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Best read articles of all time – Corporate Governance – It is all about the rules
| 20-06-2018 | treasuryXL |
Corporate governance helps to define the strategies of a company, and highlight how these strategies will be implemented throughout the policies, procedures and working processes. Normally, Treasury statutes are drawn up by treasury and management – detailing the accepted methodology to perform the approved tasks – whilst responsibility and approval is granted by the directors. Once agreed upon, the statutes have to be observed by staff carrying out their duties and responsibilities.
As the treasury function is highly complex – both in financial products as well as regulatory frameworks – both directors and management need to fully comprehend the functionality as well as the implications of different financial products and services. The onus lies on the treasury department to ensure that other stakeholders not only have enough knowledge about the products, but also awareness and understanding of the relevant risks. This is vital to ensure that the right decisions are made at the highest strategic level.
Directors and management need to understand:
Operational controls to protect the business from fraud
Risks inherent in approved financial instruments
Strategies used to identify and mitigate financial risk
How risk is measured and reported
Potential exposure as a result of the agreed policy
Acceptance that not all risks can be qualified and quantified
The influence of external factors – market risk, counterparty risk, interest rate risk etc.
Proactive role of the Treasury
Quick recording of all transactions
Ensuring with controllers that all financial products are correctly input for accounting purposes
Implementation and management of agreed Treasury policies
Determining if bank covenants are being maintained
Ensure compliance with all external regulatory frameworks
Collaborating with auditors – both internal and external
Policy is influenced by strategy and objectives. The role of Treasury is to help to fulfil those objectives. Treasury has a dual function – it both mitigates risk as well as being the source of risk. Treasury enters into financial transactions on behalf of the business in order to mitigate risks; however, something like an unauthorised trade could subject the business to financial loss.
It is essential that directors and management understand both the risks that treasury manage, together with the potential risks that those transactions can create.
Blockchain for trade finance: A network business
| 19-06-2018 | Carlo de Meijer | TreasuryXL
Trade finance has become one of the top focus issues for blockchain technology use. The number of pilots and other trials that are looking into the opportunities of blockchain technology for trade finance and supply chain have dramatically increased in 2017 and intensified this year. The sheer complexity of trade finance is thereby reflected in the variety of potential solutions. Different parts of the ‘trade finance supply chain’ had their own blockchain initiative. A large number of these pilots however stopped or failed being too narrow in their set-up. These were mainly focused on certain – and limited – aspects of the trade finance chain.
The various parties who are involved in the trade finance and supply chain business however are increasingly becoming aware that stand-alone solutions are not the answer to the various challenges in the trade finance industry. The success of using blockchain in trade finance purposes stands or falls with networks effects and if it is adopted widely. They are increasingly convinced that as well as developing a platform and blockchain solution, a network must be in place that covers all the parties in the trade finance chain so that the full transaction can be completed on the blockchain.
As a result we have seen the upcoming of blockchain trade finance networks with exotic names like Batavia, Marco Polo, We.Trade and more are expected to follow. In this blog I want to go somewhat deeper in these various offerings.
Trade finance: a complex process
Trade finance is a complex process. Various parties from exporters, importers, banks, truckers, shippers, custom agents and regulators all require checks and verifications at various points along the chain. Each interlocking part of the chain depends on successful completion of the previous phase and on reliable information.
Banks thereby play a large role in the trade finance chain, notably in the supply of letters of credit and other financing mechanism. Letters of credit are the most widely used way of financing between importers and exporters, helping guarantee trade transactions. At the moment buyers and suppliers use a letter of credit typically concluded by physically transferring paper documents to underpin transactions. This process however creates a long paper trail and it may take between five and ten days to exchange documentation.
A network business
Trade finance is a network business. It is an activity that often involves multiple counterparties in various and far-away parts of the world. Creating a blockchain trade finance ecosystem that combines all the different stages of trade from production to end-delivery is a must. For blockchain trade finance platforms to work in an optimal way this means on-boarding other banks, regulators, customs and all parts of the trade cycle. This asks for the setting up of blockchain-enabled trade finance platforms or networks with common standards enabling interoperability.
“Of course we are closely monitoring initiatives among all the other consortia that we know about developing trade finance on blockchain and we are mindful of ensuring inter-operability where we can”. Hubert Benoot, Head of Trade KBC and chairman of We.Trade
Read the full article of our expert Carlo de Meijer on LinkedIn
Carlo de Meijer
Economist and researcher
PSD2 Spring Update
| 18-06-2018 | François de Witte | TreasuryXL
During the fall of 2017, I published a Summer Update on PSD2. Since then, a lot of things have moved, and hence I found it the right moment to provide an update you on some developments PSD2 and open banking.
LIST OF ABBREVIATIONS USED IN THIS ARTICLE
AISP: Account Information Service Provider
API: Application Programming Interface
ASPSP: Account Servicing Payment Service Provider
EBA: European Banking Authority
PISP: Payment Initiation Service Provider
PSP: Payment Service Provider
PSU: Payment Service User
RTS: Regulatory Technical Standards
SCA: Strong Customer Authentication
TPP: Third Party Provider
Main updates on the regulatory framework
Several member states have experienced in the transposition of PSD2 in the national law. The current status (27/5/2018) is as follows:
• Full transposition measures communicated: Austria, Bulgaria, Cyprus, Czech Republik, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Slovakia, Slovenia, Sweden, United Kingdom
• Partial transposition measures communicated: Belgium, Lithuania, Malta, Poland
• No transposition measures communicated: Croatia, Latvia, Luxembourg, Netherlands, Portugal, Romania, Spain
Source : https://ec.europa.eu/info/publications/payment-services-directive-transposition-status_en
The EC has launched an infringement proceeding is against the states who did not or only partially transposed PSD2 in their national law.
The Regulatory Technical Standards on strong customer authentication and secure open standards of communication have been published on 13/3/2018 in the Official Journal of the European Union. They will apply in as from September 13, 2019, leaving 18 months to the payment industry to get ready for this new state of play.
The EBA has decided to maintain the obligation for the ASPSPs to offer at least one interface for AISPs and PISPs to access payment account information. As of 13/9/2019, the existing practice of third party access without identification (at times referred to as ‘screen scraping’) will no longer be allowed. In order to address the concerns raised by a few respondents, the final RTS now also require that ASPSPs that use a dedicated interface will have to provide the same level of availability and performance as the interface offered to, and used by, their own customers, provide the same level of contingency measures in case of unplanned unavailability, and provide an immediate response to PISPs on whether or not the customer has funds available to make a payment.
The banks need already to prepare some steps as from early 2019 onwards. The following timetable illustrates the deadlines:
The finalization of the RTS is an important milestone which will give banks and TPPs much more clarity and certainty on how to push forward their PSD2 compliance and strategic programs.
13/1/2018, the date of implementation of PSD2 appeared to be nonevent. Over one third of the member states failed to implement PSD2. Only very few banks had published their APIs. We observe that banks are much slower in opening up their APIs to TPPs, and this for various reasons, e.g. APIs are not yet ready technically, chicken and egg situation with other banks, etc. As a result, the API aggregators need to use screen scraping or reverse engineering to enable to provide for the TPPs (including banks) access to the accounts held at the ASPSPs.
Furthermore, the standards are not yet harmonized throughout Europe. A number of working groups were constituted to further elaborate on these standards, the most important ones being the UK’s Open Banking Working Group (OBWG), the Berlin Group, and STET. Experts seem to agree that the Berlin Group Standard is the most elaborate ones, as it incorporates the most relevant use cases and has been built with the latest technology standards using REST, OAuth2, JSON and HTTP-signature. It relies on ISO 20022 elements for structuring the data to be exchanged between TPPs and ASPSPs However the UK Open Banking standards also provide interesting insights. The UK has already a much larger experience in open banking. In my view it’s essential to create a set of common, industry standard APIs that can be used by all.
Another challenge is the implementation of the multi-factor authentication. There also some interesting initiatives took place. Gemalto the world leader in digital security, has enabled Belgian mobile ID scheme ITSME to enroll 350,000 users and securely process one million transactions per month for both private and public online services – making it one of the most successful mobile ID applications in Europe within one year of launch.
Real-time payments can be the catalyst for a new wave of innovative corporate banking, payments and cash management services. The SEPA Instant Credit Transfer, will offer in combination with PSD2 interesting new use cases for Open Banking. However, it will take time to take off, as it requires huge investment from the banks, and also a change in the mentality of the consumers.
Conclusion
Although PSD2 should have been enacted by the member states, some states are still lagging behind. The banks are slow in opening their APIs, and open banking is not taking off as quickly as expected. Market players need also to agree on common standards for the interfaces.
However, there the deadline of 13/9/2019 is approaching and there is no way back. The clock is ticking in the PSD race. “If you cannot beat them, then you better join them”.
Open banking is a new way of approaching the delivery of financial services for customers, and as such, it requires a new way of thinking and new ways of working. This will also require a new mindset and a different team set up. Teams are going to be more agile and have a mix of skills and people. This is a big challenge for several institutions.
For your information, I will give a one-day training on the subject at Febelfin Academy on 21/11/2018. For more information, please go to: https://www.febelfin-academy.be/nl/opleidingen/detail/psd2-and-the-open-banking-architecture-addressing-.
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