Tag Archive for: treasury

Instant payments for treasurers

| 31-03-2017 | Alessandro Longoni |

Building on the ideas shared in a previous article about Cash Conversion Cycle on treasuryXL, this piece focuses on the developments that new European laws will bring in the areas of Instant Payments and how this will affect Treasury.

As part of further standardization within the union, European regulators mandated the industry to develop an “instant payments” product aimed to making the funds available on the receiving side “within a maximum execution time of ten seconds”. The SCT Inst scheme has been developed to allow for consumer payments (C2C, C2B) in Euro for the SEPA and will be an optional scheme – meaning that PSPs and Banks are not obliged to join.

Practical Use Cases

From a cash management perspective, Instant Payments open an array of new possibilities for merchants, especially for those operating eCommerce operations. Currently if a customer places an order on a friday late afternoon, the funds are made available (earliest) on monday evening, while the order is most likely processed and delivered by Saturday afternoon. With SCT Inst, if the order is placed on friday at 21:00, the funds will be received (maximum) at 21:00:10 and already available to pay suppliers if needed.

From a treasury perspective, Instant Payments will also allow for more transparency on transactions and easier reconciliation, but time needs to be devoted to update the current tools to facilitate for this. As Instant Payments will gain customer adoption, the incoming payments cash account will be filled with hundreds or thousands of transactions per day, as opposed to one per day coming from your Payment Service Provider. Having direct access and insight in each single transaction will make it easier to reconcile it with the relative order, check the amount and book it in the general ledger, but the sheer number of lines in the system requires current tools to be updated to cope with the increased volume and speed.

Pros and Cons

There are several benefits this new payment method brings to the table, including a strong reduction of working capital trapped to fund operations, however, in order to extract all the benefits, ERP systems need to be updated to check the status of transactions in real-time instead of intervals. Without investing in developing the current tools further, companies risk missing out on the new opportunities to deliver better customer service and create additional efficiencies in cash management.

 

Alessandro Longoni 

Managing Consultant at Proferus

 

 

How to combat Payment Fraud

| 29-3-2017 | Mark van de Griendt | sponsored content |

 

Payment Fraud is one of the biggest threats to a treasurers’ reputation and career path in an organization. One of the most common ways to reduce payment fraud is to reduce human intervention and to increase the levels of automation in payment structures. With cyber-attacks and payment fraud regularly making headlines, treasurers must be vigilant in safeguarding financial assets. Only 19% of treasurers list cybersecurity as a critical concern. By contrast, 45% of CFOs name cybersecurity as a priority, pointing to a significant misalignment in CFO and treasury agendas in this regard (PWC Global, 2017).


That is why it’s really important for treasurers to know what they can do to reduce payment fraud. There are two ways to lower the risk of payment fraud in payment processing:

  • Increase the level of Straight Through Processing
  • Implement a Payment Hub

Higher level of Straight Through Processing
Corporates sometimes have hundreds of banking relationships and thousands of bank accounts, all managed manually on spreadsheets. Redesigning these treasury processes based on STP creates an integrated treasury workflow that streamlines processes effectively and provides treasurers with timely access to financial information. No more manual entries, no more errors.

Implementing a Payment Hub
A centralized payment platform combats payment fraud while also ensuring treasurers of having the money they need to manage day-to-day business obligations.

Some key benefits include:

  • Centralized monitoring and control
  • Flexibility and efficiency in payments
  • Reduced banking costs
  • Global Visibility
  • Easy access and more transparency

Please refer to our company page on treasuryXL or contact Mark van de Griendt if you’d like to receive more information about reducing payment fraud by a corporate payment hub.

 

Mark van de Griendt

Cash Management Expert at PowertoPay

Blockchain regulation in the securities industry: Still many unanswered questions!

| 24-3-2017 | Carlo de Meijer |

One of the obstacles for massive adoption of blockchain technology is the lack of clarity from regulators. Regulators world-wide have long time taken a wait-and-see attitude towards blockchain and distributed ledger technology (DLT) (see my Blog “Blockchain and Regulation: do no stiffle …. April 4, 2016). But that is changing. Regulators across the globe have turned their attention and are now considering how existing regulations may (or may not!) accommodate the development of new distributed ledger technologies. This growing interest shows that it is becoming all the more serious for regulators in the securities industry that blockchain is coming to reality and that this asks for a more closer look a this technology.

Since the start of 2017 a number of regulatory organisations including ESMA (EU), FINRA (US) and IOSCO (Global) have launched reports asking for answers to meet the various challenges of blockchain or distributed ledger technology in the securities industry.

“Regulators prepare to address perceived weaknesses or potential risks relating to blockchains in their regulatory frameworks, and be ready to voice any concerns to, or discuss potential DLT benefits with the relevant authorities”.   

What have regulators been doing up till now

To keep pace with the developments in the DLT space some regulators have already established dedicated Fintech offices, contact points and hubs. Others launched regulatory sandbox frameworks that enable innovators to experiment with Fintech solutions for financial services (see my Blog, “Blockchain: playing in the Sandbox September 7, 2016”). And there are regulators that have set up labs and accelerator programs to explore how new technologies including DLT can help them better achieve their regulatory objectives.

To give some examples:

  • Regulators, such as the US Commodity Futures Trading Commission (CFTC) and the US Securities Exchange Commission (SEC), have attempted to incorporate DLT innovations into existing legal and regulatory frameworks. Also, the French Parliament last June approved a law that lets some securities vouchers be issued and exchanged on a DLT.
  • Others, such as the UK Financial Conduct Authority (FCA), the Swiss Financial Market Supervisory Authority (FINMA), and the Monetary Authority of Singapore (MAS), have created regulatory sandboxes for companies utilizing innovative technologies.

But, as FINRA, ESMA and IOSCO all note in their recent reports, integrating novel DLT products into existing regulatory regimes may prove challenging as DLT continues to develop.

FINRA Report

Early January this year, the US Financial Industry Regulatory Authority (FINRA) published a report titled “Distributed Ledger Technology Implications for the Securities Industry. The FINRA report provides, while structured as only a “request for comments”, an overview of DLT, highlights applications and gives a detailed review of how blockchain technology may impact existing securities regulations affecting dealers and marketplaces.

The report thereby gives a clear picture of the many regulatory considerations for broker dealers that (it says) “market participants may want to consider and regulators will want to have worked out before such infant technologies can be allowed to leave their sandboxes.
US regulatory considerations include issues such as governance, operational structure, network security and regulatory considerations, customer data privacy, trade and order reporting requirements, supervision and surveillance, fees and commissions, customer confirmations and account statements and business continuity planning.

This report is intended to be an “initial contribution to an ongoing dialogue with market participants” about the use of DLT in the securities industry. Accordingly, FINRA is requesting comments from all interested parties regarding all of the areas covered by this paper.

“FINRA welcomes an open dialogue with market participants to help proactively identify and address any potential risks or hurdles in order to tap into the full potential of DLT, while maintaining the core principles of investor protection and market integrity”. FINRA Report

  • More questions than answers!

The FINRA report doesn’t provide specific guidance for many questions, but it does represent something of a practical checklist of issues that will need to be addressed by regulated securities businesses considering implementing DLT networks more broadly.

To give an idea of the many questions raised:
How would the governance structure be determined? Who would be responsible for the business continuity plan, addressing conflicts of interest? How would errors or omissions on the blockchain be rectified? What type of access will be provided to regulators? In the event of fraud, who covers the cost? How will regulated entities deal with DLT transactions? Who is the custodian? Does the DLT network itself affect the market risk or liquidity of the digital asset? How is access to the data controlled? Which entities are playing what roles. Would dealers become clearing agencies? How is customer information updated for changes? How is the process supervised and tested? And many, many more!!

  • Possible implications for existing US regulation

Many FINRA rules, as well as some rules implemented by other regulators, such as the Securities and Exchange Commission (SEC), that FINRA is responsible for examining or enforcing with respect to broker-dealers, are potentially implicated by various DLT applications.
For example, a DLT application that seeks to alter clearing arrangements or serve as a source of recordkeeping by broker-dealers may implicate FINRA’s rules related to carrying agreements and books and records requirements. The use of DLT may also have implications for trade and order reporting requirements to the extent it seeks to alter the equity or debt trading process.

Other FINRA rules such as those related to financial condition, verification of assets, anti-money laundering, know-your-customer, supervision and surveillance, fees and commissions, payment to unregistered persons, customer confirmations, materiality impact on business operations, and business continuity plans, also may to be impacted depending on the nature of the DLT application.
The head of the US Commodity Futures Trading Commission Christopher (CFTC) Giancarlo recently said that US fintech policy should take a “do no harm” approach. He added that US regulators should coordinate to “avoid stifling innovation”.

ESMA Report

Early February 2017, the European Securities and Markets Authority (ESMA) published a report regarding distributed ledger technology (DLT). In this report named ”The Distributed Ledger Technology Applied to Securities Markets” ESMA summarizes its position on DLT, with a note that it will continue to monitor this “dynamic” technology and consider whether a regulatory response may become a necessity. It sets out ESMA’s views on DLT, its potential applications, benefits, risks and how it maps to existing EU regulation.
ESMA concluded that regulatory action is premature at this stage, but may not be in the longer term. The report anticipates that early applications of DLT will focus on optimising processes under the current market structure, particularly less automated processes in low volume market segments.

ESMA “has not identified any major impediments in the current European Union regulatory framework that would need to be addressed in the short term to allow for the first applications of DLT to securities markets to emerge in a scenario where DLT would be used to optimise processes within the current market structure”.

Longer term, and based on industry responses to the discussion paper, ESMA in its report notes the potential of the technology to support clearing and settlement activities. Potential risks outlined in the report include cyber-attacks, fraudulent activity, operational risk if errors are disseminated, fair competition issues, and market volatility.

Also ESMA “appreciates that broader legal issues, such as securities ownership, company law, insolvency law or competition/antitrust law may have an impact on the deployment of DLT”.

IOSCO Report

The “IOSCO Research Report on Financial Technology”, also published in February this year by the International Organization of Securities Commissions (IOSCO), highlights the increasingly important intersection between financial technology (Fintech) and securities market regulation. It describes a variety of innovative business models and emerging technologies that are transforming the securities industry including the application of the blockchain technology and shared ledgers.

  • Risk assessment

The IOSCO report analyses both the opportunities and risks that these new technologies present to investors, securities markets and their regulators. Though the risks differ depending on the technology, certain risks are recurring across the Fintech sector, such as those arising from unlicensed cross-border activity, programing errors in the algorithms that underlie automation, breaches in cyber security, and the failure of investors to understand financial products and services. Another risk is the failure of financial firms to “know-the-client” for reasons of anti-money laundering and fraud control.

“Financial technology regulators may need to develop “highly automated” surveillance and hire technology experts if they want to closely monitor risks posed by blockchain and other distributed ledger technologies” IOSCO Report

  • Cross border challenge

And there is the cross-border challenge. While tech firms operate globally, regulation is conducted largely within national or sub-national borders. The local nature of regulation may create challenges regarding cross-border supervision and enforcement, whereas regulatory inconsistency across jurisdictions increases the potential for regulatory arbitrage.

“The global nature of Fintech therefore creates challenges that regulators should address through international cooperation and the exchange of information”,according to the report.

DLT and blockchain Regulation: not today!

Regulation of blockchain and distributed ledger technology in the securities industry is not to be expected short term. There are still more questions than answers. Before regulators will be able to address the various issues raised, they must better understand their impact. And that takes time. It is in the securities industry’s interest that they remain in an ongoing dialogue with regulators to get the best of both worlds.

 

Carlo de Meijer

Economist and researcher

 

 

 

More articles about blockchain from Carlo de Meijer:

 

3 tips for a successful accounting- and ERP-system roll-out

| 23-3-2017 | Christian van Ledden | Sponsored content |

 

Cloud based accounting- and ERP-systems, i.e. SAP S4-HANA are receiving a lot of attention these days. The result? – Increasingly more companies are considering cloud solutions in their effort to consolidate IT processes and systems. According to a study by Panorama Consulting, in 2015 the share of such ERP-systems increased from 4% in 2014 to 33%.

Cloud is here to stay

From our point of view, this development is primarily driven by two factors: on the one hand, the amount of mature solutions in the marketplace is growing. At the same time, cloud ERP-systems are being positioned more aggressively by their respective vendors. On the other hand, there is a common acceptance of cloud ERP-systems. This is underlined by a study from RightScale, according to which 82% of companies are employing a multi-cloud strategy in 2015, up from 74% in 2014.

The former can also be observed in the cloud revenue figures of SAP and Oracle: SAP increased its revenue from cloud products and services between 2013 and 2015 by a staggering 229% while Oracle recorded similar growth in its cloud segment of 100% over the same period. Oracle’s strategic focus on cloud business is underlined by its recent acquisition of Netsuite.

This development has major advantages for their respective clients. According to a study by the Aberdeen Group, corporates can improve their operating profit margin by up to 21% through implementation of a modern cloud ERP-system. These improvements are achieved through optimized processes, higher standardization as well as a more streamlined IT environment.

Fast implementation and cost savings by using the TIS payment solution

The majority of finance and treasury departments are in one way or another affected by the roll-out of a new ERP-system. Generally, the aim is to standardize processes and systems. This brings its own set of IT-related challenges. These can be split into three major categories: processes, connectivity, and change management.

Processes: In most companies, processes grow historically through (international) expansion and M&A activities. The result is a lack of transparency and control of worldwide processes for central finance departments, contributing to a company’s vulnerability to payment fraud. What can you do? If you are evaluating the roll-out of a global ERP-system which includes your finance department, one should think about the current and desired state of (authorization) processes and goals – especially for the finance and treasury department.

Connectivity: Connecting the ERP-system to third party systems is an important factor to consider in terms of payments. Insufficiently secured interfaces with banks, a high number of manual processes as well as the lack of straight-through-processing of payment files increases your risks and have a negative impact on compliance. Moreover, in this context one should not forget the connection with your respective banks. They can be connected through communication channels such as i.e. EBICS, Host2Host, SWIFT, or CAMT. In addition, one has to develop individual formats for each country and bank. Working with our clients around the world, TIS GmbH has achieved savings of between 200.000€ and 1 million € p.a. by implementing its flexible and scalable cloud solution to connect its customers’ banks. This is possible, as TIS owns the most comprehensive library of formats and bank connectors worldwide. This library is accessible to all its clients free of charge, so that you can focus on scaling your worldwide operations.

Change management: In order to ensure a smooth roll-out of your i.e. SAP S4-HANA ERP-system, you should embark on the journey together with your employees. Inform all involved stakeholders early and frequently about the progress of the project. Additionally, you might want to evaluate during the business blueprint phase whether it is advisable to include a specialized consultant. This will increase your chances of success dramatically and support the team spirit.

What are your experiences with IT-projects? I am looking forward to reading your comments.

Christian van Ledden

Sales Executive at Treasury Intelligence Solutions GmbH (TIS)

 

 

 

For additional information please visit the TIS company page on treasuryXL.

 

Flex Treasurer – Besparing na een treasury quick scan: Nog meer praktijkvoorbeelden

| 22-3-2017 | François de Witte | Patrick Kunz |

Als je ondernemer bent of als financiële professional werkt in een kleine of middelgrote organisatie die geen treasurer of cash manager in dienst heeft, vraag je je wellicht af of je alle treasury taken wel goed geregeld hebt. Iemand aannemen voor deze taken gaat misschien een stap te ver. Maar dat betekent niet dat je geen kosten zou willen besparen of dat er geen mogelijkheden zijn voor bijvoorbeeld funding. Wij hebben jullie al eerder kennis laten maken met onze Flex Treasurers en de Treasury Quick Scan die zij kunnen uitvoeren in een onderneming. In een eerder artikel hebben wij al praktijkvoorbeelden gepresenteerd. In dit artikel nog twee voorbeelden, waaruit blijkt dat een Treasury Quick Scan grote besparingen kan opleveren.

Onderneming C: Internationaal Handelshuis in voedselproducten

Omzet ca 1 miljard Euro

  • C is handelaar in voedselproducten in de B2B markt. Wereldleider in zijn segment en op alle continenten actief. Producten worden standaard in USD geprijsd. C heeft geen treasurer in dienst, de finance managers deden dit erbij.
  • Een treasury scan in 1 dag liet zien dat een besparingspotentieel op treasury processen mogelijk was van minstens EUR 200.000 per jaar (oplopende tot EUR 1.000.000 op jaarbasis)
  • Door optimalisatie van cash management processen en heronderhandeling van transactiekosten is binnen een maand EUR 300.000 jaarlijkse besparing gerealiseerd
  • Door optimalisatie van interne processen en toevoegen van extra banken en een online handelsplatform is op FX hedging een verdere besparing van EUR 100.000 gerealiseerd. Verder is het proces verbeterd waardoor er minder tijd wordt besteed aan de processen.
  • C heeft inmiddels een eigen treasurer, treasury afdeling en treasury management systeem. De flex treasurer is nog steeds betrokken bij projecten.

Onderneming D: vastgoedbedrijf

Omzet ca 125 miljoen Euro.

  • D had een treasurer in dienst welke met pensioen ging op korte termijn. Een flex treasurer is aangenomen om kritsch te kijken naar de treasury processen welke intern en extern gedaan werden
  • Alle terugkerende treasury activiteiten zijn naar intern gehaald. Dit zorgde voor een besparing van ca EUR 50.000 per jaar.
  • Een treasury rapportage werd opgezet zodat (senior) management en lijn management beter geïnformeerd zijn over treasury activiteiten
  • Cash Management en cash flow forecasting is geoptimaliseerd welke het renteresultaat verbeterde. Besparing ca. EUR 10.000 per jaar.
  • Corporate finance activiteiten werden verbeterd waardoor er zeer scherp in de mark geleend kon worden.
  • Treasury kon uiteindelijk afgebouwd worden van 36 uur naar 8 uur per week. Besparing ca EUR 60.000 per jaar.

 

Herken je een of meer situaties uit je eigen organisatie? Heb je een vraag? Onze experts zijn gaarne bereid om met jou in gesprek te gaan. Zij werken als Flex Treasurer en helpen jou graag verder. Overigens ook als je bijvoorbeeld na een treasury quick scan behoefte hebt, om tijdelijk een (flex) treasurer in dienst te nemen.

 

François de Witte 
Senior Consultant at FDW Consult

 

 

 

 

Managing treasury risk: Operational Risk (Part VII)

| 21-3-2017 | Lionel Pavey |

 

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In my last article on how to manage treasury risk I will write something about operational risk. The Bank for International Settlements (BIS) defines this as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.  If you want to read my earlier articles on managing the different treasury risks please refer to the complete list at the end of today’s article.

 

Whilst this is the last article in this series, it is actually – potentially – the most significant risk that a company can face, as there are many different ways that a loss could occur, together with the fact that when it happens the amount lost can be very large. Even if the size of the loss could be considered small, there is always the threat of reputation risk which, once identified, is very difficult to erase from the memory.

While it is possible to insure against rogue trading for a company (the risk present in the Treasury function can be quantified and qualified) it is very rare that damage is caused by just one individual – a financial version of the lone wolf theory. Operational risks tend to be interlinked – a fraudulent payment could be initiated by human involvement (either as fraud or human error) and facilitated by weak processes together with insecure technological systems.

There are 2 main areas of operational risk within treasury for a company

  1. Internal
  2. External

There are 3 main categories of operational risk within treasury for a company:

  1. Computer System, Information Technology
  2. Theft and Fraud
  3. Unauthorised Activity

Computer System, Information Technology

A lack of robustness and deficiencies in the technology and systems contribute to circumstances for failures, errors, data losses, corruption and fraud. Internally considerable care and attention should be given to the protocol for Static Data. This encompasses all the relevant reference data for a counterparty and should be subject to at least an input and verification procedure before entering the computer system. Changes to Static Data have to be recorded, together with the proper paper trail and authorization matrix. Externally the risks relate mainly to illegal entry (hacking), together with the complete theft of data.

Theft and Fraud

Both internally and externally main areas include:

  • Theft – both physical and electronic
  • Extortion
  • Embezzlement
  • Forgery
  • Misappropriation
  • Willful destruction
  • Bribes
  • Kickbacks
  • Insider Trading

Unauthorised Activity

From the Treasury point of view, this is an internal activity and mainly relates to 2 types of transactions – unauthorized by transaction and or type; transactions that are not captured in the system and reported. These can lead to monetary losses (though a gain is possible – at the price of an operational risk), together with loss of reputation.
The last category clearly shows where the biggest risk occurs within a company – at the human level. Generally speaking, these are caused by incompetence, lack of knowledge, misuse of power or compulsion to act caused by external factors – extortion.
It is clear therefore that whilst the electronic systems employed by a company can be a liability if not properly programmed or safeguarded, even here, most of the errors can be traced by to human intervention.

So why are the human risks so often underestimated? Naturally a company wishes to have the feeling that its staff can be trusted (within reason). After all, the company felt that the staff were the right people to employ. It is not my intention to formulate the reasoning and thinking of people who perform illegal acts. However certain areas that can be considered include how staff are treated; the demand placed on them; the rewards given; the levels of transparency and inequity within the company; a closed-off attitude (problems in one department are kept within that department and not discussed throughout the company); the role model set by owners, directors and managers; loss of personnel, reduction in morale; disinterested and unmotivated staff.

 Solutions

An effective framework of operational risk management needs to be designed and implemented within the business. This requires input and commitment from all departments within the company, meeting one agreed standard and not being shaped to every individual department’s wishes. The framework has to run and meet the requirements for all different strategies within the company.

I wish to finish with 2 examples of operational risk to illustrate how large they can be.

In 1995 the world’s second oldest merchant bank (Barings Bank) collapsed due to the actions of a rogue trader. Corruption and a lack of internal control led to a loss of GBP 827 million.

Around the same time I was employed as an international money broker working in the interbank market and travelled every day from The Hague to Amsterdam via train. As I knew the route off by heart, I read all the time – magazines, papers, books – anything. I purchased a book called “The Cuckoo’s Egg” as it seemed interesting and would pass the time away sitting on the train.
The synopsis told me that an unreconciled accounting discrepancy of just 75 cents would lead to a world of computer espionage and spies. I highly recommend reading the book to understand how a simple error can grow to show the dangers of ignoring operational risks. If you like acronyms then you will enjoy reading about the FBI, CIA, NSA and KGB – all hacked via a UNIX server at a laboratory linked to the University of California.The story is true and threatened national security.

Trust people – but do not place temptation in their way.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

More articles of this series:

Managing treasury risk: Risk management

Managing treasury risk: Interest rate risk 

Managing treasury risk: Foreign exchange risk

Managing treasury risk: Commodity Risk

Managing treasury risk: Credit Risk

Managing treasury risk: Liquidity risk

Reach your potential customers via treasuryXL

| 20-3-2017 | treasuryXL |

Already one year treasuryXL is online and we are proud to say that we have seen our  website grow from an unknown newcomer to a well-established information platform for treasurers, bankers, financial professionals, CFO teams, educators and everyone who likes treasury.

Our expert team has grown from a few members to more than 30 treasury and finance professionals and we were able to present a new article every workday in the past eleven months. In the meantime the treasury community knows to find us – more than a  thousand unique visitors per month read our articles, vacancies and information about education, seminars and events. And the number is growing.

This has not passed unnoticed in the treasury industry and we are proud to say that a growing number of companies has decided to work together with us as a sponsoring partner to promote their own products and services. Imagine that you look for a software to streamline your treasury department, improve payment processes, look for education for your treasury team or maybe need a new group treasurer for your company? How about checking the company profiles of TIS, Cashforce, Treasury Services, Treasurer Search on treasuryXL and find a new solution right there?

And what if your own products and services need to get more attention in the treasury industry?
Why not consider our Partner Launching Package and promote your company a whole year long?

This package includes:

  • Your company page on treasuryXL
  • Your logo on the homepage
  • Whitepapers, events, vacancies, training/seminar or other advertisement banners on the homepage for at least a week
  • Up to 4 expert pages
    All experts can write articles which will be published in the news|articles section (after approval by our team of editors)
  • A whitepaper will be on our homepage for a week and can also be found on our news|articles page.
  • Events will appear on the homepage and under ‘upcoming events’ (agenda)
  • All content will be promoted by social media and our weekly newsletter

Launching partners can use all aspects of the platform for a full year. We apply a fair use policy.
Costs for a whole year: €1000,- exclusive 21% VAT

treasuryXL is young, dynamic and flexibel – what can we do for you?

Contact me, if you want to obtain more information.

Annette Gillhart – Community Manager treasuryXL

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Treasury Seminars in Antwerp and Montfoort – a short summary of two successful events

| 15-3-2017 | Treasury Services | PowertoPay | sponsored content |

The last two Thursdays, the PowertoPay, SWIFT and TreasuryServices Treasury Seminar was held in Montfoort and Antwerp. We’re happy to say that it was a success! We got a lot of positive feedback during and after the seminars. Both had the same content but were hosted on two different days. The first one was held in Antwerp, Belgium on the 2nd of March in an old monastery (Elzenveld). The second one was held in Montfoort, The Netherlands on the 9th of March in the Heeren of Montfoort. 

During the seminar several treasury topics were highlighted. After a short opening speech by Bas Huisman, co-founder of PowertoPay, we started with a presentation about the importance of bank independency. Arnoud Doornbos from Treasury Services was talking about financial history lessons but also the current financial situation that makes it really important for companies to look into bank independent solutions.
After that Rob Rühl from Next Markets presented his view of the influences of Brexit on the Dutch and Belgian economy.
Next was a presentation by Hans de Vries, PowertoPay consultant, telling about the end of Notional Pooling and Basel III. He also presented the Payment Hub of PowertoPay and how this is beneficial for companies.
After this Jan Vermeer from TreasuryServices talked about bank independent cash pooling through software, something TreasuryServices developed for companies who wish to operate much less dependent on their banks if it comes to cash management.
Last but definitely not least, we had a client case presented by Michel Steenbergen from DIF. He informed everyone about how the two solutions mentioned above come together in practice. DIF uses a combination of PowertoPay’s Payment Hub  and TreasuryMetrics from Treasury Services and created a perfect solution for their complex cash management processes. After both of the seminars we had a drink and some food with the participants.

Our Treasury Seminar was a great opportunity to inform everyone about the current situation of the financial world and how to participate in changes that are occurring. Being bank independent is becoming increasingly important because of the fast development of financial technologies and changing laws. What we see lately is that components of banking products and services are being redeveloped by the FinTech Industry. These FinTech solutions are smarter, faster and better. As a result we now see that different FinTech companies work together. Individual Fintech products often turn out to be complementary to each other. FinTech companies now recognize that collaboration with other FinTech companies leads to high growth and a better product range.

PowertoPay –  Claire van Ingen

Treasury Services BV – Arnoud Doornbos

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Managing treasury risk: Liquidity Risk (VI)

|13-3-2017 | Lionel Pavey |

There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In today’s article I will focus on liquidity risk. Many companies have very significant credit needs and this needs to be formally addressed with a credit analysis procedure in place. In my former articles I dealt with risk management, interest rate risk, foreign exchange risk, commodity risk and credit risk. See the complete list at the end of today’s article.

Liquidity risk comes in 2 distinct forms – market liquidity risk and funding liquidity risk.

Market Liquidity Risk

This relates to assets and potential illiquidity in the market and, as such, can be considered a market risk. In a normal functioning market it is always possible for market participants (buyers, sellers, market makers and speculators) to find each other and negotiate a price for their transactions. Assuming that the transaction is of a normal market size, there should be no dramatic change to the price of the asset after the transaction.

At the time of a crisis, participants could be absent from the market, making it difficult – if not impossible – to trade an asset. Sellers are left frustrated as there are no opportunities to sell the asset they are holding and vice versa for buyers. This can occur due to a financial crisis, changes in legislature, scarcity of an asset or someone attempting to corner the market. An asset generally will have a value, but if there are no buyers in the market that value can not be realised.

Liquidity risk is not the same as falling prices – after all prices are free to rise or fall. If an asset was priced at zero then it means that the market considers its value to be nothing. This is different from trying to sell an asset but not being able to find a buyer.

Markets for Foreign Exchange, Stocks, Shares, Bonds and many Futures and other derivatives are generally highly liquid. Off balance sheet products related to physical settlement can be less liquid as there is a need to actually provide physical settlement. Bespoke products like CDO’s can be considered illiquid as their size is normally small (relatively speaking) and not freely tradeable. Also the complexity needed to value the product affects its liquidity.

Housing is an asset class with very low liquidity – sometimes a property could be sold as soon as it hits the market. At other times the same property could be available for sale for many years and the price reduced regularly, without attracting a firm buyer.
The easiest and quickest way to see if there is a heightened market liquidity risk is via the bid – offer spread. If this is suddenly seen widening, this would imply that there appears to be more risk. In a normal, liquid market, the spreads are fairly constant and small, allowing participants to easily step in and transact. A widening of spreads occurs in a normal market when government data is published – nonfarm payrolls, balance of payment, etc. Within a short time the market will return to a normal spread as the information is properly digested and the market makers return. However, if the spreads widen without a publication event taking place, it is reasonable to assume that the risk has increased.
Additionally, risk could grow if reserve requirements were increased. In markets such as Futures, it is necessary to pay margin to the exchange. If these margin payments were increased, this would lead to transactions being more expensive and so lead to less liquidity in the market.

Market makers can also observe the market depth. This is shown by the quantity available for transacting at a particular price in their order books. When a market is perceived as being deep, it means there are many orders and, therefore, a large number of orders would be needed to move the market price significantly. The deeper the market, the more liquid the market.

Funding Liquidity Risk

This relates to the risk of not being able to settle debts when they are due. Treasury specialists in a corporate environment are acutely concerned with funding risk. Every month wages must be paid, together with tax and social premiums (pensions, insurance etc.) Additionally, it would be advantageous to pay trade creditors on time. Future liabilities also have to be funded after they have been recognized. This could mean arranging external financing.

If there is a liquidity crisis in the market, it becomes difficult and expensive to arrange to borrow the necessary funds. The price may be so high that the intended profit provided by selling the goods, is negated by the increased cost of funding. A reduction in the credit rating of a company can also lead to increased costs and a reluctance to lend.
If a company is known to have problems making payments, then the liquidity risk is specific to the company – the rest of the market will function normally.

Funding risk can also occur if creditors fail to pay you, or if an unforeseen event has occurred that leads to an outflow of cash from the company.
A company can initially perform a quick spot check to ascertain its current ratio. This shows if a company can meet its current liabilities with its current assets. A ratio of less than 1 would imply that the company can not meet all its obligations at the same time. However, this could also be because there is no short term finance arranged at that moment.
It is possible to arrange a line of credit with a financial provider. He defines a maximum loan (line of credit) that can be extended which the company may utilize. While it is normal to pay a standing charge for the balance of the line that is not being used, this can be offset by the knowledge that it is possible to drawdown against the line when needed (in normal circumstances). There is greater flexibility with a line of credit than with a traditional bank loan.

Other methods include –

i)                    Sell assets like stock that are slow moving and tying down cash

ii)                   Analyse all overheads – office equipment, expense claims

iii)                 Increase efficiency in the debtors’ administration. Be proactive

iv)                 Renegotiate with suppliers – better that you talk to them before it is too late

v)                  Design contingency plans

vi)                 Subject your business to stress testing

vii)               Apply the techniques of ALM (asset and liability management)

 

Some very well known companies have fallen to liquidity problems – Bear Sterns, Lehman Brothers, Northern Rock, ABN Amro, AIG, etc. While the risks were prevalent before the crises, the main liquidity problems occurred when it was determined that there was no more time allowed for the situation to remain.
Time is the soul of business.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist 

 

 

 

More articles of this series:

Managing treasury risk: Risk management

Managing treasury risk: Interest rate risk 

Managing treasury risk: Foreign exchange risk

Managing treasury risk: Commodity Risk

Managing treasury risk: Credit Risk

Making the most of excess cash: The optimal balance between safety, availability and profitability

| 9-3-2017 | Pieter de Kiewit | TreasuryXL|

We came across this article from our expert Pieter de Kiewit in co-operation with a candidate on De Kiewit Treasurer Search and thought it interesting enough to share it with you.

To get inflation to its target of close to 2%, the ECB has launched an unprecedented package of measures. It cuts borrowing costs, expanded its QE programme and reduced bank deposit rate into negative territory. Interest rates are expected to remain at present low levels for an extended period of time. Great for those who need to borrow money, but depressing for the return on savings or excess cash.

Many commercial banks effectively already charge a negative interest rate on checkable deposits. They charge fees in excess of interest payments (if any). The new Basel rules may involve certain costs or risks, some banks may choose to pass these to their customers. Regulatory shift will have wide-reaching implications on cash pooling, cash deposits (distinction between operating and excess cash deposits) and Money Market Funds (liquidity fee and redemption gates will be imposed). The Basel Committee postponed the meeting scheduled for Jan. 8 on new capital standards. The good news is that it will take some time (2018/2019) before new regulations become fully operational.

Many companies now hold larger cash balances due to their growing sensitivity to the economic cycle and continued need for operational funding. Excess cash is a luxury and isn’t always a problem. However, keeping it on the book is often not the answer for a company’s long term health. Excessive non-earning cash balances create opportunity costs and decrease the rate of return on equity and the firm’s value.

What are your options after minimizing the cash balance in non-interest-bearing accounts? Each business has its own goals and financial outlook. The best thing to do with excess cash is manage it appropriately in line with strategic objectives and for the best risk-adjusted return possible, without sacrificing liquidity. You can sit on it, use it to buy property or assets, or invest it in commercial paper, money market funds, other mutual funds, bonds or stocks—or some combination of these things. Whatever you may choose, the process of investing excess cash should be integrated in overall cash management, with the same fundamental principles of keeping risk low and having the right amount of cash on hand for short-term and long-term needs.
Companies tend to have very low appetites for risk when it comes to investments. It’s not their business. Their primary objective is capital preservation and maintaining liquidity, and yield is third on the priority list.

Are you looking for investment solutions spanning a range of currencies, risk levels and durations, designed to suit specific operating, reserve and strategic cash management needs? Whatever your investment goals may be, a treasurer might be able to assist you in making the right decision with your excess liquidity. If hiring a treasurer is one step to far for your organisation, you might want to consider a Flex Treasurer. TreasuryXL can bring you in contact with treasury professionas of different disciplines.

Pieter de Kiewit

 

 

Pieter de Kiewit

Owner at Treasurer Search