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CFO Perspectives: 5 asset management tactics CFOs should borrow when managing FX risk

01-08-2022 | treasuryXL | Kantox | LinkedIn |

When managing FX risk, CFOs could learn a lot from the world of asset management, where a revolution —led by indexing— has led to huge gains for investors. But how can you apply this to your business’s FX risk strategy? Watch below the video, or read the article!

Credits: Kantox
Source

In the second edition of CFO Perspectives, we’ll draw from our work with CFOs to explore the parallels between asset management and FX risk. We’ll break down the processes and tools used in asset management which can be applied to your currency management strategy, with some spectacular results.

Over the last couple of decades, the world of asset management —an industry with $100 trillion under management— has been turned upside down by a quite unexpected revolution: indexing. Instead of relying on managers’ capacity to time the markets, these firms have automated the selection of assets by quietly replicating stock indexes.

Can CFOs lead a comparable revolution in currency management?

The answer is: yes, they can! Let us see why and how they can accomplish that feat.

Having embraced indexing early on, two leading firms have assets under management north of $15 trillion. What’s more, they have achieved such a spectacular result with fees that are only a fraction of the fees charged by those who embrace speculation. They have saved, and they are still saving, hundreds of billions in costs to investors.

Similar changes may be afoot in the business world. The term ‘exposure under management’, now used by CFOs and treasurers, comes from the expression ‘assets under management’. More importantly, CFOs are eschewing speculation — just like their cousins in asset management.

When managing currency risk in the one-trillion-a-day forward currency market, CFOs are using more and more digitised, automated solutions.

A random walk for risk managers

Once in a while, a lack of currency hedging or even speculating on an FX market move can yield a positive outcome for CFOs. But luck will run out at some point. Sooner or later, blindfolded by overconfidence, ‘speculative’ risk managers flounder in their vain attempt to time currency markets — with disastrous consequences for themselves and their companies.

Like stock prices and the price of other financial assets, exchange rates are not predictable. They follow ‘a random walk’ in which the forecast is set equal to today’s exchange rate (the spot rate). Accordingly, investors —and risk managers— should embrace markets rather than trying to beat them.

This is the thrust of the analogy between the asset management revolution and the coming revolution in FX risk management, an event that will ultimately enhance the strategic role of CFOs.

5 asset management tactics CFOs should borrow when managing FX risk

Let us go beyond the surface and take a closer look at the key tools and processes used by the most successful companies in asset management. These processes provide a useful template for understanding how CFOs will use Currency Management Automation solutions to manage FX.

We can single out at least five main lines of action:

Avoid timing the market. Nine out of ten of the so-called geniuses of the investment world have been ‘destroyed’, in terms of comparative performance, by the more modest index funds. Adding insult to injury, the latter have charged only a fraction of the fees. The no-speculation mantra has proved immensely successful in asset management. If one accepts the view that currency markets also follow a ‘random walk’, then there is no reason to expect a different outcome when it comes to FX risk management.
Achieve operational brilliance. Indexed asset managers know that their success relies on engineering products that achieve operational brilliance by taking the risk of human error out of the equation. Just as indexing is measured by the tracking error between a fund’s rate of return and that of its benchmark, Currency Management Automation is at its core an engineering product that uses Application Programming Interfaces to achieve great precision in currency hedging while allowing managers to seamlessly run the entire FX workflow.
Implement scalable solutions. Successful asset managers use platforms that provide scalability, which makes it possible to quickly and cheaply enter new markets such as bonds, commodities and others, almost anywhere and in many currencies. The same idea applies to FX automation, as CFOs are set to implement scalable, data-driven pricing and hedging solutions to enter new markets, enabling their companies to buy and sell in more currencies — with FX risk systematically under control.
Innovate with a purpose. Indexing is one of the few truly beneficial inventions, a technology that has saved investors hundreds of billions of dollars. Similarly, the purpose of automated FX risk management is to allow firms to confidently ’embrace currencies’, reducing costs to customers and ultimately enhancing the value of the business. When it comes to innovation, purpose matters (see: “CFO Perspectives: 3 ways CFOs can use currencies to boost their business’ value”).
Keep a foot in more than one camp. The world’s largest asset manager keeps a foot in both camps: active asset management and index funds. An entire platform provides a menu from which clients can select whatever financial slice they might fancy. Likewise, CFOs have at their disposal an entire ‘family’ of automated hedging programs and combinations of programs, including balance sheet hedging and a variety of cash-flow hedging programs that respond to their firms’ goals and pricing parameters.

Read the first edition of our CFO Perspectives series, 3 ways CFOs can use currencies to boost their business’s value here.

The State of Treasury in 2022: Research Summary

28-07-2022 | treasuryXL | TIS | LinkedIn |

This blog gives you insights into the state of the treasury function in 2022 and a short list of recommended action items for better management of modern-day treasury operations

Source

About TIS’ Global Research

The insights highlighted in this article are based on a comprehensive set of studies conducted by TIS and our affiliates between Q1 2017 – Q2 2022. During this period, TIS held one-on-one interviews with hundreds of treasury experts and also released a suite of digital surveys that gathered feedback from thousands of financial practitioners regarding technology, staffing, and general operations.

Over the course of our research, TIS partnered closely with a niche team of industry experts, thought leaders, and consultants to interpret the findings. Historical treasury data was also obtained from the Association of Financial Professionals (AFP) and the consulting firm Strategic Treasurer to provide context regarding the evolution of treasury technologies and practices over time. Together, the expertise of our consortium and the extensive feedback collected from industry practitioners has provided us with unparalleled insights into the state of the treasury function in 2022.

While this article serves to highlight the summary findings and recommended action items from our studies, readers that would like more data and information are encouraged to download our full whitepaper for extended coverage.

Research We Relied Upon

The below surveys, polls, and interviews represent the full suite of research that TIS relied upon to complete our study. Links to the associated research conducted by our affiliates are provided as applicable.

2017 Strategic Treasurer Technology Use Survey. View Full Results Here
2020 AFP Strategic Role of Treasury Survey. View Full Results Here
2020 TIS Rapid Research: Remote Work Capabilities Poll
2022 TIS Rapid Research: Treasury & Payment Systems Usage Poll
2022 TIS & Treasury Priorities & Opportunities Survey. View Full Results Here
100+ One-on-One Interviews with Active Treasury Practitioners Between 2017-2022

Key Findings & Highlights

This section provides a brief overview of the key points obtained through our research. For more information on any point of interest, please refer to the full whitepaper.

1. Treasury’s Responsibility List is Constantly Growing: The treasury function has never been more critical to the success of an organization, and this is being recognized internally by key stakeholders. However, treasury practitioners are now being handed additional responsibilities as executives and other departments realize the value they can provide, and nearly 80% of U.S. treasury teams saw their “net” list of responsibilities increase in 2022 vs 2021.

2. Stakeholders View Treasury as Equally Strategic & Operational: Over 50% of financial practitioners believe the treasury function holds key strategic value, which represents a significant shift from the traditional viewpoint of treasury being mostly an operational function. This shifting perspective is shared widely amongst internal stakeholders like accounting and AP. Today, treasury’s strategic influence is impacting areas like technology adoption, working capital management, bank connectivity, payment processing, and financial reporting.

3. A Saturated Technology Market is Confusing for Treasury: The growing importance of the treasury function and widespread digitalization of global financial operations has resulted in an abundance of Fintech and bank-led software products entering the market. While this has helped foster innovation, data also shows that many treasurers have become confused by the breadth of categories and service offerings in the market, which has led to greater indecision and headache during RFPs and implementations.

4. The Line Between “Treasury Expert” and “Tech Expert” is Blurring: As the treasury function continues shifting away from paper-based and manual workflows to digitally automated processes and software tools, treasury personnel are finding that their technological proficiency has a significant impact on their ability to perform their core financial responsibilities. This is leading many practitioners to seek out technology-based learning courses in tandem with their more traditional financial education.

5. Fraud & Security Concerns Remain a Critical Issue: In today’s remote and digitally-operated business landscape, tech-savvy criminals are presented with even more opportunities for infiltrating a company’s systems and processes. This is leading to a noted increase in fraudulent attempts across a variety of areas, and treasury teams are continuing to invest heavily in both technology and training to protect themselves.

6. Successful Treasury Teams Collaborate with Other Stakeholders: Research found that many of the most successful treasury teams are proactively working cross-collaboratively with other internal stakeholders and departments like accounting, AP, and IT to accomplish their objectives. These teams are also frequently partnering with external consultants, solution vendors, and bank personnel to ensure alignment and cohesion across all their various systems and operational workflows.

Recommended Action Items for Treasury

Based on the findings from our research and interviews, TIS experts have compiled a short list of recommended action items that treasury teams should consider as they seek to better manage their operations in 2022 and beyond. They are as follows:

1. Embrace the Opportunity to Provide Greater Strategic Input: As CFOs and other departments increasingly rely on treasury for reliable data and insights, practitioners should embrace the opportunity to expand their strategic influence internally. In the long run, this ability to provide value in new ways across the organization will benefit treasury when it comes to securing new budget and staffing approvals. However, in order to provide the most visibility and control over their operations without overloading their small teams, treasury must become highly adept at leveraging technology to eliminate manual workflows and repetitive tasks.

2. Becoming Proficient with Technology Should be Non-Negotiable: As technology continues to play a massive role in treasury, it’s crucial for practitioners to familiarize themselves with the core tenets of the modern technology landscape. This does not mean simply researching new buzzwords, but instead seeking to understand the unique differentiators that separate various bank and fintech product offerings in the market. Treasury should also not hesitate to seek out the help of specialized consultants or technology experts for help. Ultimately, treasury’s ability to effectively identify the solutions and capabilities that best fit their company’s needs will save significant time, money, and headache during implementations and migrations.

3. Managing Security for Remote Workforces Requires Extra Care: Given the continued prominence of fraud attacks within the treasury and finance environment, there is no room for error when it comes to protecting a company’s systems, workflows, and personnel. To secure their funds and assets, treasurers must implement multifaceted security controls and protocols that extend beyond the “frontlines” and include executives, administrators, and other “back-office” staff. Combining education and awareness with multiple layers of technology is the only way to gain the upper hand against a new era of tech-savvy criminal.

4. Building Strong Relationships with Other Stakeholders is Crucial: Today, most of the financial systems and workflows that exist within a business are closely intertwined. This means that treasury operations have a significant impact on other departments, and vice versa. Given the extent to which treasury workflows are integrated with those of other stakeholders, it’s vital for treasury to communicate and collaborate effectively with these groups. To ensure total alignment and cohesion, treasurers must be proactive in establishing solid relationships with internal IT, accounting, and AP departments as well as external banking and solution vendors.

5. Ongoing Education is Vital for Staying Ahead of the Curve: Treasury and finance teams have made it clear they are intent on furthering their education and professional skillsets. This professional development is not limited to any one area but encompasses a broad array of topics across both technology and finance. In a digital world, many practitioners are relying on remote seminars and webinars, but in-person events and training are still on the list for many teams as well. Moving forward, it’s highly recommended that practitioners who are serious about their careers undergo regular education and training so that they can stay abreast of new industry developments and innovations.

How Can TIS Help?

The TIS team hopes that the findings highlighted in our research are helpful for teams currently evaluating their own treasury structure, technologies, and workflows. For businesses that view these insights and find themselves in need for enhanced payments, cash management, and banking functionality, we would strongly urge you to consider the solution and services provided by TIS.

Today, TIS is streamlining treasury automation through a cloud-based platform that is uniquely designed to help global organizations optimize global payments and liquidity. In essence, the TIS solution is a multi-channel and multi-bank connectivity ecosystem that streamlines the processing of a company’s payments across all their global entities and systems.

Sitting above an enterprise’s technology stack and connecting with all its back-office, banking, and 3rd party solutions, TIS effectively breaks down department and geographic silos to allow 360-degree payments visibility and control. To date, the more than 200 organizations that have integrated TIS with their global ERPs, TMSs, and banking landscape have achieved near-real-time transparency into their payments and liquidity. This has benefited a broad variety of internal stakeholders and has also enabled them to access information through their platform of choice. Data is available either through dashboards or direct downloads but can also be delivered back to the originating systems.

As part of our client-centric service model, we fully commit our own resources to your implementation and manage the configuration of all required system functionalities, back-office integrations, and bank connections on your behalf. Beginning with project kick-off and lasting through testing and go-live, TIS’ all-inclusive approach to customer support means you never have to rely on internal resources to maintain our solution or integrate it with your existing technology stack.

This systematically controlled payments workflow is managed by TIS for both inbound balance information and outbound payments, and data can be delivered from any back-office system via APIs, direct plug-ins, or agents for transmission to banks and 3rd parties. No matter where you operate from, TIS provides global connectivity and provides the real-time data, control, and workflows needed for treasury to automate and control their end-to-end payments and liquidity processes.

For more information, visit our website or request a demo with one of our experts.

Ask the treasuryXL expert #2 How can I efficiently and cost-effectively get central bank approval/advice for cross-border flows in cash-strapped countries without delaying my business?

treasuryXL is the community platform for everyone with a treasury question or answer! Today, we discuss a question that treasuryXL expert Vasu Reddy often hears within his treasury network. The question relates to challenges for Treasury in Emerging Markets that most corporates continue to experience.

27-07-2022 | treasuryXL | Vasu Reddy | LinkedIn |

Question: “How can I efficiently and cost-effectively get central bank approval/advice for cross-border flows in cash-strapped countries without delaying my business?”

Answer (by Vasu Reddy)

“This is a common question I receive. It is related to emerging market challenges for treasury that most corporates still experience. Examples of these emerging markets include Brazil, Russia, India, China and South Africa (BRICS)

My idea is to proactively submit an application in advance. This application should indicate the nature and scope of the transaction, the benefits to the company, and the impact on the country (including currency and cash implications). Furthermore, it should include the reasons for not sourcing locally, the basis for the costing, and supporting documents such as supplier agreements, shipping documents, etc.

If it is a recurring remittance, such as royalties or monthly Global service charges, then a special dispensation should be applied for (renewed annually) to avoid individual applications resulting in increased costs, efforts and delays.

The best approach is to work closely with your authorized dealer, who is your main partner bank and who has strong links with the Central Bank, has automated systems and is fully aware of regulatory changes. ”

Vasu Reddy

Do you also have a question for one of the treasuryXL experts? Feel free to leave your question on our treasuryXL Panel. The panel members are willing to answer your question, free of charge, with no commitment.

marcus evans | 25th Edition Capital Management for Banking Institutions | 26-28 September | London

26-07-2022 | treasuryXL | marcus evans | LinkedIn |

We are proud to announce our media partnership with marcus evans group for the 25^th Edition Capital Management for Banking Institutions conference taking place in London on 26-28 of September, 2022.

London, United Kingdom

26 – 28 September 2022

In recent years, the Basel IV capital regulations and amendments have put banks under large amounts of pressure to place the right measures, controls and models to understand these regulations’ impact on capital. With capital positions weakening, banks were forced to change their focus from capital optimisation to resource deployment, something which delayed Basel IV implementation. Additionally regulations such as the FRTB ad SA-CCR, impacting market and counterparty credit risk had a huge impact on the risk and capital management side. Moreover new regulations related to climate risk and stress testing being introduced recently by the Bank of England and the European Central Bank, meant that banks had to step up their capital related efforts in this area. In the face of new and ongoing regulatory pressures and market conditions banks need to be able to adapt and optimise their capital management practices.

With this in mind, the marcus evans 25^th edition Capital Management for Banking Institutions conference held between 26-28 September, 2022 in London, UK will provide practical guidance on how to optimise capital management for banking institutions, with in-depth sessions on ensuring effective compliance with regulations such as the FRTB and SA-CCR, adapting to climate risk, enhancing capital planning, and meeting macroeconomic challenges. These hands-on sessions will be delivered by best-in-class practitioners who are uniquely equipped to pass on their expertise in this field. This guidance will enable banks to rise to the challenge of the new regulatory and macroeconomic conditions, and further develop their capital management and risk frameworks.

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What should treasurers do first to control against increases in interest rates?

25-07-2022 | treasuryXL | LinkedIn |

Welcome to the second edition of this newsletter where we discuss the latest treasuryXL poll on current issues in corporate treasury. We will take you through what treasurers think about a current topic by their votes, and a couple of treasury experts will explain their views on the subject. In this edition, we discuss what treasurers should do first to control against sharp increases in interest rates.

We have invited Niki van Zanten, Jeremy Tumber and Vincenzo Masile ACT ICM ICA ACAMS to share their views on the topic.

What do treasurers think?

In last month’s poll, we discussed the impact of the recent interest rate increases on treasury. The poll received 35 votes, the results can be found in the image below.

We clearly notice that the majority of the treasurers are of the opinion that the first thing to do to control sharp interest increases is to reconsider the investment strategy of excess cash. We asked a number of treasury experts to explain why they voted for the other options than for a reconsideration of the investment strategy.

Views of treasuryXL experts

Niki van Zanten

Niki voted for the option to move excess cash to USD.

“Place excess cash in USD requires a holistic approach, the right time and knowledge, but if applied correctly, will manage your cash like a pro”

Treasurers want to manage certain risks, and often there is a silo approach. Liquidity risk is managed with loans and deposits, Interest risk (and returns) are managed with products such as interest rate swaps and FX is managed with FX spot, forwards and swaps. Once the incoming data (think bank balances, forecasts, markets rates) is structured, the data becomes information and is sufficient to act as treasurer with clear objectives (these are often defined in the above silos).

The next step would be to validate whether the approach meets the objectives. So, far nothing to worry about….until the market exhibits unexpected behavior. For example, a disconnect between FX swap points and underlying interest rate differentials (Jan 2015 USDCHF as a reference), or perhaps a need to optimize interest rates. In this case (and when provided time and knowledge is available), a holistic approach to FX, interest rates and cash can provide the opportunity to place excess cash in a higher-yielding currency without adding FX risk to your portfolio.

In short, it may make sense to place excess cash in USD if it does not shift FX risk or if this shift is managed by FX swaps and the pricing between swaps and deposits is compared. Again, this requires a holistic approach, the right time and knowledge, but if applied correctly, will manage your cash like a pro.

Some considerations may be to look at the efficiency of FX swaps versus deposits, as FX swaps tend to be more efficient, automation of solutions, and tracking and identifying market behavior.

Jeremy Tumber

Jeremy voted for the option to choose something else.

“Analyze how your company is exposed to the economic cycle ”

First, analyze how your company is exposed to the economic cycle – a study I saw in the early 2000s showed that the best position for airlines was to be 100% floatig, because their business was effectively in lockstep with the business cycle.

In theory, when an entity is part of an industry that is closely aligned with the economic cycle, it has a natural hedge for its interest rate exposure, in that it can afford to pay higher interest rates when the economy is booming, and get some relief from lower interest rates when the economy is slowing. The study I’m referring to involved a major German airline; at the time, the airline’s funding was 80% fixed, and their comments at the time were not very favorable to switching to such a large floating exposure. Fast forward 15 years, or so, and I checked their Financials. They were 85% floating at the time, so they had clearly stepped into the results of the study.

The biggest risk for them would be an extended period of Stagflation, so I hope they do well in the current circumstances!

Vincenzo Masile

Vincenzo voted for the option to move excess cash to USD.

“My view here is that a treasurer should take a conservative approach”

Macro themes continue to drive financial markets. One does not have to look much further than the inverted US yield curve or the collapse in copper to understand that investors continue to re-price global growth prospects lower.

This is possibly because: (a) European activity is more exposed to the Russian energy supply shock and b) the U.S. economy has entered this global tightening cycle with more momentum and a positive output gap.

Inverted yield curves are typically bad news for pro-growth currencies (commodity exporters + Europe & Asia ex-Japan) and typically good news for the dollar, the Japanese yen, and the Swiss franc. This environment looks set to continue over the summer months as the Fed continues its tightening policy.

Recall that the German Bundesbank estimated that the Germany economy could take a 5% GDP hit if gas is rationed. It now appears that we are now not far from such a scenario. The pressure on European growth has caused the Eurostoxx benchmark equity index to fall 22% year-to-date, versus -20% for the S&P 500. The question will be how much more the ECB can tighten before the growth valves come down.

My view here is that a treasurer should take a conservative approach and assume that there are no large loans to be repaid to the banks, existing cash in excess should be moved to USD or to CHF or to JPY at least until the end of this year.

Sooner or later, Ukraine and Russia war will come to an end, so the cycle will reverse and EUR will become more attractive for investors and for treasurers.

What is a yield curve or interest rate curve? (Dutch Item)

25-07-2022 | Erna Erkens | treasuryXL | LinkedIn |

Met de yieldcurve of rentecurve wordt bedoeld de rente van de korte naar de lange rente. In een grafiek wordt op de X-As (horizontaal) de looptijden van de rentes weergegeven. Het begint met de of 3 maands rente en het eindigt op de X-As met de 30 jaars rente. Op de Y-as staat het rentepercentage.

Vaak komt de yieldcurve of de rentecurve ter sprake bij vermogensbeheer. Het gaat dan meestal over obligaties. Vaak staatsobligaties. Maar wat betekent dit eigenlijk? Waarvoor wordt de yieldcurve gebruikt? In dit artikel leggen we uit wat de yieldcurve precies is, hoe je deze curve interpreteert en waarvoor het wordt gebruikt.

Wat is een yieldcurve of rentecurve?

De yieldcurve kent meerdere benamingen. Hij wordt ook wel rentecurve of rentegrafiek genoemd. Het is een grafiek van de korte rente naar de lange rente. Vaak van staatsobligaties. In dat geval gaat het om de rendementen. Maar het komt ook ter sprake bij financieringen van bedrijven. Als je een keus moet maken voor een periode van de financiering is het een leidraad van hoe de rentetarieven per periode liggen.

Volgens het woordenboek betekent yield: opbrengst, productie, oogst, rendement. Het rendement op obligaties, inclusief de jaarlijkse rentebetalingen, de aankoopprijs en de tijd tot de afloop van de obligatie. Een obligatie met een hoge rente zal meer waard worden op het moment dat de marktrente zakt. Een obligatie met een hoge rente zal minder waard worden op het moment dat de marktrente verder stijgt. Dus soort van tegengesteld. Dat klinkt ingewikkeld en dat is het ook.

In de grafiek wordt het verloop van de rente van 3 maanden (korte rente) tot 30 jaar (lange rente) weergegeven. De horizontale X as geeft de looptijd aan en de verticale Y-as het rentepercentage.

Waar wordt een yieldcurve voor gebruikt?

Om te bepalen wat de contante waarde van een bedrag in de toekomst waard zal zijn gebruikt men de yieldcurve. Dit is een korte uitleg voor eigenlijk iets heel ingewikkelds waar we in dit artikel niet dieper op in gaan. Wil je hier meer over weten? Neem dan gerust even vrijblijvend contact met mij op, dan leg ik het graag uit.

De twee elementen in de curve worden afgeleid van de rente van de Centrale Banken. Zij bepalen de hoogte van de korte rentes. Voor de Eurolanden is dit de ECB, maar indirect ook onze eigen Centrale Bank, De Nederlandse Bank (DNB). Wij hebben ook nog onze eigen staatsleningen, maar natuurlijk worden die ook afgeleid van de rente van de ECB. Maar soms hebben sommige Eurolanden een groter risico. Zoals 10 jaar geleden Griekenland en nog meer Zuid Europese landen. Dan krijg je meer rente, maar loop je wel een groter risico dat je je geld niet terugkrijgt als je in deze leningen investeert of belegt. Daarnaast zegt de rentecurve of yieldcurve iets over de renteverwachting van de markt.

Welke soorten yieldcurve zijn er?

Hoe langer de looptijd van de rente, hoe moeilijker het is om de toekomst in te schatten van deze rente en hoe hoger de vergoeding zou moeten zijn om te compenseren voor dit hogere risico. Hoe korter de looptijd, zoals binnen een jaar, hoe kleiner de kans op grote verschillen in deze rente ten opzichte van de huidige situatie.
In een ‘normale rentecurve’ is de korte rente het laagst en stijgt de rente naarmate de looptijd langer wordt. Die stijgende rente voor langere looptijden komt in principe omdat jaarlijks in ieder geval de inflatie gecompenseerd wordt en door onzekerheid over de toekomstige renteontwikkeling.

De componenten in de rentecurve zijn de reële rente, de inflatieverwachting en de renterisicopremie

We kennen de volgende yieldcurves:
1. De vlakke yieldcurve
2. De normale yieldcurve
3. De omgekeerde of inverse yieldcurve

De vlakke yieldcurve

Als de rentes van de verschillende looptijden ongeveer gelijk zijn, spreken we van een vlakke rentecurve. Je ziet een vrijwel gelijke horizontale lijn in de grafiek.

Voor de banken is dit geen gunstige rentegrafiek. Zij verdienen meestal geld aan het kort aantrekken van spaargelden en het uitzetten van gelden voor een langere periode, bijvoorbeeld door hypotheken met een lange vast rente. Een vlakke yieldcurve komt ook niet vaak voor, meestal is er een normale rentestructuur waarbij de lange rentes hoger zijn dan de korte rentes. Als een vlakke rentecurve weer naar een normale rentecurve gaan met lage korte rentes en hogere lange rentes is dat een teken dat de economie weer aantrekt na economische krimp, waarbij een vlakke yieldcurve of zelfs een inverse yieldcurve geen uitzondering is.

De normale yieldcurve

Een normale yieldcurve ontstaat als de markt verwacht dat er inflatoire druk zal optreden. De rente is naast compensatie voor het risico ook voor de geldontwaarding. Om te zorgen dat de koopkracht aan het einde van de looptijd gelijk is zal degene die het geld uitleent compensatie willen.
Als inflatie stijgt kun je minder kopen voor 1 euro dan voorheen. Daardoor is er dan een hogere rente nodig. Op dat moment worden er lang(er)lopende obligaties verkocht. Dit zorgt weer voor een daling van de koersen van de obligaties en een verhoging van de rentevergoedingen ten opzichte van de koers. Het effectief rendement, de rente, zal dus stijgen. In de grafiek zie je dat de lijn linksonder begint en rechtsboven eindigt.

De omgekeerde of inverse yieldcurve

Bij deze yieldcurve zie je dat de lijn in de grafiek linksboven begint en rechtsonder eindigt. Dat betekent dat de korte rente hoger is dan de lange rente. Dit is wel een uitzonderlijke situatie en duurt meestal niet zo heel lang. Een langere looptijd heeft meer risico’s waardoor de rente vaak hoger is. Een omgekeerde rentecurve zie je vaak als de economische onzekerheid toeneemt. Er worden in de nabije toekomst economisch zwaardere tijden verwacht.

Zo gebruiken de banken de rentecurve

Bij een normale rentecurve kunnen de banken geld verdienen aan deze rentecurve. Zij geven consumenten rente voor hun spaargeld. Dat geld lenen zij vervolgens tegen een hogere rente uit aan anderen. Het verschil tussen de korte rente, de lange rente minus de gemaakte kosten is de winst voor de bank. Als de korte rente hoger is dan de lange rente lijdt de bank dus verlies met een negatieve marge. Dat was van 2013 tot 2021 een groot probleem voor de banken.

Welke factoren bepalen de rentestructuur?

Er zijn veel factoren die de rentestructuur bepalen. We bespreken hier de drie belangrijkste:

De verwachtte ontwikkeling van de rente:
Als er een rentestijging wordt verwacht kan de yieldcurve sneller gaan stijgen. Dit komt omdat langer lopende leningen worden verkocht door beleggers. Als men verwacht dat de rente zal dalen kan dat een vlakke of omgekeerde/ inverse yieldcurve tot gevolg hebben.
Liquiditeit:
Door de grote liquiditeit wordt de korte rente lager. Hiermee wordt het inflatierisico namelijk ook beperkt.
Kredietwaardigheid:
De uitgever van een obligatie is een debiteur. De kredietwaardigheid van de debiteur heeft invloed op een eventuele rente-opslag, (creditspread) die door de beleggers worden geëist. Nederland en Duitsland zijn landen die veiliger worden geacht dan bijvoorbeeld Griekenland. Griekenland zal daardoor waarschijnlijk een hogere rente moeten betalen voor hun staatsobligaties dan Nederland.

Hoe interpreteer je een yieldcurve?

Een rentecurve is echt een momentopname. Wat je vandaag ziet kan morgen weer heel anders zijn. Maar heel snel zal een rentecurve geen grote veranderingen laten zien. Het is niet zoals bij valutakoersen. Deskundigen kijken naar de ontwikkeling van de curve en anticiperen daarop met hun beleggingen en investeringen.
Als ondernemer kun je de yieldcurve gebruiken om een gevoel te krijgen van de economische ontwikkeling van de markt. Met een omgekeerde yieldcurve is de verwachting dat er economisch zware tijden aankomen. Vaak hebben we daarna te maken met een vlakke yieldcurve waarbij je ziet dat de economie weer langzaam aantrekt. Is de yieldcurve stijl met een lage korte rente en een hoge lange rente, dan zitten we in een groeiende economie met redelijk normale rentestanden.

Erna Erkens

Owner at EEVA

Zeroing in on 4 Specific Ways Treasurers’ Can Improve Cash Forecasting

21-07-2022 | treasuryXL | GTreasury | LinkedIn |

Particularly with continued financial headwinds, accurate-as-possible cash forecasting and visibility are more critical than ever. But, according to a recent survey of hundreds of global treasurers, the process of generating forecasts has been either “somewhat difficult” or “extremely difficult.”

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Jo Stevens, a senior product manager at GTreasury, wrote for Treasury & Risk on four specific best practices around how treasurers can improve cash forecasting and optimize their use of sophisticated forecasting technologies. Jo discusses how to capture more accurate data, how to best process that data with machine learning, how to approach cash visibility, and, crucially, how to continually adapt to meet ongoing forecasting challenges.

Read: Best Practices for Cash Forecasting Processes in Treasury & Risk

The Working Capital Forum Europe | Amsterdam 2022

20-07-2022 | treasuryXL | The Working Capital Forum | LinkedIn |

MANAGING WORKING CAPITAL IN CHALLENGING TIMES

On 1st December 2022, Working Capital Forum Europe brings together leaders in treasury, procurement, and payments to share ideas and techniques for better working capital management across supply chains.

That’s never been so important as in these times of rising interest rates, inflation, and supply chain shocks, when managing working capital is everyone’s concern.

From supply chain finance to accurate cash forecasting, solutions for every component of working capital management will be discussed on stage, demonstrated in our information area, and examined in our workshops at the world’s largest specialist working capital and supply chain finance event.

We’re delighted to return to Amsterdam for this one-day live event, with main stage keynote sessions, panel debates, and breakout workshops and demos.

If you’re interested in optimising working capital in your organisation, you need to join us in Amsterdam for the most productive day you’ve had in years.

Among the topics we will be covering are:

Cash forecasting and cash visibility
Payables finance
Receivables finance
Optimising receivables – get paid faster
Inventory management and inventory finance
Supply chain finance
‘Deep tier’ supply chain finance
Funding options for trade and supply chain finance
Using working capital tools for ESG objectives
Credit insurance
Disclosure rules on supplier finance
Ratings agencies and their view of working capital solution

USE YOUR COUPON CODE VIA TREASURYXL

Banks, fintechs, and other solution providers can get 25% off the cost of a ticket using this TreasuryXL code: TXL2225
Corporate Treasurers can apply for a free ticket using this Treasury XL code: TXL22CG

TO REGISTER AND FIND OUT MORE VISIT: WORKING CAPITAL FORUM EUROPE

Visit the Working Capital Forum: https://www.workingcapitalforum.com/

Join our events here: https://www.workingcapitalforum.com/events

Enter the Working Capital and Supply Chain Finance 2022 Awards here: https://www.workingcapitalforum.com/awards.html

marcus evans | 8th Annual Retail Deposit Optimization And Strategic Management | 12–14 September | Toronto

19-07-2022 | treasuryXL | marcus evans | LinkedIn |

We are excited to announce our media partnership with marcus evans for the 8th Edition of Retail Deposits & Strategic Optimization – Canada. In this edition of the conference, the delegates will find out the latest trends in customer experience and pricing in times of high-interest rates.

Toronto, Canada

12 – 14 September 2022

This premier GFMI event will bring together leading industry experts in retail banking and digital transformation from across Canada to address the current challenges and best practices for acquiring and retaining retail deposits. More specifically, Haventree Bank, RBC, BMO, First Ontario Credit Union, SBI Canada Bank, Innovation Credit Union, and many others be discussing how to manage the excess liquidity levels obtained during the pandemic, establish customer loyalty in a highly competitive rate environment through personalization and digital transformation, and improve your bottom line through optimizing deposit revenue through dynamic pricing strategies.

Key Themes:

Reviewing the impact of macroeconomic conditions on retail deposit optimization: how are rates and regulation changing strategies?
Sourcing and retaining sticky deposits in a highly volatile rate environment
Utilize product and pricing strategies to stay on top of the competition
How to handle liquidity levels in a rising rate environment
Taking digital transformation to the next level by centralizing focus and innovation on customer experience

Interested in joining this exclusive event? Then contact Mr. Ayis Panayi at [email protected] for discounts available or visit the website https://bit.ly/3HY6v16.

Looking forward to welcoming you at the event!

EU crypto regulation: towards global cooperation?

19-07-2022 | Carlo de Meijer | treasuryXL | LinkedIn |

Finally, after two years of intensive deliberations, EU legislators have reached a provisional agreement on its landmark Markets in Crypto Assets (MICA) directive, that is aimed to govern the crypto space in Europe for the years to come.

The recent crypto market crash shows how highly risky and speculative crypto currencies are. It confirmed the urgent need for enhanced regulatory and law enforcement frameworks in the EU. So far, digital assets, such as cryptocurrencies, have been largely out of the scope of EU legislation, while divergent laws exist in the member states.

But what may we further expect? Is this the start of further regulatory co-operation worldwide or will it trigger growing regulatory competition between the various countries, especially the US and UK, that are presently dominating the crypto market.

The deals

The deal reached on 30 June consists of two elements: the Markets in Crypto Assets or MICA regulation and a Bill on the Transparency of crypto asset transfers. Both laws are put in place to set clear common rules for a harmonized market in the EU.

The aim of the regulation is to put an ’end to the crypto wild life’ by creating a comprehensive regulatory framework for the crypto-asset market in a balanced way that supports innovation and harnesses the potential of crypto-assets while preserving financial stability and protecting investors.

Such a regulation should provide legal clarity for the crypto business including crypto asset issuers, guaranteed equal rights for asset service providers, as well as ensuring high standards for consumers and investors.

While MICA will put new requirements on exchanges and issuers of stable coins, and provide legal certainty for crypto-asset issuers, guarantee equal rights for service providers and ensure high standards for consumers and investors, the Transparency Bill will force crypto asset service providers(CASPs) to gather information about the transfers they operate to prevent money laundering in crypto.

New provisions

The proposed EU regulation is especially targeting so-called crypto asset services providers(CASPs) and aims to provide a consistent approach across all 27 member states and covers issues like authorisation and supervision, transparency, disclosure and authorisation and supervision of transactions by crypto asset service providers (CASPs) as well as consumer and investor protection, stablecoins and environmental considerations.

License

MiCA will change the registration and authorization process for crypto asset services providers in Europe. Under the provisional agreement they will need an authorization in order to operate in the EU. National authorities will thereby be required to issue authorisations within a timeframe of three months. Regarding the largest CASPs, national authorities will transmit relevant information regularly to the European Securities and Markets Authority (ESMA).

These CASPs will have to be licensed by national authorities and must be based in the EU and have their office within the European Union by a legal person, with a predetermined capital base and adhere to consumer protection safeguards, and be listed on a register held by the European Securities and Markets Authority.

This license will give issuers of crypto assets and providers of related services a “passport” to issue and sell digital tokens in the EU \nd serve clients across the EU from a single base.

Public register

To avoid any overlaps with updated legislation on anti-money laundering (AML), which will now also cover crypto-assets, MiCA does not duplicate the anti-money laundering provisions as set out in the newly updated transfer of funds rules agreed on 29 June.

The new framework will put ESMA in charge of a public register where all non-compliant crypto providers who offer services without authorization will be listed. This to reduce anonymity to tackle money laundering and evasion of sanctions.

EU cryptocurrency exchanges will be obliged to identify users and track suspicious transactions. Entities issuing crypto assets will have to disclose basic information such as a description of the issuer, the project and the use of the funds. This “identity card” will be backed up by details of the rights, obligations and risks associated with these digital assets. National authorities will be notified of all of this information.

Crypto-asset service providers, whose parent company is located in countries listed on the EU list of third countries considered at high risk for anti-money laundering activities, as well as on the EU list of non-cooperative jurisdictions for tax purposes, will be required to implement enhanced checks in line with the EU AML framework. Tougher requirements may also be applied to shareholders and to the management of the CASPs, notably with regard to their localisation.

White Paper: transparency

CASPs will also be obliged to be more transparent about their financial position as well as the tokens they offer. The regulation makes it a legal obligation for crypto projects to issue a White Paper on all tokens, with all the characteristics and risks and submit it to the regulatory authorities, although the submission will be merely declaratory and the regulatory authorities do not enjoy the power to authorise or reject crypto projects, other than stablecoins.

The list of information that crypto projects are required to share with the public is relatively slim and does not include many aspects that are already customarily included in white papers. Most importantly, the regulation does not require white papers to explain the project’s ‘tokenomics’.

Consumer and investor protection

This regulatory framework also aims to provide an appropriate level of consumer and investor protection against some of the risks associated with the investment in crypto assets. Consumer protection standards adopted in the regulation will legally protect consumer funds against cyber-attacks, theft or misuse which are within the responsibility of the cryptocurrency exchanges.

Crypto companies will be held more accountable for investor protection and for investor losses. They must act ‘fair, honest, professional in the best interest of their clients and provide such clients or potential clients with fair and not misleading information’.

Once implemented, the law will require crypto asset service providers (CASPs) to adhere to certain requirements aimed at protecting investors as well as warn clients about the potential risk associated with investing in a volatile crypto market, and publish their pricing policy on their website.

Although these regulations will not provide protection against all of the risks associated with cryptocurrencies, individuals’ own knowledge and analyses will therefore continue to be a key method of consumer protection.

Un-hosted wallets

Unhosted wallets, also known as cold storage or self-custody that enable the user to maintain a cryptocurrency balance outside of an exchange, are mostly excluded from regulation. Transfers between exchanges and so-called “un-hosted wallets” owned by individuals will need only to be reported when transfers are made to a person’s own wallet, and when the value tops the 1,000-euro threshold. This move is designed to reduce anonymity, and thus money laundering, through crypto transactions.

Stablecoins

Stablecoins, which the regulation calls ‘asset-referenced’ tokens’, are also subject to strict regulatory standards of transparency, operation, and governance.

When the regulation comes into force, existing stablecoins will have to seek authorisation from the regulatory authorities to be traded within the EU. Issuers of these so-called asset referred stablecoins will need to have a registered office in the EU to ensure the proper supervision and monitoring of offers to the public of asset-referenced tokens. Most importantly, the regulation prohibits the issuance of interest to e-money tokens. The authorisation requirement applies also to stablecoins already in circulation.

Reserves will have to be “legally and operationally segregated and insulated” and must also be “fully protected in case of insolvency.” Stablecoins that become too large/big also face being capped at 200 million euros in transactions a day under the new regulation.

Holders of stablecoins will be offered a claim at any time and free of charge by the issuer, with all stablecoins be supervised by the European Banking Authority (EBA), with a presence of the issuer in the EU being a precondition for any issuance.

Environment

MiCA will also address environmental concerns surrounding crypto. Crypto asset providers will be required todeclare information on their environmental and climate footprint and disclose their energy consumption to regulators as well as the environmental impact of digital assets they choose to list, using the EU regulatory standards as a basis.

The ESMA is now developing draft regulatory technical standards on the content, methodologies and presentation of information related to principal adverse environmental and climate-related impact.

Oversight of the crypto industry

The new EU regulation of the crypto market will primarily be enforced by national regulatory authorities designated by the member states. They will employ national procedural rules and impose remedies foreseen in national law, including criminal remedies where applicable, when they enforce the regulation.

While EU member states will be the main enforcers of the rules, the regulation also gives the European Banking Authority and the European Securities and Markets Authority significant supervisory and investigative powers.

ESM will be responsible for oversight of the industry, while a new legal framework will seek to regulate public offers of crypto assets to protect market integrity. ESMA will thereby be given powers to step in to ban or restrict crypto platforms if they are seen to not properly protect investors, or threaten market integrity or financial stability.

In the meantime the European Council reached an agreement to form an anti-money laundering body that will have the authority to supervise certain CASPs. And will probably get the name of AMLA.

Reactions from the cryptomarkets

How ate crypto firms reaction? Overall, crypto industry players are reacting positively to the EU’s MiCA efforts, and largely welcomed this outcome that heralds the end of several months of negotiations.

As such a harmonized, comprehensive framework could give market participants regulatory the desired clarity to make sure their activities are compliant with AML regulations and crypto end-users key projections and market-wide assurances. The rules would underpin the development of a robust and well-functioning market, within which they could safely operate their businesses further driving crypto innovation and adoption in the EU region.

Some called the rules “a significant milestone”, while others said the comprehensive new framework was “exciting”, providing regulatory certainty to the market, and raising industry standards.

Crypto expansion in Europe

These regulatory developments haven’t stopped firms within the digital asset space from planning their expansion in the EU. Several industry insiders see the move as a positive step and believe Europe could lead the way on crypto regulation saying the EU framework represented a “significant milestone’.

A growing number crypto firms operating or planning to expand into Europe have already taken steps ahead of schedule to ensure compliance. Such as cryptocurrency exchange STEX, that has partnered with KYC and AML platform Ondato in March 2022 to ensure the exchange’s continued customer growth within a compliance environment of imminent new EU regulation of crypto-assets. But also Coinbase, that already holds authorisation from Germany and Ireland, as well as other crypto platforms are seeking licenses in several Eurpean countries.

How to progress?

We are not there yet! The provisional agreement will now move to be approved by the Economic and Monetary Affairs Committee, and should be rubber-stamped by the European Parliament before being translated into legislative text and gazetted in the EU’s Official Journal. The European capitals will then have 18 months to implement them in the national legislation. This process could thus take until 2024 for states to implement MICA and the EU crypto regulation effectively be working.

Some loose ends

There are still a number of regulatory open issues that should be taken into account in a future revision of the EU crypto regulation such as NFTs, the environment, supervision .etc. An additional problem is that legislation is always lagging behind practice, this especially goes for crypto where technological developments are very rapid. In the meantime EU policymakers are already planning MICA2 to tie up any legal loose ends.

NFTs

Members of the European Parliament have proposed that NFT trading platforms should be made subject to the EU anti-money laundering (AML) laws and should be brought in the scope of MiCA, with authorization and supervision of crypto firms at member state level. They have been tasked with determining whether NFTs require a separate regulatory framework to address the emerging risks of such new market.

Environmental impact

Another issue that should be solved is the question how to address the environmental impact of crypto assets. The final version of the new directive mandates co-legislators to take into account the environmental impact of crypto assets in a future review. The European Commission would assess the energy footprint of crypto assets. Within two years, the European Commission will have to provide a report on the environmental impact of crypto-assets and the introduction of mandatory minimum sustainability standards for consensus mechanisms, including the proof-of-work.

Some concerns

But there are still a number of concerns that should be taken into account before the new regulation becomes law and is fully implemented..

Regulatory overlap

The ECB has warned EU member states about the necessity of harmonizing the different crypto regulations across EU member states until MICA becomes law and is fully implemented. The ECB is concerned about the different crypto regulations across member states and the possible regulatory overlap between respective central banks in the EU and crypto companies during that period.

The ECB is set to warn countries in the eurozone of the dangers of national regulators getting ahead of MiCA and proposing new rules that may affect the future harmonization of rules. The ECB is concerned that countries start providing crypto-related licenses to traditional banks when there is not yet a pan-European framework in place.

The central bank wants to discuss the need to harmonize the provision of these licenses across countries before MiCA is fully implemented. Regulators from 19 EU member states will reportedly attend a supervisory board meeting in July to discuss MiCA and its possible implementation.

Regulatory competition or cooperation

The much-anticipated EU crypto regulation is expected to completely change the crypto landscape. But how and at what scale will greatly depend on the attitude of regulators in both the US and the UK.

The provisional agreement by EU regulators is a welcome step in the right direction. It is still questionable if other regulators will follow suit and work together with industry leaders to deliver a clear and effective global framework which will allow the sector to flourish.

What is sure is that the rules plant Europe firmly ahead of the major crypto centres US and the UK in the race to regulate crypto. These countries have yet to approve similar rules. The Bank of England’s Financial Policy Committee has called for “enhanced regulation” of the crypto asset market to mitigate against potential risks.

The question if they are prepared to cooperate or if they use crypto regulation as a way to compete in this promising market is still open. Here is a great task for international bodies like the G7, the G20, the BIS and others to teak a lead.

Thanks for reading!

Carlo de Meijer

Economist and researcher

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