What is Risk Management?

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| 30-12-2020 | by Kendra Keydeniers |

Risk Management

From a Treasury perspective, Risk Management is the practice of planning for unexpected expenditures. It is primarily about mitigating and avoiding the impact of the changing financial environment on the company’s cash flow objectives.

Risk management is a broad term, though. Depending on the context of a company’s operations, it can also have very different meanings, so it is also useful here to point out the forms of risk management that fall outside the scope of Treasury. This is not an article about governmental regulation, earthquakes, political instability, or the threat of potential new business competitors. These forms of risk are the concern of other departments within the corporation. This article is about risk management specifically within the context of Treasury.

What does a Risk Manager do?

Before describing the various types of Risk Management, let’s focus on what a risk manager really does. Many company-wide policies and procedures are fundamentally shaped by the risk manager. He or she first assesses the types of risk that could exist, the range of possible outcomes, and the impact that these risks may have on the company. The risk manager then informs leadership and decides how to measure and report on risk factors, and how to implement policies. The implementation process will require extensive stakeholder management and will have to give clear guidance as to who is authorised to act, and in what scenario. Regular policy review, along with a heavy dose of stakeholder management, is an essential part of Risk Management.

Within Corporate Treasury, the two most prominent areas of Risk Management are FX (foreign exchange) risk, which concerns foreign currency, and interest rate risk, which concerns the cost of borrowing. These two areas do not comprise the entire field of Risk Management, however. The following four additional types of risk should also be mentioned: commodity, credit, liquidity, and operational risk. The potential impact of each of these types of risk depends on many variables. For example, a small company, which does business only in its local currency and has no international presence, has of course no FX exposure.

Examples of Risk Management activities

Although the list below is by no means exhaustive, the following examples illustrate the primary issues that concern corporate risk managers:

  1. Foreign Exchange Risk. An oil company buys Saudi Arabian fuel and sells it to car owners in Germany. The purchase happens on February 1st, and payment is done in US dollars. The fuel is shipped, but it takes 4 weeks to bring it to the petrol stations in Germany where it will be sold in Euros. Within these four weeks, the exchange rate between the US dollar and the Euro can swing in all directions for all kinds of reasons. Most companies decide to mitigate this risk. To do so, a company enters into a contract with another party, who agrees to pay a set rate in US dollars for the Euros that the company receives when selling the petrol. Such contracts are known as “financial instruments”. The particular financial instrument just described is known as an FX hedge. Typically, the company pays a fee to a bank, also known as a “premium”, and the bank brings together the buyers and sellers of such contracts together. In return, the company secures the US dollar value of its goods. There are many variations on such hedges, which as a whole are known as financial “derivatives”, but their complexity is beyond the scope of this article. Note: As an alternative to this FX hedge, the company could convince Saudi Arabian suppliers to accept Euros, but this is not always easy.
  1. Interest Rate Risk. A chemical company builds a business case for a new product and decides to start a new factory to manufacture the product. It is expected that the product will be sold over 10 years. The factory costs €1 billion, and the company decides to borrow €500 million from the bank at an interest rate of 3%, which it will pay back over 5 years. The price of this product is then set based upon this interest rate. What if interest rates go up during these 5 years, and the company wishes to extend the loan? The bank may only agree to extend at an interest rate of 8%, for example. This is a major risk. To mitigate it, the bank may offer a financial instrument which hedges this interest rate risk. Alternatively, the company may decide to put more of its own money into the project, or it may seek out other parties who are willing to fund the project for 10 years at an acceptable rate.
  1. Commodity Risk. For many companies, the cost of their products depends on commodities, such as oil, grain, plastic, or other raw materials. Once again, hedging may be a good strategy. Alternatively, a company can decide to work with large stocks of raw material bought at a time when prices are low, or it may even buy a company that produces its raw material. (This second strategy is known as “backwards integration”.) Finally, the company may simply choose to pass increased commodity prices onto consumers by increasing the price of its finished goods. Note: We are all affected by changing commodity prices, thanks to the law of supply and demand. Aircraft carriers demand enormous quantities of jet fuel, for example, which is a form of highly refined kerosene (or paraffin oil). Demand for jet fuel means demand for kerosene, which means that the price of kerosene will go up for everyone.
  1. Credit Risk. Sometimes, customers fail to pay their bills. This is known as credit risk. There are several ways to manage this risk. Sometimes, companies assess the creditworthiness of customers in advance, in order to avoid non-payment. Companies also commonly purchase credit insurance, where the insurer pays if the customer does not. Sometimes, companies simply ask the customer to pay in advance, which is known as “prepayment”. When large amounts of goods are traded directly between two parties, credit risk is always an issue. There is entire field of banking, called Trade Finance, which is designed to mitigate this risk. Most commonly, banks issue a letter for credit, which is a form of assurance to the seller that the buyer possesses the funds needed to purchase the goods. In addition, banks may also offer payment guarantees.
  1. Liquidity Risk. This is the risk that a company cannot fulfil its short-term obligations, such as employee salaries. (A shortage of cash is known as a shortage of “liquidity”.) The first way to mitigate liquidity risk is to have a robust cash flow forecast. Nevertheless, if liquidity issues arise, a bank might offer short-term credit. There are also other alternatives. Assets may be sold to generate cash quickly, and then leased back from the purchaser. Payment terms with suppliers can sometimes be extended, or prepayment asked of clients. Finally, there are companies that pay for the right to collect money that is owed to other companies. (This is known as “factoring”.) In essence, these factoring companies buy your invoices, which allows you to receive more quickly the money that you are owed.
  1. Operational Risk. Within a treasury department where large sums of money are handled, many aspects of the operation can go wrong. The biggest operational risk for most companies is the possibility that their information technology (IT) infrastructure might fail, due to software bugs or viruses. Such an outage would make payments impossible. Just as computer hackers can corrupt IT systems, so too can employees steal or commit fraud. Indeed, we have recently had many cases of “CFO fraud” around payments. The best way to mitigate this risk is to invest time in the development of sound internal policies and money in the proper IT infrastructure.

Frequently asked Risk Management questions

  • Q: If FX risk management is done well, how can it be that companies still report losses based upon FX fluctuations?
    Most of the time, mitigating risk costs money. Most often, FX risk management solutions are bought from banks. Furthermore, such solutions do not usually offer 100% mitigation. (Indeed, 100% mitigation is very expensive.) Consequently, companies do still sometimes report losses based on FX fluctuations, despite their risk management efforts.
  • Q: Who should be responsible for failures in risk management?
    This is a question where companies often struggle. Risk can be mitigated, but it usually cannot be avoided entirely, which makes it difficult to assign responsibility to any one person. For example, sugarcane harvest results depend on the weather: the amount of sugarcane and the quality of the harvest vary. Quantifying this risk, modelling it, structuring a solution, and buying hedging products is the expertise of a treasurer. Nevertheless, it is difficult to assign responsibility for a failure to predict changes in the weather.
  • Q: What are Chinese walls?
    A “Chinese wall” refers to the segregation of duties within organizations, especially regarding payments. This is extremely important, not only in Treasury but also in the entirety of most organizations. The one who enters a payment should not be the same person who authorises the payment. If done well, a Chinese wall prevents fraudulent behaviour.
  • Q: What about insurance against risk?
    Some of the solutions described above are insurance products. Indeed, some corporations employ a designated insurance manager, who sometimes reports to the group treasurer. However, there is no industry standard as of yet.

Risk Management summary

Risk and cost are related: buying comprehensive and robust risk-mitigating products, such as hedging products (also known as “derivatives”) and insurance, and investing in sound internal policies and operational controls will mitigate the company’s risk. In turn, this will make the company’s results more predictable. Yet, overinvestment in such products is extremely costly. Each type of risk is manageable in various ways, and every organisation must decide for itself how much risk it is able and willing to take.

Check out these treasury topics as well:

What is Treasury?

What is Corporate Finance?

What is Cash Management?

What is Risk Management?

What is Working Capital Management?

In the following days and weeks we will highlight the above treasury topics. Stay tuned!

Kendra Keydeniers
Community & Partner Manager at treasuryXL

What is Working Capital Management?

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| 29-12-2020 | by Kendra Keydeniers |

Working Capital Management

Working Capital Management (WCM) is short-term financial planning. It is the set of tactics employed by Treasury to meet an organisation’s cash needs over the upcoming 12 months. Technically speaking, “Working Capital” is defined as a company’s current assets minus its current liabilities. If the value of the assets that can be sold within the next 12 months, i.e. the company’s “current assets”, exceeds the value of the liabilities that are owed within the next 12 months, the company has a working capital surplus. If not, the company has a working capital deficit. In essence, Working Capital Management comes down to a simple question: based on what I own, can I meet my financial obligations over the next 12 months? Obviously, your ability to pay the bills is a measure of your financial stability. Working Capital Management concerns the instruments and measures at your disposal to manage your financial stability.

How and why do you manage your Working Capital?

Paying bills with the cash that you have is cheaper than paying with what you can borrow from the bank, because to borrow money you must pay interest. This is not good for profitability. On the other hand, having too much cash in your current account is, certainly with historically low interest rate levels, also not appealing. The optimal amount of cash varies per company, but either extreme – having no cash or having too much cash – is not optimal. Let’s elaborate.

Often the term “Cash Conversion Cycle” (CCC) is associated with Working Capital Management (WCM). The Cash Conversion Cycle is primarily about the time delay between cash flowing out of the company to pay suppliers and cash flowing into the company from customers. What are the payment terms of your supplier? How long are products in stock? How long does it take to convert raw materials into finished products? How long does a client take to pay? All of these questions can be answered by a variety of specialists: sales, procurement, accounts receivable, et cetera. Increasingly, the corporate treasury department either helps to optimise WCM or is allowed to take the lead.

Regardless of the specialists involved, it is the job of Corporate Treasury to optimise cash flows based on the company’s needs and in light of its overall financial strategy. Corporate Treasury manages the levels of cash in current accounts, arranges short-term funding with banks, and invests excess cash. To accomplish its goals, there are a variety of financial instruments available, and the treasurer’s financial toolkit is still getting bigger. One such tool is known as “factoring”. In factoring, another company pays you for the right to collect money from your customers, who owe you money. In essence, factoring companies buy your invoices, which allows you to receive more quickly the money that you are owed. The factoring company receives a premium and takes over the process of collecting the money. Leasing is another example. Rather than buying the assets that a company needs, it may lease them instead. As a result, the company needs less cash and improves its Working Capital.

Examples of Working Capital Management activities

Treasurers with a good sense of business can help their colleagues to improve the company’s WCM metrics and the financial health of the company, both on the asset and on the liability side. Sometimes they deploy financial instruments. More often, they help with changes to the fundamental process of Working Capital Management.

Here are some examples:

  1. Sometimes, global retailers that negotiate payment terms with their suppliers, in which they agree that payment is due only when goods are sold in their stores. The manufacturer of jeans in the Far East is paid only when the customer in Europe makes the purchase. This eliminates the usual delay between cash going out to the supplier and cash coming in from the customer.
  2. When a company needs cash fast, it can consider giving clients a discount when they pay in advance. A plumbing company might not send invoices to customers, for example, but give its staff a portable payment terminal to receive payment from the customer on the spot. This speeds up the company’s Cash Conversion Cycle.
  3. As mentioned above, leasing is a common way of increasing a company’s Working Capital. Rather than buying the assets that a company needs, it may lease them instead. More complex transactions used to generate cash quickly involve the use of the assets that a company already owns. In “sale-and-leaseback” deals, a company sells its assets in exchange for cash and then rents the assets back.
  4. A more obvious way to increase available cash is to enforce the company’s credit policy. To do this, the company will hire and train credit managers, who professionally call clients and ask them to obey payment terms.

Frequently asked Working Capital Management questions

  1. Q: Why do most companies not have a WCM department?
    Working Capital Management entails a variety of tasks covered by various departments. Information from each is required to do proper WCM and soliciting cooperation from all departments is often difficult. Legal must cooperate with sales to define proper payment terms. Sales and Accounts Receivable (AR) should discuss how to communicate with clients and structure deals. Treasury should coordinate with AR regarding how cash forecasting looks. Only together can these departments manage the company’s Working Capital effectively.
  2. Q: When does WCM get extra attention?
    When revenues and profits are good, rigorous Working Capital Management is often found unnecessary. When the company is sold or profits fall, the importance of cash increases and time is invested in proper WCM. Usually, there is no one department or functional area of a company that is responsible for WCM. For this reason, it is sometimes overlooked until cash flows become tight.
  3. Q: Why is inventory management mentioned in relation with WCM?
    High inventory levels have a negative impact on cash. When a company has a lot of goods in inventory (both parts and finished goods), payment often has been made, and cash levels will have sunk. (Note: The obvious way to improve such a situation is to lower inventory. This often proves difficult, however, because many stores rely on a full stock of inventory in order to make sales.)

Working Capital Management summary

Working Capital Management is always important for companies, and at certain times it is vital. Cash flow can make or break a company. Without it, you cannot pay the bills, and yet WCM is often difficult to implement. On the one hand, there are many organisational measures and financial instruments that can enable successful WCM. On the other hand, the interdepartmental nature of WCM, and the lack of consistent support for WCM initiatives from company leadership hinders a stable and consistent WCM practice.

Check out these treasury topics as well:

What is Treasury?

What is Corporate Finance?

What is Cash Management?

What is Risk Management?

Kendra Keydeniers
Community & Partner Manager at treasuryXL

Recruiting a Treasurer and The First Impression – Trap

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| 28-12-2020 | treasuryXL | Pieter de Kiewit

They still exist, the hiring managers who totally rely on their first impressions. “At handshake I already know if it is a good candidate”. I am no Don Quichote but will continue my battle against this statement. Not only because we are not allowed anymore to shake hands due to covid-19. This statement radiates being impolite, dumb, not showing an interest in who you work with and wasting time.

I found new inspiration in this article of recruitment guru Lou Adler.

I will let you read the whole article by yourself but elements I took is that preparing for an interview with a potential successful hire should include assessment of abilities (soft, hard and other skills), the fit (with the culture, colleagues and manager) and of course motivation (in doing the job, not landing it). He further describes that content driven interviewers (techies) tend to focus too much on abilities and the first-impression-interviewers do not control their “stupid switch”. I will not do a comprehensive analysis but want to put your attention on the following two aspects:

  • First, in my perception many in the current corporate treasury population can be described as highly skilled. They did well at university, got high grades and enjoy the analytical. The ones that have an above average impact, the ones that go up the ladder in treasury but also other functions, did well because they were a good fit. They understood colleagues and were able to get their point across. They bridged the gap between treasury and the rest of their organisation. As many hiring managers are treasury-techies, I would like to invite them to increase their attention to the fit. It could make your team so much better.
  • Second, I see bad recruitment decisions based upon the stupid switch in organisations where hiring managers do not understand the importance of treasury. Hiring managers who do not spend (a lot of) time with the person they recruit. Hiring managers who are included in the process because “somebody has to interview the candidate and has to make the decision”. I do understand that decision makers have to be included but perhaps they are better informed with CVs or assessment reports. Also there is a task for us, the treasury community, in showing how important the job should be. Spread the word!

Let me finish up with emphasizing that the interview is only one of many components of a good recruitment process. CV screening, references, assessments and a cover letter all bring information that can be the foundation of a good recruitment decision. We like to use the Treasurer Test in our recruitment. In the article Lou Adler describes not only the theory but also helps you, with practical steps, professionalising your recruitment.

Do you know people who cannot switch of the “stupid switch”?

What do you see?

I look forward to your input,

 

 

Pieter de Kiewit

Owner at Treasurer Search

 

 

 

Wanted! Cash Management Talent | Dutch speaking

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25-12-2020 | Treasurer Search | treasuryXL

Treasurer Search is op zoek naar talent, Cash Management talent!

Taken Cash Management Talent

In het team wordt gewerkt met job rotation: alle leden kunnen elkaar rugdekking geven. Als junior zal je je verantwoordelijkheden gaandeweg uitbouwen, afhankelijk van je progressie, talent en voorkeuren. Je zal het operationele contact zijn voor banken en collegae van andere finance afdelingen. Zonder uitputtend in de beschrijving te willen zijn, zal je je richten op forecasting, settlements, reporting, FX & derivaten transacties, intercompany funding en diverse verbeteringsprojecten.

Ideale Cash Management Talent

Je bent de ideale kandidaat als dit je tweede of derde loopbaanstap is in corporate treasury en je een HBO of academische opleiding hebt afgerond. Treasury consultants en bankiers (zij die zich richten op corporates) zullen ook overwogen worden. Als persoon ben je hardwerkend, leergierig en neem je verantwoordelijkheid.

Onze Opdrachtgever

Iedereen die wel eens de weg op gaat kent onze opdrachtgever. De organisatie is internationaal, professioneel en stabiel. Dit geldt ook voor corporate treasury waar de afgelopen jaren voortdurend de organisatie is verbeterd en diverse talenten zijn opgeleid.

Arbeidsvoorwaarden en Proces

Het maximale vaste inkomen voor deze positie is €55K, de gewenste kandidaat zal waarschijnlijk lager starten. Voor passende kandidaten die interesse hebben is er verdere informatie beschikbaar. The Treasurer Test might be part of the recruitment process.

Contact person

Kim Vercoulen
T: (0850) 866 798
M: (06) 2467 9339
E: kv@treasurersearch.com

 

APPLY HERE

 

What to know about receiving a money transfer

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24-12-2020 | treasuryXL | XE |

Just like sending one, receiving an international money transfer is quick and simple. Here’s what you’ll need to know about receiving your money transfer.

Need to send money overseas? You’re in luck. There is no shortage of resources available to help people send money electronically across national borders. And it’s understandable: this process is often cumbersome and difficult to understand.

Now, if you’re receiving the transfer? Not so much. There is very little out there to help recipients. It’s almost like companies assume that recipients are financially savvy and they already know everything, or that receiving a money transfer couldn’t potentially be confusing for a first-time recipient.

At Xe, we assume nothing. We’re here to offer step-by-step assistance for both senders and recipients. Our mission is to complete international electronic funds transfers as efficiently as possible, and make the process as quick and easy as possible for anyone who needs to do it.

We’ll go into further detail below, but here are the basics of what you’ll need to know as someone expecting an international money transfer:

  1. Have a bank account

  2. Provide the necessary information

  3. Wait for the money to transfer

  4. Watch your bank account

1. Have a bank account

A significant number of readers took a deep breath when they saw that requirement. About one in ten American adults do not have a bank account. They only use cash or they only use prepaid debit cards. These alternatives are usually just fine, but an electronic money transfer is different. No cash changes hands, and the paying party usually cannot add funds to a debit card.

Most of these people are able to open bank accounts. The minimum requirements are not terribly burdensome. Instead, fear keeps many of these people from opening accounts. They are afraid their credit scores are not high enough or they are subject to a bank account levy order.

Yes, many bank accounts, especially interest-bearing accounts, have minimum credit score requirements. These minimum requirements are also rather high. However, many banks also offer no credit check bank accounts. Typically, these banks do not run ChexSystem reports either. So, the current bank does not know if you owe money to another bank. These accounts usually have rather high fees and other stipulations. But, even if you have the world’s lowest credit score, a bank account is probably available (though bank account levies are another matter).

2. Provide the necessary information

Many people do not like to share their personal information with anyone for any reason. We understand that attitude; there are quite a few scammers out there. However, if you want to receive an money transfer, you’ll need to give the sender some information. We can’t transfer money if we don’t know where to transfer it, after all!

The requirements vary according to the transfer platform. If you’ll be receiving an Xe money transfer, your sender will need:

  • Your name and address. Use your legal name (the name connected to your bank account) and not the name you go by. Furthermore, most financial institutions require recipients to have physical addresses as opposed to post office box numbers. This is for security and anti-money laundering purposes.

  • Your country. A no-brainer, right? But there are two Chinas and two Koreas. Some people live in breakaway republics, such as South Sudan and Tigray, that are not universally recognized. Many also people live in disputed zones which are claimed by multiple countries, such as the India-Pakistan border. Bottom line: the country must match the sender’s financial institution’s records.

  • Your bank information. We need to know it so we know where to deposit the money. This data usually includes:

    • Your bank name

    • Your bank account number

    • A SWIFT or BIC code (which you can get with a quick Google search)

If possible, try not to send this information via unencrypted cell phone text message. Use email or something more secure. And don’t forget to double-check your information, especially account numbers. It’s very easy to transpose digits or make another minor error that could have a big impact. If that happens, you’ll need to wait even longer to receive the transfer, and odds are, that’s not what you want.

3. Wait for the money to transfer

Domestic transfers are usually almost instant. We get nervous if PayPal takes more than thirty seconds to move money. A few international transactions are almost that fast, but most take more time.

Currency conversion accounts for much of this delay. There are many different currency markets that convert U.S. dollars to Mexican pesos, Italian liras to Russian rubles, and so on. These markets charge different fees. Frequently, the transferring financial institution looks for the highest price, adds that fee to the transaction, uses a lower-priced market, and pockets the difference.

Not so at Xe. Our international funds transfer fees are entirely transparent. Nothing happens under the table. So, you know how much money you are going to receive before the sender actually sends it.

Network infrastructure also accounts for some delays. Many banks have excellent services for their local customers, but they do not handle very many international transfers. These transfers are often risky, largely because of the aforementioned international recognition and boundary issues.

Once again, these delays are usually not a problem at Xe. International funds transfers are all we do, so we know how to handle them efficiently and securely (another reason why international transfers can take a little longer—we’re ensuring everything is secure before we transfer).

Generally, Xe transfers require between 1-4 business days to complete (though most transfers are complete within 24 hours, and some take just a few minutes). That’s about the same speed as a domestic PayPal bank transfer.

But you won’t need to resort to guesswork. When your sender confirms their transfer, they’ll be given an expected completion date, and update that time estimate if necessary by email. The sender usually has the most up-to-date information, so check with them!

4. Watch your bank account

International transfers are entirely electronic. We typically send alerts to senders when we begin processing transfers, if there are any hiccups, and when the transfer is complete. We normally also send completion alerts to recipients, assuming we have a good email address.

The best way to know when a transfer is complete is to watch your bank account activity. Occasionally, recipient financial institutions place holds on these transactions, but that’s between you and your bank.

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

Visit XE.com

Visit XE partner page

 

 

 

New MiCA regulation further tightens regulations for crypto companies (Dutch Item)

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23-12-2020 | treasuryXL | Enigma Consulting |

Op 21 november 2020 verliep de deadline waarop cryptodienstverleners, die in of vanuit Nederland opereren bij toezichthouder DNB, geregistreerd dienden te zijn om hun crypto-activiteiten te mogen voorzetten. Bijna vijftig partijen hebben een aanvraag ingediend bij DNB, maar tot op heden heeft DNB ‘slechts’ dertien partijen in het openbaar register bijgeschreven. Het volgende reguleringskader staat echter al in de steigers: de zogeheten Europese verordening ‘Markets in Crypto-Assets’ (MiCA). Deze verordening moet vanaf 2024 voor alle lidstaten van de EU gaan gelden. Erik van der Leer van Enigma Consulting beschrijft welke impact MiCA kan hebben op de bedrijfsvoering van (crypto)bedrijven.

MiCA zal de van toepassing zijnde regelgeving voor cryptoplatformen verder uitbreiden en aanscherpen. Onder MiCA zullen ook verschillende cryptodiensten die voorheen buiten het reguleringskader vielen moeten voldoen aan Europese regelgeving. Zo definieert MiCA drie verschillende soorten uitgevers van crypto-assets en zeven verschillende cryptodienstverleners. Naast  de cryptodienstverleners die zich vandaag de dag reeds dienen te registreren in Nederland worden daarmee ook andere cryptodiensten binnen bereik van de wetgeving van de Europese lidstaten gebracht.

MiCA typeert aanbieders van een of meer van de volgende diensten als cryptodienstverlening:

  1. Diensten waarbij advies wordt gegeven over crypto-assets;
  2. Diensten waarbij orders in crypto-assets worden ontvangen en uitgevoerd;
  3. Diensten waarbij crypto-assets in de markt geplaatst worden;
  4. Diensten waarbij orders in crypto-assets worden afgewikkeld door derde partijen;
  5. Diensten waarbij crypto-assets in bewaring worden beheerd;
  6. Diensten waarbij een handelsplatform voor crypto-assets wordt geëxploiteerd;
  7. Diensten waarbij crypto-assets worden verhandeld tegen fiatgeld of andere crypto-assets.

Hoe staan de eisen uit MiCA in verhouding tot het in Nederland geldende registratie-regime?

Onder MiCA moeten cryptodienstverleners, net zoals dat geldt binnen het DNB registratieregime, een bedrijfsplan opstellen, procedures inrichten voor de integere bedrijfsuitoefening, de betrouwbaarheid en geschiktheid van bestuurders en beleidsbepalers laten testen door de toezichthouder en over een transparante zeggenschapsstructuur beschikken.

Deze verplichtingen worden uitgebreid met o.a. de volgende zaken:

  • Het aanbrengen van een strikte scheiding tussen het vermogen van de dienstverlener en het geld in beheer van de klant;
  • Het opstellen van een uitbestedingsbeleid, waaronder het formuleren van een herstel- en exitplan;
  • Het opstellen en naleven van een, aan de wettelijke eisen voldoende, klachtenprocedure;
  • Het beschrijven van de geïmplementeerde IT-systemen en beveiligingsprotocollen;
  • Het voldoen aan strike eisen omtrent marktmisbruik en insider-trading.

Ook zullen cryptodienstverleners een cliëntenacceptatiebeleid moeten opstellen voor diensten waarbij crypto-assets worden geplaatst, alsook moeten voldoen aan verschillende transparantievereisten voor diensten waarbij crypto-assets worden verhandeld tegen fiat geld of andere assets. Naast deze zaken zal ook een eigen vermogenseis gaan gelden van minimaal € 50.000.

Wat zal de impact zijn van MiCA op de Nederlandse cryptosector?

Zoals blijkt uit de bovenstaande zorgt MiCA voor een flinke toename in regeldruk binnen de Europese en Nederlandse cryptosector. De cryptodienstverleners dienen niet alleen hun bedrijfsvoering verder aan te passen, maar dienen ook over een aanzienlijk minimum eigen vermogen te bezitten. Met name voor de kleinere Europese spelers in de markt kan dit potentieel een grote impact hebben.

Desalniettemin brengt MiCA ook voordelen met zich mee voor de Nederlandse cryptosector. Het huidige Nederlandse registratieregime staat binnen Europa immers te boek als relatief streng, waardoor de Nederlandse cryptosector zijn concurrentiepositie ten aanzien van Europese concurrentie heeft zien verslechteren. Doordat MiCA het Europese speelveld nu gelijk maakt verbetert de internationale positie van cryptodienstverleners in Nederland. Ook beoogt MiCA dat een verkregen autorisatie gepassport kan worden naar andere lidstaten, iets dat momenteel niet mogelijk is. Omdat Nederland al relatief strenge eisen stelt zullen Nederlandse registratiehouders naar alle waarschijnlijkheid beter voorbereid zijn op de additionele MiCA-vereisten.

Ten slotte zorgt MiCA ervoor dat de uitgifte van crypto-assets en het verrichten van crypto dienstverlening een duidelijk en universeel reguleringskader krijgt binnen Europa. Alhoewel de hieraan verbonden eisen streng zijn en wellicht een negatief effect zullen uitoefenen op de bedrijfsuitvoering van sommige spelers in de sector, brengt MiCA ook zekerheid voor de markt én de consument. Het ontvangen van een MiCA-autorisatie zal daarmee ongetwijfeld deuren openen die tot op heden gesloten waren en nieuwe commerciële kansen met zich meebrengen voor de Europese en Nederlandse cryptosector.

15 blockchain trends in 2021: Expect the unexpected

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| 22-12-2020 | Carlo de Meijer | treasuryXL

The year 2020 has almost come to an end. It has been a historically tough year for many. A number of events happened that were not included nor expected in my – and many others – 2020 blockchain trends. Especially the COVID-19 pandemic that not only intensified trends that were already underway, but also generated new trends.

It is a tradition to focus my last blog on what to expect for the next year. We will look at the top trends we may expect for the blockchain and cryptocurrency landscape to watch out for 2021 and beyond? So, how will the landscape be look like for blockchain technology in the years to come?

1. Global blockchain market size will exponentially grow

What was not forecasted is that blockchain technology exploded in popularity this year. Businesses from a multitude of industries showed a growing interest to adopt this technology for enhancing their business processes. The COVID-19 pandemic accelerated the digital transformation drive in many areas, especially via the use of blockchain or distributed ledger technology.

As a result the global blockchain market size is expected to expand from USD 3.0 billion in 2020 to USD 39.7 billion by 2025, at an effective Compound Annual Growth Rate (CAGR) of 67.3% during 2020–2025.

“Expectations for 2021 are positive” “It is estimated that next year, at least 25 percent of the Forbes Global 2000 will use blockchain as a foundation for digital trust at scale.” 

2. Covid-19 will further accelerate blockchain transition

We will see a reorientation of the various blockchain projects. Experts predict that 90% of blockchain projects will require replacement within a year.

That is because most are ignoring key features such as tokenization, smart contracts, and decentralised consensus. Next to that, the pandemic has caused more realistic and pragmatic approaches to blockchain initiatives specifically focused on the day-to-day business “to continue their growth path”. Blockchain projects with clear benefits are expected to do that next year at an even faster pace. There has also been an uptick in the number of companies interested in participating in networks that specifically help to address some of the supply chain issues that the pandemic has put forward.  

3. Long-term strategic projects will be put on hold

Volatility and uncertainty sparked by COVID-19 has led many corporates to pull back from some of  their more long-term DLT-related projects for the time being. These long-term strategic projects, in particular those requiring changes to market structure or regulatory changes, are mostly working to extended timetables now. Budgets for purely experimental and R&D projects – run in isolation from the business- are becoming harder to obtain and have been cut this year. And this will cause an even larger number of these projects will be put on hold.

4. Corporates need to accelerate their digital transformation

Digital transformation is no longer a choice for businesses – it is essential to survival. Due to the increased strain that the COVID-19 pandemic put on day-to-day business, there is a dire need at corporates to accelerate their digital transformation process to emerge stronger than before. Blockchain technology is very likely to make the most transformative and dramatic changes in the way businesses function, during the coming years. Many industries are therefore intensively looking at blockchain as a helpful tool to become all the more digital.

5. Globally, 30% of projects will make it into production. 

It is forecasted that a growing number of blockchain-based projects will switch to the production stage. This number doesn’t just reflect the more realistic approach to projects and the increasing maturity of the technology but also the pandemic-induced acceleration and initiation of projects that may bring “measurable benefit within a short timescale”. According to Gartner more than 40% of the surveyed corporates has at least one blockchain pilot running. They predict that 30% of global projects will make it into production, partly due to the impact of the COVID-19 pandemic. The majority of networks that transition from pilot to production will thereby run on private enterprise blockchain platforms. 

6. Private (permissioned) blockchains will dominate

Another trend we will observe is that private blockchains will become the main contributor to the blockchain market growth and are assumed to retain the largest market size in 2021. Enterprise blockchain solutions are developed customized according to a corporate’s business needs. Private blockchain provide more opportunities to corporates in terms of utilizing the blockchain technology for business-to-business use cases. They deliver higher efficiency, privacy, reliability, and transparency, while security is provided to a private blockchain using private keys that are known only to authorized persons in the organization.

7. China will make the fastest progress  

From  a regional perspective China is leading the global blockchain game and will continue this role in 2021. Blockchain is taking China to the level, which is well beyond the present reach of other global market players. China’s “new infrastructure” national initiative, its state-backed Blockchain Based Service Network, is aimed to make blockchain an integral part of the country’s digital infrastructure. China’s further ambition is to provide a global public infrastructure via this Network. Beyond that, while other countries or regions like Europe are thinking to launch their own Digital currency, China is almost ready to issue their Crypto yuan.

8. The banking and financial sector further dominates the market

Amongst all the industries affected by the COVID-19 pandemic, the financial sector is one area that has been hit particularly hard. Falling profits and tightening margins have forced banks to adapt and increasingly meet their customers need in a growing digital world. The adoption of fintech and blockchain technology, enables them to streamline their operations and modernize their operations. This may lead to a firm growth in contactless transactions and redesigned financial services. The banking and financial sector is expected to show exponential growth in blockchain adoption in the coming years. As a result this sector is going to hold the largest market size in the global blockchain market during the coming years.

9. Growing DLT-offerings by non-traditional financial institutions

Another trend we will see during 2021, and also triggered by COVID-19,  is the rise in the number of non-traditional financial institutions. They will be triggered by a growing number of corporates but also consumers that are going more into online blockchain-based mode of transactions and financial services. These groups nowadays have more non-bank options delivered by institutions ranging from non-bank lenders, to crypto-currency based banks to fully decentralised financial (DEFI) services alternatives.

10. Fast upcoming trends: DEFI …..

Next to a firm acceleration that is expected in the acceptance of tokenisation i.e. the digital storage of assets on blockchain, another interesting upcoming trend in 2021 and further on will be DEFI or decentralised financial services. If we look at DEFI it shows how blockchain could be used for financial use cases which up till now has been “the missing point” for enterprise blockchain offerings. DEFI illustrates successful process of smart contracts for financial services. This alternative form of financing perfectly fits into the fintechisation of the economy.

This year we already have seen a firm rose of DEFI services. The total value of fulltime decentralised financial services (based on cryptocurrencies) witnessed an impressive growth and even surpassed USD 10 billion. It is seen to be further speeding up in 2021 and beyond.

11. ……  and ZKP

Another important trend we may see in 2021 is the arrival of Zero Knowledge Proof (ZKP). ZKPs are urgently needed to meet challenges with preserving confidentiality that are currently holding blockchain projects back. Blockchain-based ZKPs allow companies with different record-keeping systems to be verifiably “in sync” on a record-by-record basis without sharing sensitive information. Much progress has been made recently around ZKPs. There are increasingly coming all sorts of solutions on the market to deploy ZKPs in a broad way. For instance to put mortgage requests on blockchain and, via ZKPs as a sort of notary, automatically grant or reject such a request. Big challenge however remains the complexity of the developments. ZKPs are much more complex to develop than coding a smart contract without privacy, but for security reasons corporates are expected to shift from developing DApps  to developing ZApps.

12. Cryptocurrencies may reach new heights

2020 has proven to be a good year for all crypto markets, and expectations are for 2021 to be even a better year for Bitcoin and other cryptos. These cryptocurrencies have taken center stage as investors search for new safe haven assets, driven by the COVID-19 pandemic. With so much uncertainty in the market, and being largely unaffected by external factors like government policy thanks to its decentralized nature, Bitcoin has proven itself to be a “valuable form of digital gold”, qualifying itself as one of the strongest players in the digital currency world. As we enter 2021 and adopt to a new normal, social distancing and cashless transactions may further set the stage for cryptocurrencies. However, with the constant fluctuations in the crypto space, anything could be expected.

13. Crypto fraud is rising

While 2020 being great year for investments in cryptocurrencies, the downside is a firm rise in crypto frauds. Global crypto exchanges, have suffered high-profile hacks, whereas hacks on decentralized finance (DeFi) companies accounted for more than 20% of the total theft volume in 2020. Expectations are that this will continue during 2021. We may see various types of cyber fraud, including fake crypto investment platforms, fake crypto wallet scams, new forms of malware targeting lesser-known cryptocurrencies and crypto-jacking.

14. The number of CBDC projects will accelerate

There is a proliferation of central banks worldwide that are exploring the possible launch of their own central bank digital currency (CBDC). According to a recent BIS report 80% of central banks worldwide are researching the pros and cons of such a currency. This process will further intensify in 2021, driven by the diminishing use of cash, the digitalisation of the economy, the upcoming of private digital currencies like Libra etc. The Chinese government is well in advance, recently indicating  to accelerate their process triggered by COVID-19. They have already executed dozens of experiments amongst citizens and corporates and are even ready for a worldwide roll-out. The ECB will take a clear decision on their Digital euro project mid-2021.

15. Governments Will Tighten Regulations Related to FinTech

A final trend we will see in 2021 and beyond is that regulators will intensify their search for stricter and tighter regulation. Long time being absent, governments around the world are sure to implement a myriad of fintech regulations over the next few years. The growing digitalisation of the economy triggered by the COVID-pandemic is an issue that is now narrowly monitored by regulators worldwide. Digital banking, cryptocurrency, and blockchain will likely be the greatest topics of concern.

As an increasing number of finance transactions occur outside of traditional institutions and mechanisms, issues like DEFI cannot be ignored anymore by regulators. Meanwhile, European Union legislators are pursuing an EU-wide regulatory system for crypto assets markets, including the proliferation of token investments as a sophisticated investing vehicle.

 

Concluding my blog and wishing all of you a merry Christmas and a good and healthy 2021:

“If we’ve learnt anything from 2020, it’s the fact that we should always expect the unexpected”.

 

Carlo de Meijer

Economist and researcher

 

 

 

Enhanced Global Liquidity through Notional Pooling and Payment Netting

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| 21-12-2020 | Vincenzo Masile | treasuryXL |

Liquidity management is one of the core roles of treasury and maintaining the right level of liquidity to guard against risks is of key importance. Liquidity needs are affected by many factors both internal and external, some of which lie outside the treasurer control and some of which are extremely subjective and difficult to forecast. Liquidity, after all, is not an exact science

The level of liquidity held varies hugely, even between companies in similar industries and similar market positions, while due to complex account structures a “safety net” of cash holdings may be inaccessible when most needed. Effective liquidity management requires an account structure that facilitates fast decisions and simplifies transfers between the company accounts.

A global cash pool is a balance netting cash concentration solution providing with access to group liquidity through a real-time, cross-border, multi-currency cash pooling structure. The cash pool is topped by an off-balance multi-currency master account, holding the cash pool net balance in the currency of the treasurer choice. One on-balance top account per currency holds the pooled net balance in the respective currency. A global cash pool replaces multiple local cash pools and offers significant advantages to the group liquidity management.

What is Netting?

A process which reduces transfers of funds between subsidiaries or separate companies to one net amount.

What are the benefits of Netting?

  • Consolidates and off-sets payables against receivables between multiple group companies on a global and multicurrency basis
  • Reduces the number of inter-company funds transfers
  • Minimizes costs of associated foreign exchange
  • Avoids the need for group companies to make multiple transfers and execute opposite foreign exchange transactions

The Netting Cycle

Customer:                                                                                                                                                    Netting provider:

day X-4                Company “A”  participants                  Invoices to be paid >                          processing & checking

day X-2               Company “A”  participants                <  Preliminary/Final Results                calculations

day X                   Company “A”  participants                 <  Payments from participants         settlements

Payments to participants >

Why Implement Netting?

  • Less administrative workload
    – Netting center can be viewed as corporate treasury back-office
  • Continuity of operational tasks
    – Funds will be paid/collected with proper/same value date
    – Settlement over existing local bank accounts; no accounts at netting bank are required
  • Increased visibility and control
    – All netting input and output stored in one database
  • Centralization of FX
    – Consolidates FX positions
    – Improves FX spread
    – Ability to include FX hedge transactions
  • Flexibility
    – Settlement can be in any currency required by affiliate
    – Additional run on an ad-hoc basis; quarter end, year end

Global Multi-Currency Notional Cash Pool

Notional Cash Pooling

  • Group companies open bank accounts in their own name in local currency at the pooling center
  • No inter-company loans are created
  • Group companies with credit balances at BMG are deemed bank deposits and group companies with debit balances at BMG are deemed bank overdrafts
  • All account balances – both credit and debit – are treated on a net basis
  • Interest is bank interest
  • Interest rates applied are based on the net position per currency in the cash pool (not traditional bank BID/ASK spreads)
  • Treasury can choose interest margins to create revenues for Finance company/Treasury

Zero Balance Cash Pooling

  • The Finance company (or other group company) opens accounts in their name at pooling center
  •  Group companies can put cash on deposit with the finance company or borrow from the finance company
  •  Inter-company loans are created
  •  Inter-company loans need to be administered
  • Interest is inter-company interest

True Multi-Currency Multi-Entity Notional Pool

  • Enables multiple group companies in numerous geographical regions to retain local accounts at local banks; “overlay”
  • Consolidation is achieved by transferring local balances (both debit and credit) to accounts held by the individual group companies at the pooling center. There is no change of ownership of funds, and no question of intercompany loans
  •  Offset is accomplished without physical concentration/conversion (FX)

Also:

  • One interest rate per currency (no spread between overdrafts and deposits)
  • Permits not only concentration of excess cash, but allows overdrafts within the pool
  • Full offset capabilities (risk and accounting) for both client and bank
  • Operational in multiple time-zones

Notional Cash Pool & Key Tax Points

Bank Pledge versus Cross Guarantee

  • Notional Cash Pool is based on Pledging of Balances to the bank. Normally cash pools are based on Cross Guarantees which is an unlimited joint resulting in liabilities between related group companies

 Interest

  • Interest is classified as bank interest (credit and debit). All Cash Pool balances are cash on deposit or a current account overdraft

Transfer pricing

  • The bank executes the daily investments and borrowings of the group companies and applies arm’s length interest rates. Tax can insert interest margins as needed

Interest withholding tax

  • BMG is domiciled in the Netherlands resulting in no WHT on credit interest paid. In some cases WHT is applicable on interest charged

Thin cap rules

  • The Cash Pool borrowings are deemed loans/overdrafts from the bank. Thin cap rules are sometimes more flexible regarding bank overdrafts

Conclusion

Companies who implement netting or cash pooling significantly boost the efficiency of their cash and FX management. Companies who implement both, effectively create an in-house bank. The final stage in the process of designing a new cash mobilization structure (or reviewing an existing one) is to assess all possible solutions against the group’s original objectives. Treasurers should bear in mind this to ensure an appropriate and cost-effective solution is chosen.

 

Vincenzo Masile

Treasury Expert/Credit Risk Manager

 

Looking for a Trade Finance Specialist (m/f)

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18-12-2020 | Treasurer Search | treasuryXL

Our Partner Treasurer Search is looking for a Trade Finance Specialist for an organization that is quickly expanding commodities with a Dutch and international presence.

Tasks Trade Finance Specialist

  • Managing the continuous flow of Letters of Credit and other trade finance products;
  • Relationship management with colleagues and banks;
  • Improving processes with IT and other solutions;
  • Back-up for the colleagues in credit and treasury management

Ideal Trade Finance Specialist

The ideal candidate for this position has a solid track record in trade finance in a commodities environment. She is willing to pick up other tasks but will mainly focus on trade finance. As a person she is curious, proactive, responsible and can deal with stressful situations. Speaking Dutch is an asset, not a must.

Our Client

Our client is a quickly expanding commodities organization with a Dutch and international presence. The company culture is hands-on, result oriented and very “Rotterdam-style”.

Remuneration and Process

The expected base salary for this position is €50K, we invite candidates who aim a bit higher to apply. For candidates who match the requirements and are interested, a more elaborate job description is available.

Contact person



Pieter de Kiewit

T: (0850) 866 798
M: (06) 1111 9783
E: pdk@treasurersearch.com


 

Location

Rotterdam Region

 

APPLY HERE

What is a Unique Transaction Reference (UTR) number?

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17-12-2020 | treasuryXL | XE |

Making a bank transaction or money transfer to or from India? Then you’ll need a UTR number. Here’s what it is, what it does, and how to find yours.

If you’ve ever made any inter-bank transactions in India, you’re probably familiar with UTR numbers. If you haven’t but plan on making transactions in the future, this number is a key ingredient that you’ll need if you want to make any kind of money transfer. So, what exactly is a UTR number and why is it important to your transactions?

What is a UTR number in India?

In India, “UTR number” means Unique Transaction Reference number. This number is used to identify a specific bank transaction in India. All banks in India use UTR numbers for all types of money transfer. Every UTR number is unique and each is generated to identify each fund transfer. UTR numbers in India are generated by the banks that initiate the transfer. You can easily use the UTR number to track the status of your transactions.

How do I find a UTR number?

Where exactly can you find your UTR number for each transaction? All you have to do is look at your bank statement for your UTR number. The UTR number is listed as “Ref no.” just below each transaction details. UTR numbers in India often look like this:

XXXXR7310682908954385XX

The few characters of each UTR number usually vary depending on the bank that generates them.

One of the quickest and most convenient methods of getting a specific transaction’s UTR number is from your account statement. You can easily download or just view this statement via your bank’s mobile app or internet banking. The UTR number is the 22 or 16 characters usually next to the transaction date.

What’s the importance of a UTR number in India?

The importance of a UTR number in India is to recognize and keep an eye on financial transactions. Banks can use UTR numbers to help you track your fund transfers if they are delayed, stuck, or if you intend to refer to any previous transaction for whatever reasons.

For instance, if you send some amount of money to someone and he or she claims the money wasn’t delivered or the amount was different, the bank that facilitates the transaction can use the UTR number to track it and to resolve the issue easily.

UTR numbers are generated in India when money is transferred between two banks. You can use two key methods to transfer funds between accounts held in various banks in India. The first is the National Electronic Fund Transfer normally known as NEFT. The other is the Real Time Gross Settlement known as the RTGS.

When you make NEFT or RTGS transactions in India, UTR numbers are generated. Though NEFT transactions aren’t processed instantly. Rather, they are processed in batches which means the fund transfer isn’t completed instantly. Currently in India, NEFT is done in half hourly batches from 8 a.m. to 7 p.m. on weekdays and working Saturdays.

In contrast, when you make a money transfer using RTGS in India, the fund transfer is processed instantly. As soon as you transfer funds via RTGS, the money is deposited to the recipient’s account within a period of two hours. As such, RTGS is the fastest process for transferring funds from one bank to another. Nonetheless, you can only use RTGS when the amount of money you’re transferring is less than Rs 2,00,000.

How to identify the UTR number of RTGS transactions

RTGS transactions UTR numbers are 22 characters long while NEFT transactions UTR numbers are 16 characters long. Each of the two types of bank transactions have a unique UTR number format. The UTR number format for RTGS transaction is:

XXXXRCYYYYMMDD########

Here’s a simple breakdown of the UTR number of RTGS transactions:

  • XXXX – indicates IFSC (this is the first 4 characters) and is the bank code of the sender

  • R – indicates RTGS system

  • C – indicates the transaction channel

  • YYYYMMDD – indicates the date of the transaction in this order: year, month, and day

  • ######## – indicates the sequence number

How to find the UTR number of a NEFT transaction

As we mentioned earlier, you can find the UTR number of any transaction by checking the detailed account statement via the online banking section of your bank. So, how can you see the UTR number of a specific NEFT transaction? All you have to do is click on the transaction details or narration. You will see a detailed description of the said transaction.

You can easily identify every type of transaction by the format of their UTR number. As we mentioned earlier, the UTR number of NEFT transactions is 16 characters long. You can easily use the UTR number of a NEFT transaction to track the status of the transaction.

How to use a UTR number to track your transaction status in India

If your NEFT transfer is delayed, you may check the status of the transaction by using the UTR number. Or in the event that your account has been debited for a specific transaction but the recipient is yet to receive the fund, you can easily contact the bank’s customer support asking them to track the transaction via the UTR number.

Another option is to reach out to your assigned Relationship Manager asking them to track the status of the transaction using the UTR number.

Here are other methods of tracking the status of your transaction using the UTR number:

  • Visit your bank’s mobile app or internet banking account

  • Check the previous transfer section

  • Search for the specific transaction with the UTR number

  • The status of the transaction will be displayed

 

Get in touch with XE.com

About XE.com

XE can help safeguard your profit margins and improve cashflow through quantifying the FX risk you face and implementing unique strategies to mitigate it. XE Business Solutions provides a comprehensive range of currency services and products to help businesses access competitive rates with greater control.

Deciding when to make an international payment and at what rate can be critical. XE Business Solutions work with businesses to protect bottom-line from exchange rate fluctuations, while the currency experts and risk management specialists act as eyes and ears in the market to protect your profits from the world’s volatile currency markets.

Your company money is safe with XE, their NASDAQ listed parent company, Euronet Worldwide Inc., has a multi billion-dollar market capitalization, and an investment grade credit rating. With offices in the UK, Canada, Europe, APAC and North America they have a truly global coverage.

Are you curious to know more about XE?
Maurits Houthoff, senior business development manager at XE.com, is always in for a cup of coffee, mail or call to provide you detailed information.

 

 

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