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Corporate Governance and Treasury | Embrace the Corporate Treasury Policy

| 18-02-2020 | François de Witte | treasuryXL |



Corporate Governance

Corporate Governance is a mechanism through which boards and directors can direct, monitor and supervise the conduct and operation of the corporation and its management in a way that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.

The ultimate responsibility for Treasury management within an organization lies with the board of directors. Due to the practicalities and technical aspects involved in corporate treasury, the board typically delegates the daily management of risk to responsible individuals in each department. In the case of financial risks, many of these are delegated to the treasurer.

Whilst, due to its specific activities, the corporate treasurer needs to take a lot of actions and decisions independently, it is important that he does this within a framework and Governance. Quite a lot of corporates have formalized this in a “Corporate Treasury Policy”.

Corporate Treasury Policy

The Corporate Treasury Policy is the mechanisms by which the board, or risk management committee (RMC), can delegate financial decisions in a controlled manner. This document should be a summary of all the principles approved by the Board or the Financial Committee of the Board as a mandate of the Board to the treasurer (the Treasury Mandate).

The Corporate Treasury Policy is a framework document, which covers the following areas:

Organization of the Treasury Function

In most of the companies, the Corporate Treasury Reports to the CFO. The CFO is usually himself a Member of the Executive Committee, which itself reports directly to the Board of Directors. (Treasurer – CFO – Treasury Committee – Audit Committee – Board):

A policy should set out clearly which decisions are delegated to the treasurer and when the treasurer should refer a decision back to the board or other person within the organization. Within several corporate, the Board of Directors have delegated the decision process to dedicated committee, like the Risk Committee, and the Liquidity and Funding Committee.

Treasury Control Framework (including the Code of Conduct)

Procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

Ideally, this should also include a code of conduct. The Corporate Treasurer should act as a Corporate Custodian. In other words, he is Protector of the company’s assets, and should act according to a strict Code of Conduct and Ethics. There exist examples of codes developed by professional organizations such as IGTA, ATEB, AFTE, ACT and ATEL.

Liquidity and funding

The board should be informed about funding possibilities to put currency, maturity, cost and equity/debt character into a wider context. The board should decide on the strategy but can delegate fund raising decisions and actions to treasury. However, I recommend that Treasury asks the final board approval for strategic decisions (e.g. major syndicated loans, bond issues, etc.).

The board should have an overall view on the liquidity risk of the company. The Board should also define the financial policy, covering the gearing and maturity issues, fixed and variable interest rate obligations, dividend policy and covenants.

Banking Relationship

Banks chosen by the treasurer must be able to meet the needs of the organization, both domestically and internationally. I recommend that the Board approves annually criteria for selecting the banks with whom it will work.

Risk Management

The Treasurer must identify the various risks to which the company is exposed, quantify the impact, and should inform the Board thereof. He should estimate the size of these exposure risks and their impact on the he overall operations and financial performance of the company, and make recommendations in these areas

The board must approve the hedging policy, the company’s foreign exchange, interest rate and commodity risk management policy and its attitude to risk. It should define which part of the risks must be hedged and the hedging horizon. I recommend that the Treasurer submits at regular intervals to the Board the list of authorized instruments, the amount per instrument and their term

Investment Policy – Counterparty Credit Risk

The board should approve the treasury’s Investment policy including the choice of instruments, the list of counterparties used + the maximum amount/counterparty & maturity. It is recommended that the Board provides guidelines and limits per instrument.

It is recommended that the Board approves the guidelines for fixing counterparty limits, and maximum exposure per counterparty.

Authorized instruments and Arrangements – Authorized Approvers

The Treasurer should make sure that the board must understands and approve the strategies and instruments used and sets guidelines for the appropriate limits for their use. These guidelines need to ensure that treasury has not sacrificed long-term flexibility or

survival for short-term gain, especially in view of the volatile financial market’s situation.

Treasury Operational Risk

The treasurer should make the Board aware of the operational risks to which the company is exposed. He should provide recommendations in this area. Furthermore, the treasurer should also submit recommendations to the board on the treasury organization and the ways to reduce the operational risks.

Monitoring

A Corporate Treasury Policy has only sense, if there is a regular follow up and control framework; Hence procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.

It is also important to provide to the Board a regular update on the way the treasurer complies with the policy. The policy should also be regularly reviewed.

Treasury must alert the board to external changes and internal strategic developments, which may have long-term implications for the organization and make proposals for managing them.

The policy needs also to be reviewed at regular intervals each “Policy” in function of the market and of other internal or external developments. I recommend having treasury on the Board’s agenda on a quarterly basis.

Conclusion

Treasury is not an island in the company. It is closely linked to the corporate governance. Hence it is important to define the right framework.

I recommend to corporates to put in place a treasury policy validated by the Board of Directors and reviewed regularly. It is important to update the Board at regular intervals about strategic topics, such as strategic financing topics and risk management.

The treasurer has also an important educational role, as he must be able to make complex treasury topics understandable for the board members.

Hence there must be a good interaction between the treasurer, the CFO and the Board is key, where the Treasurer is the linking pin.

 

François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
treasuryXL ambassador

Recap ATEL Annual Conference 2019

| 22-10-2019 | François de Witte | treasuryXL |

Each year in the 3rd week of September, ATEL, the Luxembourg Association of Corporate Treasurers, organizes its Annual Conference. This year the ATEL Annual Conference was held on September 19, 2019. It was a very special edition, as it coincides with the 25th anniversary of the creation of ATEL. There were over 200 participants, and this was a good opportunity to have snapshot of some recent tendencies in treasury.

“The annual conference is a great way to take stock of the sector’s developments while celebrating our quarter-century run in a friendly atmosphere,” stated François Masquelier, Chairman of ATEL and Deputy Chairman of the EACT.,

The Conference started with a series of workshops. I followed the one on Cybersecurity in Treasury, given by BNP Paribas, and the one on “®evolution of Payments” given by BearingPoint.

BearingPoint expect major changes due to Instant Payments. The existing solutions to obtain customer information on the receipt of payments are not enough anymore.  Corporations require immediate information on received payments. The Westhafen Expert Dialogue has defined immediate customer information of received payments as a best practice. The format used is the Credit-notification N54 defined based on the camt.054. The proposed transmission channel is either via API: Incoming payments are transferred from the bank to the corporation via a web-service-notification (HTTPS, push) or the through the banking server (EBICS.

The plenary session started with a video of Finance Minister Gramegna congratulating the association on its 25th anniversary and coming back on the establishment of the euro as a great accelerator for the profession and underlining Luxembourg’s key role in maintaining a positive environment for treasurers.

Isabelle Badoux presented Sanofi’s treasury transformation journey focusing on centralized treasury, central bank interaction and the conception of a “payment factory.”

Luca Lazzaroli, then presented the EIB, the largest multilateral lender and borrower in the world. The institution invests over € 1.2 trillion in innovation, environment, infrastructure and SMEs with a special accent on sustainable growth in Europe.

Vincezo Dimase from Refinitiv concluded the plenary session by presenting the challenging transition from LIBOR the so-called ARR (Alternative Reference Rate – e.g. the ESTER – Euro short term rate, which will replace the EONIA). By the end of 2021, the financial sector will abandon the IBOR, and this will have a major impact on the corporate treasurers, as several long-term contracts using the IBOR go beyond end 2021.

Following on this conference we had a nice get together with all the participants where I had interesting exchanges of experience. The ATEL Annual Conference was a very good event.

I am impressed by ATEL, who proves to be able in the small country of Luxembourg to group top experts along hot topics in treasury. On 26/9/2019, we also had at the Luxembourg House of Training the official Ceremony where 13 treasury professionals received their “Certified Path in International Treasury Management and Corporate Finance“, organized in collaboration with ATEL. A new session of this Certified Path will be held starting from January 2020. All practical information and program are available here. I was also part of the lecturers and of the jury.

Will you join next year?

François de Witte
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
treasuryXL ambassador
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PSD2, Open Banking and their major impact

| 24-9-2019 | François de Witte | treasuryXL |

This training program at the Febelfin Academy prepares participants for 2 major challenges of the upcoming years in banking: PSD2 & Open Banking. This will have a major impact on the financial ecosystem and will create new challenges.

The goal of this training course is to:

  • Make participants aware of the ways PSD2 & Open Banking affect banks and other players in Europe;
  • Understand the impact of the technical requirements with a focus on strong customer authentication;
  • Outline the risks and responsibilities of the involved parties within the new regulatory framework;
  • Understand the impact of Open Banking APIs (Application Programming interfaces;
  • Understand the impacts of the PSD2 & Open Banking the financial ecosystem;
  • Evaluate the risk and opportunities created by PSD2 & Open Banking the banks and the new players;
  • Determine action plan for your company.

Target Group

This training course can be followed by multiple target groups:

  • Managers of a banks/PSP’s/Fintechs involved with the payments and digital strategy
  • Product Development Experts (payments)
  • Service providers involved with Open Banking
  • Corporate Treasurers
  • Compliance officers

Advanced: offers practice-based applications to complement the theoretical knowledge already acquired through the “basic level” courses (in-depth learning).

There is no specific preparation required. For persons who are less acquainted with PSD2 and payments, some pre-course reading material can be made available.”

Program

This training program prepares participants for two key challenges of the upcoming years in banking: PSD2 and Open Banking.

Part I: PSD2 and Open Banking – overview:

  • PSD2: Scope and Basic Principles
  • XS2A (Access the Accounts)
  • New Players: AISP and PISP
  • SCA (Strong Customer Authentication)
  • Consent and SCA
  • Requirements for the Banks and TPPs
  • Timetable
  • Trends in Open Banking

Part II: Open banking architecture: Implications for banks and the New Players

  • XS2A: Risks, Responsibilities and obligations of the related parties
  • XS2A: Availability Requirements
  • Setting up the SCA in Practice
  • SCA: Optimization of the Exemptions
  • Security requirements ensuring consumer protection
  • Addressing the fraud and cyberattack risks
  • Technology: building interfaces – APIs (Application Programming Interfaces)
  • European initiatives to standardize the interfaces
  • Practical aspects – Role of Aggregators
  • Group Exercise

Part 3: PSD2: Potential impact on the market and next steps

  • Global impact on the market – New Players
  • Impact on the Payments Landscape
  • Impact on the Cards and Digital Payment Instruments
  • Impact on the Merchants and the e-commerce
  • Impact on corporates
  • FinTech Companies: ready to disrupt banks?
  • Implication on the Digital Banking Strategy
  • The new role of competition and cooperation
  • Action Plan for Banks and New Players
  • Group Exercise

Practical information

Duration: One day training

Date: October 10, 2019

Hours: 9AM-5PM (6 training hours)

Location: Febelfin Academy, Aarlenstraat/Rue d’Arlon 80, 1040 Brussels

Additional information: This training course will be given in English

 

REGISTER TODAY

 

François de Witte

Founder & Senior Consultant at FDW Consult / Managing Director and CFO at SafeTrade Holding S.A.

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How the Treasury QuickScan add value to your business

| 27-8-2019 | François de Witte | treasuryXL |

Do you want to know if you can save a substantial amount of money and/or protect your company against major financial risks? Are you willing to invest time and money in treasury within your organization? 

The Treasury QuickScan can help organizations with just one scan to assess if an additional effort in treasury can be an added value.

The Treasury QuickScan as a solution
SMEs struggle with increasing exposure to cash & liquidity problems, financing needs and risks (currencies, commodities, interest and liquidity).

Moreover, they do not always have a full-fledged Treasury/finance Department in the organization. That does not mean that these organizations cannot save costs or that there are no opportunities for funding, for example. It is not always necessary to set up a separate treasury department in a company to control and manage the treasury.

The Treasury QuickScan aims to bring a solution to these companies. An experienced hands-on Treasurer can do a first scan within the organization.

The objectives to provide to the company are:

  • A diagnosis on his treasury
  • A benchmarking towards his peers
  • The identification of the pain points
  • Some quick wins and an initial business case to determine whether it is worthwhile investing in the treasury (resources, tooling).

A questionnaire for 5 treasury topics
By means of a structured questionnaire, the Treasury QuickScan aims to make a quick scan / diagnosis of the treasury. Down below, we provide you some questions by topic:

  1. Working Capital Management:
  • Do you actively manage your working capital indicators (Days Sales Outstanding, Days Inventory Outstanding, Days Purchases Outstanding)
  • Do you have a credit policy in place?
  • How is your credit control organized?
  • Do you actively manage the payment terms of your suppliers?
  1. Cash and Liquidity Management:
  • Do you all have a visibility on all your cash positions?
  • Who manages the various cash positions daily?
  • Are you sometimes confronted with payments that are not paid due to lack of funds?
  • Do you do daily interbank transfers to settle the debit balances and to invest the excess liquidity optimally?
  • Do you already have an automatic cash pooling?
  • Do you centralize your in- and outgoing payments or consider doing this?
  • Do you have a cash forecasting process in place?
  1. Financing and Bank Relationship Management:
  • Do you experience difficulties in obtaining bank financing?
  • How many banks do you use? Do you need all the banks?
  • Do you ensure that the side business is distributed fairly to banks that grant large credits?
  • Are you monitoring regularly the costs which banks charge to you?
  1. Risk Management:
  • Do you have an overview on your foreign exchange, interest rate and liquidity risks?
  • Can you measure the impact of foreign exchange rate fluctuations on your Profit and Loss account?
  • Do hedge your main risks?
  • Do you have a written policy regarding the risk management?
  1. Organization and Compliance:
  • Which are the current tools in place to manage the fraud and operational risks?
  • Do you apply the 4 eyes principle throughout the company?
  • Do you have an overview of who can sign where on your bank accounts?

A short recap
The Treasury QuickScan does not solve all your treasury issues but will provide you get a mapping of the current situation, the issues, a first set of recommendations and a business case for further investments in treasury.

For organizations without a dedicated treasury department, this Quick Scan can help them to determine how to manage the treasury. This can be done with own resources and/or you can also consider outsourcing some tasks. This can be very helpful for the development of your company.

How to start a Treasury Quick Scan?
Simply send me a mail or give me a call and we discuss the best option for you.

François de Witte

Founder & Senior Consultant at FDW Consult

Managing Director and CFO at SafeTrade Holding S.A.

 

Recap conference Toekomst Betalingsverkeer

| 13-5-2019 | François de Witte | treasuryXL |

Each year in April, the Conference “Toekomst Betalingsverkeer” is organized by Euroforum in Amsterdam. This is a major event in the Payment Business, which gathers over 300 professionals. Several themes relating to Innovations on Payments came up. To start with Patrick Coppens presented an inspirational keynote speech about the Payments Innovations in China, who on this moment clearly is the trendsetter in this area.

The program consisted of several keynote speeches and round tables, where different sub-themes were discussed in small groups. I chaired two of these round table sessions on the topic of: “The View of the Treasurer on Payment Transactions”. In this article I will discuss the takeaways from the round tables I chaired and other presentations I followed at the conference.

To start of my round table sessions, I showed a picture that shows my view on factors affecting the payment landscape:

We also had a lively discussion about this topic where, amongst others, the following points came up:

  • If we move to a 365/7/24 payment systems, all the other components of the economy will have to follow. Real time payments will require “Real Time Treasury”: Will treasurers also have to work on a 365/7/24 basis? According to me, this will not be the case in all the industries, but in certain sectors, like Retail and e-Commerce, this might be the case, or at least treasurers will have to be “on call”.
  • Large corporates will move slower to open banking then Retail and SME, but the shift towards Open Banking and Real Time Payments will also affect them.
  • Beside the traditional TMS players and middleware providers, we will also see an increase in FinTech’s coming up with smart solutions for the SME and Midcaps. They will challenge the incumbent players with more flexible and lower priced solutions. The challenge for them will be to get the trust of the large corporates, which might not be willing to entrust their high volume and value payments to smaller FinTech’s.
  • Currently SMEs sometimes complain about the solutions of the banks. Banks must come up with smarter solutions for the SME, because one day they might become midcaps and corporates.
  • Corporates are interested in the solutions, and do not look through to the components. It is like when you go for an operation to the surgeon: you do not expect him to check the origin of the operation table. Trust will remain important.

We also had an interesting presentation of Innopay, who made a mapping of the different banks in the Open Banking ecosystem. Amongst the masters in openness, we see challenger banks, Bunq, Fidor and Starling bank, the large Scandinavian banks SEB and DNB, and some global banks (Citi and BBVA). The large Dutch banks (ING, RABO, ABN AMRO) are leaders in experience but have currently still a more limited API scope.

Furthermore, there were presentations highlighting the increasing trend of “Tokenisation”. Tokenization is a process of replacing sensitive data with non-sensitive data. In the payments industry, it is used to safeguard a card’s PAN (Primary Account Number) by replacing it with a unique string of numbers. These tokens can then be passed through the internet or the various wireless networks needed to process the payment without actual bank details being exposed. These will provide some benefits such as:

  • Cost savings: Tokenization takes away the burden of managing cardholder data storage in a secured way, hence reducing the costs involved with meeting and monitoring Payment Card Industry (PCI) compliance.
  • Increased security: If fraudsters manage to steal tokenized data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner.
  • Improved user-experience: Tokenization enables merchants to offer their clients the possibility to save their payment details it in a secure manner, so that the next time they make a purchase they do not need to re-enter their payment data. One-click payments significantly increase conversion at the checkout page through streamlining the payment process for shopper.

I also attended the workshop on SEPA Instant Credit Transfers (SCT Inst), where the Netherlands started in Q1 2019 a controlled roll-out.  According to the EPC (European Payment Council) end-April 2019 already 50% of European PSPs (Payment Service Providers support the SCT Inst scheme. The EPC expects that a critical mass of SCT Inst scheme participants will be reached by the end of 2020, particularly in the euro area. However, currently instant payments remain mostly a local initiative, and it will take time to reach a full adoption.

These are my takeaways from the Conference “Toekomst van Betalingsverkeer”. I’’m curious to hear your thoughts about the developments in the world of payment transactions and invite you to discuss further in the comment section.

François de Witte

Founder & Senior Consultant at FDW Consult

Managing Director

CFO at SafeTrade Holding S.A.