well-defined space and duration; the MAS will provide the appropriate regulatory support and will relax certain legal and regulatory requirements. This sandbox will however have to meet certain evaluation criteria (technologically innovative; benefit consumers and address a significant problem or issue; intention and ability to deploy the solution in Singapore on a larger scale; report to the MAS on the test progress; major foreseeable risks have to be assessed and mitigated; etc.).

In April, the country expressed its desire to become the leading hub in Asia for blockchain-technology and fin-tech start-ups. MAS aims to provide a responsive and forward-looking regulatory approach that will enable promising fin-tech solutions to develop and flourish. The sandbox will help reduce regulatory friction and provide a safer environment for fin-tech experiments.

  • Abu Dhabi FSRA seek blockchain start-ups for fintech sandbox

The Financial Services Regulatory Authority (FSRA), the independent regulatory authority of Abu Dhabi’s newest financial free zone, has released a consultation paper in which it detailed its plans to create a sandbox environment for fin-tech under which start-ups would be allowed to work under a flexible regulatory framework for up to two years. The FSRA is seeking to promote the development of blockchain start-ups as part of a drive to create new efficiencies in the regional financial sector.

The FSRA’s proposal would seek to limit start-ups accepted into the program to those that “promote significant growth, efficiency or competition in the financial sector”. To give some clarity where they are focusing on the paper goes on to cite examples of technologies that fit this description.

“The advent of robo-advisers that offer lower costs, simplicity and real-time portfolio analytics and monitoring; or leveraging on the application of blockchain technology and distributed databases to facilitate price discovery, smart contracts, settlement of financial transactions, etc that may lead to safer [and] better products, and higher productivity and growth.”

Benefits for startups

The benefits of these regulatory sandbox are manifold. Both start-ups, the whole industry and regulators may profit.

There ought to be clear benefits :

  • First of all from a time and cost point of view.

Most immediately, the ability of businesses to safely test their products and also be engaged in direct dialogue with the regulator without first having to expend time and money on a speculative application for regulatory authorisation should relieve start-ups of high costs they often cannot afford.

  • From a compliance point if view

At the same time, the businesses can adapt their offerings to better ensure regulatory compliance.

  • From an investor point of view

Once through the process, and assuming the road-testing has produced a successful outcome for the business, the task of attracting investors should be simpler as a major unknown will have been removed.

  • From a financial industry point of view

The regulatory sandbox may help to foster innovation in financial services and that is good for the whole industry and their customers.

  • From a regulatory point of view

With the insight and knowledge obtained from that role, the regulator will be better placed to assess the changes necessary to evolve the regulatory environment to not only better regulate these businesses, but also continue to ensure that the legislation does not frustrate the competition that the FCA wishes to promote.

Global regulatory collaboration

Given its global reach, the level of complexity and the interconnectedness of financial markets, and the level of complexity and the interconnectedness of financial markets, regulatory bodies worldwide should collaborate to ensure that no different regulatory environments are created and regulatory arbitrage is excluded. National and foreign regulators must coordinate to create a common principles-based approach for blockchain oversight A special role should be given to bodies like the IOSCO and the G-20 Financial Stability Board.

 

carlodemeijer

 

Carlo de Meijer

Economist and researcher

 

Financiële markt in Egypte

| 12-09-2016 | René Schilder |

sphinxAfgelopen weken hebben er verschillende artikelen in de internationale kranten gestaan over de lening die het IMF aan Egypte wil verstrekken. Daarbij zagen we ook de Egyptische minister van landbouw Nederland bezoeken om te leren van de Nederlandse expertise op het gebied van land- en tuinbouw. De ontwikkelingen op de financiële markt in Egypte krijgen ook meer aandacht, dus we kunnen concluderen dat het interessant is om even stil te staan hoe de lokale valuta daar is georganiseerd. Na een eerdere devaluatie in maart van dit jaar, wordt er nu alweer een volgende verwacht.

Wat zijn de kenmerken van deze munt?

De EGP is een valuta die alleen gehandeld kan worden in het land zelf (onshore). De centrale bank regelt deze markt via zogenaamde auctions. Lokale handelaren (exchange companies) en banken die een vergunning hebben, kunnen hieraan deelnemen. Deze exchange companies bedienen alleen klanten die niet met banken handelen. Bij een verzoek om US dollars te kopen en EGP te verkopen moet sinds kort wel worden aangegeven wat de achtergrond van die transactie is.

De officiële koers die gehanteerd wordt is 8,78 per USD. Door de economische crisis is de vraag naar buitenlandse valuta heel groot en zien we op de parallelmarkt (exchange companies) ook een koers van 12.5 per USD. Officieel mag de maximale marge 15 piaster zijn (8.93) volgens de regels van de centrale bank. Vorige maand heeft de overheid harde maatregelen aangenomen om een betere controle te krijgen over die parallelmarkt. Een aantal vergunningen van exchange companies is ingetrokken en er zijn flinke boetes ingesteld voor degenen die zich niet aan de regels van de centrale bank houden.

Banken die buiten Egypte zijn gevestigd, zijn uitgesloten van de onshore markt, zij kunnen alleen maar NDF handelen (offshore). Handel je met een bank die buiten Egypte is gevestigd, dan kun je wel exposure afdekken maar vindt er geen fysieke levering (settlement) plaats. Op de afloopdatum wordt het verschil in koersen tussen de onderliggende contracten verrekend; er zal geen levering van onderliggende valuta’s plaatsvinden.

Gezien de ontwikkelingen op de markt voor valuta in Egypte is het heel verstandig om goed te kijken met wie je zaken doet. Naast het grote aantal regels voor exporteurs om toegang te krijgen tot de markt in Egypte, is het nu dus ook cruciaal om naar de financiële kant te kijken. Welke marktpartijen zijn toegelaten en hoe kan ik mijn valutaconversie regelen? De verwachting is dat de lening van het IMF ook tot een aanpassing zal leiden van het huidige beleid van de centrale bank met betrekking tot de lokale munt (EGP). De marktverwachtingen gaan uit van een flexibele wisselkoers na implementatie van het IMF programma.

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reneschilder1René Schilder – Co Owner 2FX Treasury BV
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Fed Rates – Prospects of USD/INR Carry

| 09-09-2016 | Rahul Magan |

ir“Federal Reserve Rates and INR Reverse Carry”. As we understand that Federal Reserve Chairman Janet Yellen turning Hawkish and asking for 25 Bps increase in September 2016. If we look carefully then Fed vice Chair Fisher also suggested the same and at the same time most prominent Bond Trader – Bill Gross also suggested increase of 25 Bps in September and 25 Bps in December. If this would happen then Overnight Rates of USD would move to 1% and this would be closer to Australia which is 1.5% in $ terms.

We should also appreciate the fact that both Central Bank of Australia and Reserve Bank of India are moving towards Accommodative Monetary Policy. This way they would decrease the interest rates as to stimulate their economy. In that regards there are millions of thoughts but in my view Accommodative Monetary Policy is a big suicide as Japanese is a perfect example in that regards. They are doing QQE since last 2 decades but at the end need to depend upon Helicopter Money to stimulate their economy?? We all understand that Helicopter Money is nothing but Explicit Debt Monetization by BOJ for Govt of Japan.

There are multiple reports which suggest that Helicopter Money has already started in the form of Helicopter Drops by BOJ for Govt of Japan. This would surely create Reverse carry for USD/INR. We all understand that Indian Central Bank – Reserve Bank of India is now following Accommodative Monetary Policy henceforth there is a big pressure on RBI to cut present Repo Rates of 6.5% by at least 100 Bps to 5.5%. This would surely decrease the carry of INR for all Foreign Institutional Investors (FII), Foreign Portfolio Investors (FPI) to invest funds in India.

One more fact which matters is the growing relevance of Indonesia where in 10 Y G Sec is trading at 7.7% and Singapore who would like to increase overnight rate to 1.35 %. If this would happen then all the funds which are scheduled to India would invest in United States who is offering 1% , Australia 1.5% , Indonesia 7.7% and upcoming Carry Currencies like Singapore offering 1.34%.

We also need to appreciate the fact that Carry Traders needs big return and specially at that time when Japanese , Swiss , Europe is in negative and also big banks like Royal Bank of Scotland , Bank of Ireland and Deutsche is asking big clients to pay negative collateral. Sitting today we are having “Quest for Yield Hunt”.

Reserve Bank of India should be well aware of the fact that if they would reduce Repo Rate by 100 Bps to 5.5% then probability of having INR moving towards Reverse Carry is 100%. This won’t appreciate INR rather would depreciate the same as less $ would park in India. We also understand that this would also increase the reliance of Indian Corporates on External Commercial Borrowings (ECB) and there would be very less funding covering Foreign Currency Non Resident Bonds (FCNR) in India which would have reciprocal impact on both USD/INR Interest Rate Swaps (IRS) and Overnight Index Swaps (OIS)

On the 5th of September 2016 Bank of Japan Governor Kuroda said there is still a big for Qualitative Quantitative Easing (QQE) in Japanese Economy however this time Negative Interest Rates would play a very important role in that regards. Keeping all the aforesaid factors, Currency Traders are advised to take care of the same while making trading bets involving INR. Currency Traders are advised to have Options Structures to hedge their exposures.

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Rahul Margan fotoRahul Magan – Chief Executive Officer Treasury Consulting LLP

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