Tag Archive for: banking

“Systems om je bank buitenspel te zetten” – Verslag van mijn Financial Systems presentatie

| 23-5-2017 | Pieter de Kiewit |

Dit is een verslag en korte samenvatting van mijn presentatie die ik mocht houden op het Financial Systems evenement. Afgezien van een gênante vertraging door mijn gebrekkige Powerpoint skills was het een prettige sessie afgerond met een pittige discussie tussen experts in de zaal. Eerst een korte samenvatting:

Als Feyenoord fan ben ik dit jaar gelukkig en weet veel van voetbal, ook al speel ik het niet. Daarin ligt een parallel in mijn werk als treasury recruiter. Maandelijks krijg ik van circa 100 experts persoonlijk college en zie een veelvoud aan cv’s. Ik denk dat ik hierdoor inzicht heb in systemen die worden gebruikt om treasury processen te managen en ik zie de afgelopen decennia interessante ontwikkelingen die de laatste jaren in een versnelling zijn geraakt.

Zonder namen te noemen van leveranciers, ik doe geen software sales, heb ik een lijst gemaakt van diensten en producten die de gereedschapskist van de treasurer kunnen vergroten en afhankelijkheid van zijn bank verkleinen. Toen ik deze lijst opstelde, viel me op dat er tussen de vakgebieden cash & werkkapitaal management enerzijds en funding anderzijds interessante ontwikkelingen zijn zoals bankonafhankelijke betaalplatforms, crowdfunding en het bankkosten inzichtelijk maken. In het managen van risk zie je bijvoorbeeld trade finance in blockchain en partijen die FX transacties tegen ongebruikelijk lage marges bieden.

Banken daadwerkelijk buitenspel wordt lastig en is volgens mij ook niet het streven. Banken bashen vind ik een zeer onsympathieke hobby. Daarbij is de Fintech wereld ook nog niet volwassen met alle bijbehorende consequenties. Voor de drukbezette treasurer, voor de DGA en CFO die maar incidenteel te maken hebben met het vakgebied kunnen deze ontwikkelingen nogal onoverzichtelijk zijn. Helaas is er geen oplossing die snel inzicht verschaft. Wel denk ik dat er mooie kansen liggen voor degene die vooraan wil meelopen in ontwikkelingen.

De discussie die zich ontspon tussen financiële lijnmanagers en treasury experts ging, onder andere, over de vraag of bankkosten daadwerkelijk inzichtelijk zijn en wat de toekomstige rol van de banken zal zijn. De Powerpoint presentatie is onder dit artikel opgenomen. Ik verheug me op verdere events waar discussie rond dit thema kan worden verder gevoerd.

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

 

Klik hier als je de presentatie van de sessie wilt bekijken.

 

 

 

 

MIFID II – a short excursion into the MIFID landscape

| 10-5-2017 | treasuryXL |

MIFID II – you read about it frequently. And there are more abbreviations: you will also find MIFIR and MIFID I.  As a banker you will know what we are talking about.  As a treasurer or financial professional you are supposed to understand what MIFID II will bring you. We think it is time to zoom in on this subject and present a short summary.

MIFID

MIFID, short for ‘Markets in Financial Instruments Directive’ (2004/39/EC) and applicable since November 2007 has been a cornerstone of the EU’s regulation of financial markets  since then. It aims to improve the competitiveness of EU financial markets by creating a single market for investment services and activitities. To ensure a high degree of harmonised protection for investors in financial instruments.

MIFID or MIFID I set out the conducts of business and organisational requirements for investment firms, authorisation requirements for regulated markets, regulatory reporting to avoid market abuse, trade transparency obligation for shares; and rules on the admission of financial instruments to trading.

MIFIR

MIFIR short for Markets in Financial Instruments Regulation is more than a directive. It is a European law and needs to be implemented as written. The member states have to comply with this regulation and the aim is to protect end consumers and markets. It unifies for example reporting and ensures that the reporting format is consistent.

The Markets in Financial Instruments Regulation and the Directive on Markets in Financial Instruments repealing Directive 2004/39/EC, commonly referred to as MiFID II and MiFIR, were adopted by the European Parliament on 15 April 2014, after heavy discussions that lasted more than two years.

MIFID II

MIFID II and MIFIR are building on the rules of MIFID I, already in place. The new rules are designed to take into account developments in the trading environment since the implementation of MiFID in 2007 and, in light of the financial crisis, to improve the functioning of financial markets making them more efficient, resilient and transparent.

MIFID II will be transposed into the national laws of Members States on July 3rd, 2017 and will apply within Member States from January, 3rd, 2018.
(Source: European Securities and Markets Authority (ESMA)

MIFIR reporting list

Implementing MIFID II and MIFIR will be a real challenge, as it brings enormous complexity for enterprises throughout the industry in terms of generating, collecting and processing financial data. We found a MIFIR reporting list, published by the London Stock Exchange Group, which is applicable not only in the United Kingdom.

In short they propose the following to firms to help them be in the best possible position for MiFIR reporting go-live:

  • Preparing your data to the wider scope of MIFID II with a project tool that allows to not only find data but also access it
  • Know what you are doing about data protection
  • Select your ARM (Approved Reporting Mechanism) and APA (Approved Publication Arrangement)
  • Identify which transactions to report by sourcing a reliable list of instruments that are eligible for MiFIR transaction reporting
  • Train your staff
  • Reconcile your data with the help of an ARM
  • Implement appropriate governance –  ensure best practice in effectiveness and appropriate accountability.
  • Give management business insight

More details can be found in the MIFIR reporting list of the London Stock Exchange Group.

There is little time left until the implementation, still much to do in the industry and it will involve considerable human resources and IT costs. The trading landscape will change significantly.

 

Annette Gillhart – Community Manager treasuryXL

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1 juli stopt GMU – hoe houdt u uw bedrijfsprocessen op orde?

| 3-5-2017 | Mark van de Griendt | Sponsored content |

GMU, het formaat wat al jaren door ING wordt gebruikt als formaat voor de bankafschriftinformatie, wordt vanaf 1 juli niet meer door ING aangeboden. Dit formaat wordt al tientallen jaren door ING geleverd en wordt ‘ingehaald’ door formaten die uitgebreidere (incasso) informatie kunnen geven. Wat houdt deze verandering precies in? En wat zijn oplossingen voor het verdwijnen van GMU?

 

Van GMU naar CAMT

Al jarenlang gebruiken klanten van ING GMU als formaat om bankafschriftinformatie in te lezen in hun systemen. Het is noodzakelijk voor een bedrijf om te weten dat als een automatische incasso niet kon worden afgeschreven bij de klant, welke reden dit dan heeft. Aangezien het bedrijf dan weet welke vervolgstappen er richting de klant genomen moeten worden. Dit werd dan in een bestand gezet (GMU formaat) en ingelezen bij het boekhoudingssysteem van het bedrijf. Hierdoor werd er zonder moeite of tijd een overzicht gecreëerd om te kunnen inzien voor het bedrijf. Indien u gebruik maakt van het GMU formaat, heeft het uitfaseren van dit formaat veel gevolgen. De opvolger van GMU is het formaat CAMT 0.53. CAMT is een formaat dat al enige tijd beschikbaar is. Waar GMU een Nederlands en ING-eigen formaat is, is CAMT is een internationaal formaat en biedt dezelfde, zo niet net meer informatie dan GMU. Zo kun je met CAMT de exacte reden inzien van een incasso die niet geïnd is. Aangezien veel huidige systemen om het GMU formaat zijn gebouwd, moet een bedrijf dus een oplossing hebben om ook na het uitfaseren van GMU het de bankrapportage in te kunnen lezen.

 Welke oplossingen zijn er?

Gebruikers van het GMU bestandsformaat hebben systemen die om het GMU-formaat heen gebouwd zijn ten behoeve van hun reconciliatie en daarom heeft het verdwijnen van GMU gevolgen voor deze bedrijven. CAMT bevat dezelfde informatie als GMU (platte tekst met codes), maar aangezien het een ander formaat is en dus een andere indeling heeft, kan CAMT (XML-bestand) niet in het huidige systeem van een bedrijf worden ingelezen. De oplossing voor bedrijven is tweeledig. Er kan gekozen worden om het huidige systeem om te laten bouwen door de software leverancier zodat het systeem CAMT kan inlezen of er kan gekozen worden om GMU nadat het uitgefaseerd is door ING alsnog te blijven gebruiken door een GMU-converter aan te schaffen. Deze GMU-converter zet CAMT bestanden om in GMU formaat zodat het huidige business proces van een bedrijf ongestoord verder kan gaan.

Systeem ombouwen van GMU naar CAMT

Om het huidige systeem om te laten zetten zodat het CAMT bestandsformaat ingelezen kan worden, moet de systeem leverancier van het huidige systeem worden ingeschakeld. Deze moet de functie om het nieuwe formaat in te kunnen lezen dan in het systeem ontwikkelen. Afhankelijk van zaken zoals het aantal gebruikers van het systeem, kan dit een complex proces zijn met een lange (ontwikkel) doorlooptijd en relatief hoge kosten. Aangezien deze optie vaak veel tijd kost, is hier meestal ook veel geld mee gemoeid. Het is natuurlijk erg vervelend als u bijvoorbeeld een systeemverandering over 2 jaar heeft ingepland, dat u dit nu dus naar voren moet halen aangezien het GMU formaat dus binnenkort gewoonweg niet meer geleverd wordt. Deze optie kost dus veel tijd en geld en hiernaast heeft het ook nog haast. Gelukkig is er nog een optie, de PowertoPay GMU-converter.

GMU-converter

De GMU-converter kan het CAMT formaat overzetten in het GMU formaat. Het is begrijpelijk dat het best lastig is om over te stappen naar een ander formaat als een bedrijf al jaren op dezelfde manier de betalingen verwerkt in het systeem. Daarom is er een oplossing (de GMU-converter) bedacht om veel kosten, tijd en risico’s te besparen voor bedrijven die nog gebruik maken van GMU. PowertoPay biedt deze GMU converter. Dit gaat als volgt in zijn werk: PowertoPay ontvangt het CAMT bestand van ING, wij zetten dit om in GMU en versturen het vervolgens naar uw bedrijf zodat de betalingen op dezelfde manier verder verwerkt kunnen worden. Deze oplossing is super voor bedrijven die gewoon gebruik willen blijven maken van GMU. Maar ook voor bedrijven die wel willen over gaan op CAMT, maar wat meer tijd willen hebben om dit project rustig uit te voeren, is deze GMU-converter een oplossing. De GMU converter is qua kosten veel vriendelijker, aangezien een grote systeemverandering niet alleen geld kost om het te laten maken, maar ook veel geld kost omdat er vaak een project opgezet moet worden om een systeemverandering in de organisatie door te voeren (denk aan: trainingen voor het personeel). Hiernaast kunnen bedrijven vrijwel direct gebruik gaan maken van deze converter, en kan door worden gegaan met het verwerken van het betalingsverkeer zoals u dat al jaren doet.

Conclusie

GMU verdwijnt. Als uw bedrijf werkt met dit bestandsformaat, betekent dit dat u actie moet ondernemen. U kunt ervoor kiezen om het huidige systeem om te laten bouwen zodat u betalingsbestanden in het formaat CAMT kunt ontvangen. Dit is echter een duur en lang proces. U kunt er ook voor kiezen om na de uitfasering nog steeds te werken met GMU, door de GMU-converter van PowertoPay in huis te nemen.

Mark van de Griendt – Cash Management Expert at PowertoPay

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Blockchain and the Ripple effect: did it ripple?

|24-4-2017 | Carlo de Meijer | treasuryXL

Our expert Carlo de Meijer has published an interesting article about a blockchain initiative that we want to share with you. We have slightly shortened the original article about Ripple.

 

Who is Ripple?

Have you ever thrown a stone in still water of a river or a lake. I did! The effect is rippling the water in a way that can be followed outwards incrementally. It might be this effect that the founders of Ripple, the payments blockchain network had in mind when choosing the name for their project. Did it ripple?

San Francisco based Ripple is seen as one of the most advanced distributed ledger technology (DLT) companies in the industry, which focuses on the using of blockchain-like technology for payments.

In just four years, Ripple has established itself as a key player in the fast-growing distributed ledger technology world. Since 2013, the Ripple Protocol has been adopted by an increasing number of financial institutions to “[offer] an alternative remittance option” to consumers. Especially the years 2015 and 2016 marked the expansion of Ripple, with the opening of an office in Sydney (April 2015) and the opening of European offices in London (March 2016 ) and in Luxembourg (June 2016).
In June last year, Ripple obtained a virtual currency license from the New York State Department of Financial Services, making it the fourth company with a BitLicense. As of 2017, Ripple is the third-largest cryptocurrency by market capitalisation, after Bitcoin and Ether.

What is Ripple?

Ripple is a financial real-time gross settlement solution, currrency exchange and remittance network using distributed ledger technology. Released in 2012, it purports to enable “secure, instant and nearly free global financial transactions of any size with no chargebacks”.
Ripple is built upon a distributed open source Internet protocol, consensus ledger and native currency called XRP (ripples) enabling (cross-border) payments for retail customers, corporations, and other banks.
The Ripple Protocol, described as “basic (settlement) infrastructure technology for interbank transactions”, enables the interoperation of different ledgers and payment networks and brings together three aspects of modern payment solutions: messaging, settlement and FX management. It allows banks and non-bank financial services companies to incorporate the Ripple Protocol into their own systems, and therefore allow their customers to use the service.

The protocol enables the instant and direct transfer of money between two parties. As such the protocol can circumvent the fees and wait times of the traditional correspondent banking system. Any type of currency can be exchanged including USD, euros, RMB, yen, gold, airline miles, and rupees.
“Ripple simplifies the [exchange] process by creating point-to-point and transparent transfers in which banks do not have to pay corresponding bank fees.” Chris Larssen, former CEO Ripple

The Ripple company also created its own form of digital currency dubbed XRP in a manner similar to bitcoin, using the currency to allow financial institutions to transfer money with “negligible fees and wait-time. One of the specific functions of XRP is as a bridge currency, which can be necessary if no direct exchange is available between two currencies at a specific time. For example when transacting between two rarely traded currency pairs. Within the network’s currency exchange, XRP are traded freely against other currencies, and its market price fluctuates against dollars, euros, yen, bitcoin etc.

Did it Ripple?

Growing adoption by banks
Ripple has experienced a growing adoption by banks. Many financial companies have subsequently announced experimenting and integrations with Ripple. The first bank to use Ripple was the online-only Fidor Bank in Munich, which announced the partnership early 2014. Fidor Bank would be using the Ripple protocol to implement a new real-time international money transfer network.
Since then a host of major banks have adopted Ripple to improve their cross-border payments, and many have completed trial blockchain projects. These banking institutions – including Santander, UniCredit, UBS, Royal Bank of Canada, Westpac Banking Corporation, CIBC, and National Bank of Abu Dhabi, among others – view Ripple’s payment protocol and exchange network as a valid mechanism for offering real-time affordable money transfers.

Some recent developments in the Ripple network

The real uptake of Ripple however started to take place in 2016 and continued during the first quarter of 2017.

National Bank of Abu Dhabi (February 2017), Axis Bank (January 2017), SEB (November 2016), Standard Chartered (September 2016), and National Australia Bank (September 2016) are the latest banks to join Ripple’s blockchain-powered network for cross-border payments. And more banks will get on the Ripple bandwagon during 2017. Ripple says its network now includes 12 of the top 50 global banks, ten banks in commercial deal phases, and over 30 bank pilots completed.
“Banks and their customers have been hearing about the promise of blockchain technology to enable real-time cross-border payments. Now, some of the most innovative and successful banks like NBAD are making this a reality by offering Ripple-enabled payments to their entire customer base, and in doing so, paving the way to make 2017 the year we see broad commercialization of blockchain take hold globally.” Brad Garlinghouse, CEO of Ripple

Further Rippling: enlarging the network

Global Payments Steering Group
Last year September Ripple created the “first: interbank group for global payments based on distributed financial technology. Bank of America Merrill Lynch, Santander, UniCredit, Standard Chartered, Westpac, and Royal Bank of Canada have joined as founding members of the network, known as the Global Payments Steering Group (GPSG). CIBC will also join the GPSG as a new member.
“The creation of GPSG is significant because this represents the first time that major banks have formulated policies to govern the transfer of money across borders using blockchain,” Donald Donahue, GPSG chairman.

GPSG aims to use Ripple’s technology to slash the time and cost of settlement while enabling new types of high-volume, low-value global transactions. The group will oversee the creation and maintenance of Ripple payment transaction rules, formalised standards for activity using Ripple, and other actions to support the implementation of Ripple payment capabilities.

R3CEV
Last year October R3 and twelve of its blockchain consortium member banks – including Barclays, NAB, Nordea, Royal Bank of Canada, Santander – have trialled Ripple’s Digital Asset XRP, to tackle the costs and inefficiencies of interbank cross-border payments. Ripple says XRP has the “fastest” settlement speed, settling in about five seconds or less.
“The prototype paves the way for a major overhaul of how banks process and settle cross border payments”. David Rutter, CEO of R3

Banks traditionally provision liquidity for cross-border payments by holding various currencies in local accounts with correspondent banks around the world. But these ‘nostro’ accounts are costly because banks have to fund them, trapping capital. Ripple argues that this can be fixed by instead using a digital asset – such as its XRP – which provides liquidity on demand.
Ripple’s network was trialled in R3’s lab and research centre, making markets for fiat currencies using XRP and then completing authenticated payments without multiple nostro accounts. The trial introduced XRP to test the feasibility of reducing or retiring the use of current nostro accounts for local currency payouts.

Ripple Innovations

In the meantime a number of important innovations were announced in the Ripple offering.

Ripple Validator Node
Global IT company CGI announced it is the first commercial enterprise to implement the Ripple Validator Node. Ripple validators are servers that confirm Ripple’s distributed financial technology transactions on the network. The CGI-hosted Ripple Validator Node provides banking clients with a trusted network partner for Ripple’s distributed financial technology that settles international and domestic transactions in real-time.

Smart Token Chain
Smart Token Chain (STC), a blockchain specialist in the FinTech sector, has completed its first full Smart Token transaction across the Ripple Network. Using Ripple gives STC universal access to a wide range of partners and customers without having to physically craft a digital relationship with each one. STC is leveraging Ripple’s open, neutral platform, called “Interledger Protocol” to move payments globally across different ledgers and networks.
Leveraging the Ripple platform with new Smart Token solutions is accelerating the move toward the launch of a truly useful blockchain and smart contract implementation, which has great potential for making global exchanges of value fast, affordable and highly secure. It also provides a well-documented audit trail that will make dispute resolutions more efficient and less frequent.

Ripple’s new cost model

Ripple created a cost model, designed specifically to help banks understand their cost structure and how Ripple can help them overcome current inefficiencies. With Ripple’s new cost model, banks can easily enter transaction volume and operational metrics to receive a custom cost analysis. The cost analysis breaks down cost to a per-payment level, for both a bank’s current system and if it were to use Ripple. By using this model banks can easily estimate the efficiency gains it could achieve using Ripple for international payments.
XRP Incentive Program

The XRP incentive program is designed to accelerate the use of XRP as a universal bridge currency by creating deep and liquid markets at the outset of being listed on digital exchanges. The program is funded by Ripple and will be operationally managed by exchanges for their liquidity providers.

Global financial institutions are increasingly looking for solutions to consolidate the liquidity tied up with the nostro accounts required to fund their overseas payments. Digital assets such as XRP allow for banks to fund their payments in real-time, and in the process, cut down their dependency on nostro accounts.
As a bridge currency, it can enable liquidity concentration around fewer currency pairs, making cross-border payments more efficient. As evidenced by R3’s trial with XRP for interbank cross-border payments, the use of Ripple and XRP can enable both cost-cutting and revenue opportunities for participating institutions.

BitGo makes XRP more accessible
Ripple’s efforts to build an active ecosystem around its XRP digital asset has been boosted by a deal with virtual currency processor BitGo. Under the programme, BitGo will provide multi-signature security, advanced treasury management and additional enterprise functionality for XRP, which will be integrated into the BitGo platform this year.

The Rippling goes on!

Ripple plans to enlarge the number of exchanges trading XRP. Working with a greater number of exchanges to list XRP is an important step to serve the growing demand for global payments in major and exotic currency corridors. Ripple has previously commented that by using its network and XRP as a bridge asset, banks can save up to 42% on interbank international payments.

“This cost-saving frees up capital to generate revenue opportunities, including new product offerings for high-volume, low-value payments and access to new corridors”, claims Ripple.

The Ripple effect goes on!

 

Carlo de Meijer

Economist and researcher

 

Regulatory demands: compliance required!

| 20-4-2017 | Olivier Werlingshoff | Sponsored content |

 

Complying with regulatory demands is a must, and banks know it. In practice, however, the majority still can’t manage to meet all requirements. Manual solutions prove to be insufficient and important rules are often overlooked. But how does one ensure that all regulatory demands are complied with?

Facilitating screening

Today, most banks offer apps that customers can use for online banking purposes, such as opening an account. However, there are two important aspects when onboarding a customer. First, you need to have adequate controls and procedures in place to know the customer with whom you are dealing. Adequate due diligence on new and existing customers is a key part of these controls – which can be done using advanced software that is linked to different sanction lists. Second, all customer transactions should be monitored for AML – which is done after the settlement of a transaction and live transaction screening, which happens in real time. The moment a payment is made and a beneficiary bank receives it, sanction lists are instantly scanned to check if there is a hit or not. This is done for every transaction, ensuring that regulatory demands are met.

Compliance: points of attention

Some banks still don’t comply with regulatory demands. They merely check sanction lists for the customer’s name – often manually –, which is by no means sufficient! For example, one should also verify whether the customer’s name appears in any media or lawsuits, and a customer’s partner needs to be checked as well. So what you need is a comprehensive solution that takes all these different aspects into account.

Implementing a solution

Proferus helps banks and corporates opt for a proper automated solution based on the demands involved. We assist in choosing the right software and support teams that have to learn to work with it. Basically, we help them in two respects: we provide consultancy – by conducting business analyses – and we implement the technical solution!

Olivier Werlingshoff - editor treasuryXL

 

Olivier Werlingshoff

Managing Consultant at Proferus

The Euro from a treasury perspective

| 10-4-2017 | Hans de Vries |

In a perfect world, one currency is the ultimate dream for every Treasurer. The introduction of the Euro has been a major leap forward in that direction. However, current anti-euro sentiments boosted by populist movements all over Europe, seriously threaten to hamper this unique and visionary European accomplishment.  This article focusses on what impact the introduction of the Euro had for the corporate treasurers and what will happen if the Euro gets skipped.

Let’s start with the beginning. One must be aware that the introduction of the Euro is the world’s largest economic policy experiment so far with heavy repercussions on the autonomy of the countries involved with regard to their monetary regimes.  So naturally this expedition has met a lot of criticism ever since the beginning, the creation of the European Monetary System (EMS) on March 13,1979.

The Euro skeptics mostly feared that the wide-spread adoption of the Euro would deteriorate the economies of countries that accepted this currency and was in favor of the larger countries, like France and Germany, that now could easily manipulate the Euro’s puppet strings. Main belief was that the Euro would weaken instead of strengthen the European economy.

 As from the start, Euro stronger than expected

Although the Euro met quite some negative public attention, looking at more than 15 years of Euro, the track record has not been that bad at all. As the graph shows, after a relatively weak position against the USD at the beginning of this century, the Euro has held a strong position against the USD as from 2003 on, although weakening after 2014 in the aftermath of the banking and economic crisis that followed it. However, the predicted downfall of the Euro never took place. Remarkable phenomenon was that when the value of the dollar was higher, it was regarded in the media as a sign of weakness of the Euro against a “strong” Dollar and when the value of the Euro was stronger than the USD it was regarded by the analysts as a sign of weakness of the Dollar.

More important is that the introduction of the Euro as per January 1, 1999 has indeed brought the predicted transparency to the European market but also to the global market. This transparency has contributed to the substantial growth (5-40% according to Bun and Klaassens) of the internal trade flows within the EU countries due to the fact that the Euro has lowered the fixed and/or variable costs of exports. Prices can be compared across the whole Eurozone, allowing companies to choose the most price-competitive suppliers. The newly exported goods are of lower unit values than those previously exported because the Euro has made exporting them profitable, particularly for small exporters. Don’t forget that with 28 member states in 2014 Europe was the strongest economic player on global level taking care of 17,1% of the World GDP whereas the USA had a share of 15,9% and Russia 3,3%.
From a more monetary viewpoint the Euro brought price stability. Inflation in the Eurozone has been around 2-2.5% for most of the time since its creation.
A strong Euro mitigated the impact of the volatility of dollar-denominated commodity prices.This advantage was particularly visible before the beginning of the financial and economic crisis, when the oil price and the price of some other important food commodities reached unprecedented peaks. Due to the Strong Euro or weak USD, the consequences for the European market were relatively minor.

Euro leads to transparent treasury operations and substantial cost reductions

In today´s Euro environment, most Treasurers in Europe only have to deal with the USD, GBP and sometimes CHF and the Nordic Currencies. This makes live quite overseeable and has substantially enhanced their risk portfolio. The same applies for the Treasurers outside the Euro zone, who are now freed from the hassle of the past European currency palette.

Although a number of Euro critics pointed their finger at the Euro as direct cause for the Banking crisis a few years ago, it is almost impossible to imagine the consequences of the crisis in and outside Europe if every European country had been dealing with their own currencies. This would have resulted in a pandemonium of devaluations and revaluations with even more severe consequences for the values of all national and international operating companies and even more bank bankruptcies. Not to mention the impact this might have had on pension funds and other investment vehicles on short and longer terms.

From a corporate perspective, the benefits of the introduction of the Euro are therefore quite clear.

But also the consumers more and more are sharing the benefits of the common Euro market. Not only during travels abroad but also internet shopping becomes more and more international with new initiatives on the way to support payments like the Fast Payment project.

Looking at all these benefits, the current anti Euro sentiment in a number of European member states is from an economic point of view hard to understand and might pose a serious threat on the future European economic development.

Consequences of a Euro exit from a treasury and cash management perspective

Imagine getting back to the world without the Euro. This means an enormous rise of the operational costs considering:

  • The daily currency shifts that influence directly the position of the corporate’s accounts receivable/ and accounts payable and therefore the short time profit/loss situation. To minimize the impact substantial investment in systems and manpower will be needed;
  • The monetary developments as result of the internal economic/ political situation per country resulting in overnight currency devaluation/ revaluation and it’s inter currency reaction’s. (The recent takeover of Opel by Peugeot was merely a result of the strong decline of the GBP against the Euro which had severe consequences on the UK based Vauxhall subsidiary and shows the impact of the monetary developments on the corporate world.)
  • The banking costs involved in setting up swaps/ hedges/ Long term deposits etc.
  • The banking costs involved in buying and selling the various currencies;
  • The impact on money transfers which will be treated as international payments again with different clearing systems, correspondent banks, local payment instruments and formats etc. resulting in delayed payments and receipts and therefore threatening the growth of the economies.
  • The impact on international trade that will strongly diminish due to the lack of transparency of the international markets, the rise of costs and the loss of trust.
  • Re-opening of local accounts to support local business

Banking industry as sole winner

The only party that will benefit from this skip of the Euro development is the banking industry, because of the margin to be made on currency exchange, swaps and other derivates, and the backshift to a Non-Sepa/ international payments environment with substantial higher transaction costs. Looking at the public opinion on banks in general ever since the bank crisis, it’s hard to believe that the populist movements in Europe are in favour of this development.

Take the loss or start a counter movement?

This leaves us with the question, what benefits are there to gain by consumers and businesses alike by leaving Europe and the Euro? Looking at the economic development of the Euro countries today and all the benefits the Euro has brought the corporates and consumers,  there is no clue why we should not stick to the current status quo and enhance it in any possible way.

It is therefore high time to start advocating the true merits a United Europe has been gaining thanks to the pan European ideals: a unprecedented war free community already lasting for more than seventy years combined with an enormous economic and cultural development.

Hans de Vries

Treasury/ Cash Management Consultant

Blockchain: Securities market infrastructure players in the contra-attack

| 7-4-2017 | Carlo de Meijer |

 

Blockchain technology has long been viewed as a threat to CSDs (Central Securities Depositories) and their role as intermediaries for securities transactions. Blockchain and distributed ledger technology may make the role of many intermediaries in the post trade market infrastructure obsolete. In one of my blogs (Blockchain and the securities industry: future eco-system) I was one of those who think that players such as custodians, CCPs, CSDs and others would disappear when blockchain would be used in a massive way.


“It however is not expected that there will be a complete disintermediation of service providers. While the role of custodians would greatly disappear and those of clearinghouses and CSDs will drastically change in a blockchain environment, the rest of the value chain in the securities industry may remain largely intact. The functions associated with tracking, reconciling, and auditing enormous amounts of data are not going to be disintermediated away. They have to continue to exist, but just need to be done more efficiently, at lower cost and with fewer errors”- Carlo R.W. de Meijer

But these players are going in the contra-attack. 15 CSDs from developing and emerging markets, including Strate and NSD, have agreed to form a consortium to explore blockchain and DLT technology in a post-trading environment. The partners say that“financial market infrastructures need to embrace the technology and identify opportunities that will add value to their current clients”.

Let’s look what they are all doing.

CSDs aim to build distributed ledger for mobilising scarce collateral (January 2017)

A coalition of four central securities depositories are collaborating with Deutsche Börse on an initiative to use blockchain technology to ease cross-border mobilisation of security collateral. The members of the so-called “Liquidity Alliance” include The Canadian Depository for Securities Limited (CDS), Clearstream (Luxembourg), Strate (South Africa) and VPS (Norway). Via this initiative they want to overcome existing hurdles when moving collateral across various jurisdictions, making the transfer faster and more efficient. The Alliance’s ‘LA Ledger’ will initially be implemented as a prototype based on the Hyperledger Fabric. Validation by regulatory authorities and market participants will start in the second quarter of 2017.

DTCC taps blockchain to rebuild its platform (January 2017)

The Depository Trust & Clearing Corporation (DTCC), a US post-trade provider, has announced plans to use blockchain technology in 2017 to rebuild its platform. It aims to create a credit derivatives post-trade lifecycle solution built using a distributed ledger platform. Blockchain can simplify the process by automatically maintaining a shared electronic record of the security which is visible to all relevant parties.  This new DTCC’s platform – Trade Information Ware house – will keep track of the security throughout the lifecycle of the associated bond.

IBM, Axoni, and R3 CEV, two technology startups have been selected to work on the project which is set to kick-off in January 2017. DTCC expects the new blockchain-enabled Trade Information Warehouse to go live in early 2018. Furthermore, the project has been developed with input from market participants and infrastructure providers including Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, JPMorgan Chase, UBS Group, Wells Fargo, IHS Markit and Intercontinental Exchange, DTCC said.

SWIFT creates blockchain application to simplify cross-border payments (January 2017)

SWIFT has begun building a blockchain application to simplify cross-border payments. The global platform is integrating open-source blockchain technology with its own products to build a proof-of-concept that might “one day” replace the so-called “nostro” accounts its members keep filled with cash all over the world – just in case they need it. A successful test of distributed ledger technology (DLT) could enable banks to optimize their liquidity globally and SWIFT to reduce the costs of reconciliation between independent databases maintained by the inter-bank platform’s members, reduce operational costs and free up liquidity for other investments.

Euroclear pencils in 2017 for bullion on blockchain roll out (December 2016)

Euroclear, the securities market depository, is set for a 2017 go-live for the application of blockchain technology in the London bullion market after completing its first pilot trades. Over 600 OTC test bullion trades were settled on the Euroclear Bankchain platform over the course of a two-week pilot. A number of leading market participants in the London bullion market – all part of the Euroclear Market Advisory Group – were involved in the test run, including Scotiabank, Société Générale, Citi, MKS PAMP Group and INTL FCStone. The Euroclear Bankchain Market Advisory Group set up in June this year now includes 17 participants working with Euroclear and blockchain platform provider Paxos in the roll-out of the new service. Another market simulation will run early this year in preparation for a production launch later in 2017.

Euroclear report: “CSDs matter in blockchain settlement system” (December 2016)

A new report by Euroclear has looked at the regulatory and legal aspects of the use of blockchain technology in post-trade settlement in a European context. The report, Blockchain Settlement: Regulation, Innovation, and Application, with support from Slaughter and May, found that central securities depositories (CSDs) would play an important role in a blockchain-based settlement system. It added that as ‘custodians of the code,’ CSDs could exercise oversight of, and take responsibility for, the operation of the relevant blockchain protocol and any associated smart contracts. CSDs will continue to perform an important role as trusted, centralised FMIs, providing gatekeeping services and oversight of the relevant blockchain. While the Euroclear report states that CSDs are trusted central entities that facilitate the settlement process, it is believed that the distributed ledger technology system would be a natural evolution of this facilitation role.

SWIFT deploys PoC for bond trading based on blockchain (November 2016)

SWIFT has unveiled a proof-of-concept for managing the entire lifecycle of a bond trade based on blockchain technology. SWIFT, that has been targeted in the press as “a legacy incumbent that will be doomed by DLT”, is determined not to be left behind “in the wake of the revolution that is unfolding in the finance world” with the adoption of blockchain or Distributed Ledger Technology (DLT). SWIFT believes “it can leverage its unique set of capabilities to deliver a distinctive DLT platform offer for the community.”

At the beginning of 2016 SWIFT and Accenture released a paper investigating how blockchain technology could be used in financial services. As a technology assessment, SWIFT and Accenture identified gaps between existing DLT solutions and industry requirements.

SA Strate to launch block chain based e-proxy voting in 2017 (October 2016)

Strate, South Africa’s central securities depository (CSD), plans to launch an e-proxy voting system based on blockchain technology in 2017. The body, responsible for clearing and settling all transactions that take place on the Johannesburg Stock Exchange (JSE), has partnered with Russia’s National Settlement Depository (NSD) to develop and test systems aimed at simplifying shareholder voting. Both CSDs plan to launch the e-proxy voting system in 2017, as such they are looking to partner with an international service provider whose product is around 70% to 80% complete. In South Africa, the planned e-proxy voting system will be rolled out on a client-by-client basis, with an eventual goal to have the entire market take up the system.

The decision to partner with NSD, taken at the Sibos Conference in Geneva last year, is rooted in the fact that both CSDs have conducted independent proof of concept studies and are at a similar stage in understanding and developing an appropriate voting solution. The NSD was also one of the first financial organisations in the world to announce the development of a blockchain-based prototype for e-proxy voting. Strate and NSD will share information regarding standards, regulations and DLT technologies; explore mutually beneficial ideas; and look to make savings through the sharing of technology and development costs. They are claiming that several other CSDs have expressed interest in joining them.

Innovation in CSD space session at SIBOS: “ a slow burn for CSDs” (September2016)

During the “Innovation in CSD space: What about distributed ledger technology?” session at SIBOS, some panellists argued that the technology would “hail the end of CSDs” while others said there would be no revolution, just a “natural evolution” of what exists.

The message from the CSDs was that they are “open to innovation with blockchain, but will test it out in safe places first”.   

WFE Survey “Financial market infrastructures piling into blockchain” (August 2016)

More than 84% of trading venues and clearing counterparties (CCPs) surveyed by the World Federation of Exchanges (WFE) are either investigating or actively pursuing the applicability of distributed ledger technologies in financial markets.

WFE says that the poll of 24 members indicates that firms are at different stages of evolution in their DLT initiatives, with one having already deployed a DLT-based application, some at proof-of-concept, and others on the spectrum of evaluation, design, and proof-of-technology. Clearing and settlement provided the most obvious use case for respondents, but with regulatory, legal and technical risks an issue there was little consensus on a viable time frame for live production.

Strate, global CSDs to collaborate on blockchain use (August 2016)

Strate, the South African body responsible for settling transactions concluded on the Johannesburg Stock Exchange, met with 20 other central securities depositories (CSDs) in Switzerland in September to discuss how blockchain technology can be used across global financial markets. Aim is to form a group of CSDs to share information and knowledge. The group of CSDs would try to determine an ideal model for putting clearing settlements and the transaction of shares on to a blockchain.   And as opposed to each going and developing their own technology, the group could potentially get a vendor to develop something for all of them or develop something their selves and share it and share in the costs.

Euroclear explores use of blockchain in London gold markets (June 2016)

Euroclear is exploring the potential of using blockchain technology to create a next generation settlement service for the London gold market. The clearing is working with blockchain infrastructure firm itBit and market participants to evaluate the use of distributed ledgers to remove the risks and reduce the capital charges related to the settlement of unallocated gold. Euroclear will thereby use ItBits’ Bankchain product, a private network of trusted participants that clears, tracks and settles trades in close to real-time, opening the prospects of providing true delivery-versus-payment in the bullion market.

Rise testing post-trade blockchain tech with banks, custodians and CSDs (May 2016)

RISE Financial Technologies (RISE), a provider of distributed ledger technology for both post-trade settlement and securities safekeeping, has become the first technology firm to launch the second generation of blockchain for the post-trade sector. RISE is testing its solutions with a number of leading financial institutions including banks, custodians, and CSDs.

The core attributes of RISE’s technology are de-centralised ledger qualities and permissioned transparency, which gives access to different types of information depending on who you are. These qualities are applied to ensure any ‘single point of failure’ inherent in many technology systems is removed and guarantees data integrity. So investors have sight and control over their assets but not those of other participants; issuers have a view but no control into final beneficiaries; financial institutions (ledger operators/validators) have access to client information; and regulators have a complete view of the information in their jurisdiction in real-time but no direct control over the assets.


Carlo de Meijer 

Economist en Researcher

 

 

 

 

More articles about blockchain from Carlo de Meijer:

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How can payments improve your working capital? Part I

| 6-4-2017 | Olivier Werlingshoff |

Working Capital is the term for the operating liquidity of a company that can be used and is needed to continue the day to day business. To calculate the working capital you have to deduct the current liabilities from the current assets. By managing your account receivables, accounts payables and inventory you can fluctuate your cash position and optimize your working capital so that the cash “trapped” in the company can be lowered to a minimum while you are still able to meet your payment agreements.

The way you are making or receiving payments can have influence on the trapped cash and therefore can influence your working capital.In a few articles we will dive into the world of payments and explain the influence on working capital. In this first article we will discuss the wire transfers within the EU and cross border.

Wire Transfer

SEPA
With SEPA all payments in the EU are considered as a local payment. To minimize your banking process time with bank transfers you don’t need to open local bank accounts in the different countries in the EU anymore. If you have a customer in, let’s assume Spain and you agreed on a payment term of 30 days, you send your invoice by mail as soon as the  client signed the contract. At that moment your working capital will increase with the amount until the moment the amount is paid into your bank account.

You can mention on your invoice that payments can be done by transfer to your IBAN number in The Netherlands. The maximum processing time will be one banking business day if you send the payment instruction before the cut off time of your bank. This means that if the client is doing the payment on Friday before the cut off time, mostly 3.30 PM, the amount will be on your account on Monday. Otherwise you will receive it on Tuesday.

Risk of non-payment
With wire transfers you still have the risk of nonpayment by you customer. Within the SEPA area you can also use Direct Debits. With this type of payment you can be the one who initiates the payment and if your client accepts, your money could be on your account after the agreed payment term of 30 days. Furthermore Direct debits can’t be reversed by your client when you use the Business variant.

Cross border
If you have a client in the US, you will also send him the invoice by mail to skip the postage process. You can ask him to transfer the amount to your IBAN number. The client will probably convert the amount in his own currency and make an international transfer. With a cross border transfer you will have different costs: the outgoing transfer cost, the incoming transfer cost and also even sometimes correspondent bank costs. Besides the high costs, payments can even take a week before reaching your bank account.

What is the effect on your working capital? Because it takes a long time before you get paid, your accounts payables will increase and the “days sales outstanding” will be longer than the 30 days you agreed on.
When you have a lot of international clients in one specific country you can make a calculation whether opening a local account in the country of your clients could be profitable for you. To avoid correspondent cost you can choose a bank that has connections with your main bank.
After receiving the money on your local account there are some instruments you can use to sweep the balance to your main account in The Netherlands, those products are called pooling techniques.

In the next articles we will focus on payments by internet, credit – and debit cards but also payment on delay and trade products.

Olivier Werlingshoff - editor treasuryXL
Olivier Werlingshoff

Owner of WERFIAD

 

 

 

More articles from this author:

Managing cash across borders

How to improve cash awareness without targets