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Debt Compliance – can you make the grade?
| 01-12-2017 | Paul Stheeman |
Depending on the financing method chosen, your company is likely to have debt or some kind of financial obligations to third parties. This can be in the form of loans, bilateral or syndicated, or in the form of a bond issue. In each case, the underlying agreement has to be well-documented and could be very extensive with several hundred pages of legal language which, for a non-lawyer, may be very difficult to understand.
In that documentation there will be clauses stating what the debtor is allowed and not allowed to do. Another important part of the agreement will be around financial covenants. These are usually ratios which the debtor has to regularly fulfil. It is commonly the responsibility of the Treasurer to ensure that the terms of the agreements are adhered to and to report the status of the covenants to the lenders and investors. To be able to do this the Treasurer will have to work closely with the company’s lawyers, the accountants and the Controller. He furthermore has to “educate” key internal stakeholders in the requirements, so that they also are aware of any hurdles which may prohibit them in carrying out their day-to-day business. This whole process is commonly known as debt compliance.
A loan agreement will typically have between one and five financial covenants which need to be tested and reported to the lenders on a quarterly or semi-annual basis. One of many examples of financial covenants is a coverage covenant, which requires the debtor to maintain a minimum level of earnings or cash flow relative to certain expenses, e.g. interest or debt service. Typically, such numbers are prepared in the accounting department, but the Treasurer will have to ensure that these figures are prepared timely and are within the thresholds allowed in the financing agreements. If these criteria are not met, then the debtor will be in breach of the covenant(s) and technically will be in default.
Default can also arise when so-called prohibited transactions are entered into or “basket” limits are overdrawn. In many agreements the debtor is not allowed to enter into any other financial obligation. This may in practice prohibit the debtor in carrying out his normal course of business. For example, he may be required to issue a performance guarantee. This would initially not be allowed under the agreement. Lenders therefore establish baskets with a threshold amount up to which the debtor may have a bank issue a performance guarantee. Again here, it will be the Treasurer’s responsibility to ensure that all such transactions fall within allowed business or baskets.
Being in default due to a breach of a covenant or a basket could mean that the outstanding debt becomes immediately repayable in full. This is usually neither in the interest of the debtor or the lender, so that the lender can apply for a waiver. It will depend on the seriousness of the breach, but these waivers are often agreed to by the lenders. However, there will be a fee which the lender will have to pay for the waiver and this can be quite substantial.
To summarize, debt compliance is a very important part of a Treasurer’s role as the consequences of non-compliance can at best weaken the company’s position towards its lenders and at worst be disastrous as lenders call on outstanding debt to be repaid immediately.
Paul Stheeman
Owner of STS – Stheeman Treasury Solutions GmbH
Extra Voorlichtingsavond PGO Treasury Management & Corporate Finance op 14 december
| 30-11-2017 | Robert Dekker |
Deze extra voorlichtingsavond is bedoeld voor geïnteresseerden die per 1 februari 2018 willen instromen. Gezien het feit dat we vanaf 1 september 2018 de opleiding (in principe) alleen nog in het Engels aanbieden, en we geïnteresseerden in de opleiding nog een allerlaatste kans willen geven het programma in het Nederlands te kunnen volgen, hebben we besloten de mogelijkheid te bieden om per 1 februari 2018 in te stromen. Dat kan, omdat wij de opleiding modulair georganiseerd hebben, hetgeen ons in staat stelt 2 keer per jaar studenten te laten instromen, namelijk per 1 september en per 1 februari.
Wellicht ken je gegadigden in jouw professionele omgeving die geïnteresseerd zijn in deze opleiding. Zij zijn van harte welkom om een indruk van de opleiding te krijgen en kennis te maken met de programmadirectie, docenten en (ex-)studenten.
Programma Extra Voorlichtingsavond 14 december 2017:
18:45 uur Ontvangst in de Agorafoyer
19:00 uur Start voorlichting
20:00 uur Einde
Wij zien ernaar uit je donderdagavond 14 december aanstaande te ontmoeten.
Locatie
Vrije Universiteit Amsterdam, De Boelelaan 1105, Amsterdam
Zaal Agora 5 (hoofdgebouw, 3e etage, A-vleugel)
Aanmelden en informatie
Wij weten graag vooraf op hoeveel mensen we kunnen rekenen. Aanmelden kan door contact op te nemen met:
Nicole Lijs via 020-598 2171 of [email protected].
Robert Dekker – Program director postgraduate program treasury & corporate finance at the VU University
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PSD2 – Fall update and new developments
| 28-11-2017 | François de Witte |
LIST OF ABBREVIATIONS USED IN THIS ARTICLE
Main updates on the regulatory framework
Some member states have already advised that they expect delays in the transposition of PSD2 in the national law, e.g. Belgium (by March 2018), the Netherland (by June 2018), Sweden, Poland, Spain and France.
Following countries already announced that they will be on track, e.g. Italy, Finland, Ireland, Czech Republic, Germany and Bulgaria.
By end November the EBA should publish the revised draft on the SCA (Strong Customer Authentication) and Secure Communication. We expect that a number of points, raised by the market participants, will be incorporated in the text.
With regard to the access to TPPs, article 113.4 of PSD2 explicitly states that the member states shall ensure the application of the security measures within18 months following the entry in force of the law. Hence, we might expect that this part of PSD2 needs only to be implemented by Q3 2019. However, in some countries, the authorities are pushing for an earlier implementation (e.g. in Belgium by end Q1 2018). Given the strategic importance and the IT act, I recommend starting this quite soon.
Main developments
Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.
The challenge is to create standards for the APIs specifying the nomenclature, access protocols, authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this.
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 one., 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
As Marc Lainez, CEO of Ibanity, part of Isabel Group (developing API and PSD2 solutions for the XS2A and beyond) pointed out: “We can already see a fragmentation on the market. Several groups publishing specifications that are on many points different. With the RTS still being a moving target at the moment, those specifications are also incomplete as some details still need to be clarified. Some banks also choose to implement their own specifications without following closely any of those already published. In engineering, a standard is usually something that emerges through the best practices of an industry, it is not something that can be thought off entirely before it is actually used. At Ibanity, we are convinced that fragmentation will be a reality and several formats and specifications will co-exist on the market for some time. Looking at them from a pure software engineering point of view, we can say that those that seem the closest to what TPPs are actually expecting in terms of API quality are the specifications from the Open Banking Working Group and the Berlin Group. They still need, of course, to be challenged by the market with real use cases.“
The large banks have already started working on being PSD2 compliant and on building for the opening of their banking architecture to the TPPs. However, several small or medium sized banks only started recently on this project.
PSD2 has numerous interdependencies with other regulations (such as GDPR and eIDAS Regulation), promising a complex implementation with multiple stakeholders. For many banks, compliance by 2018 will be a challenge. Moreover there is a strong technology impact, adding to the complexity of the project. The following graphs of a market survey of PWC are a good illustration of the current state of the project with the European banks:
Conclusion
The PSD2 creates challenges. Several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. Moreover there are some unclarities in the text.
However, there are solutions in the market to withdraw the hassle for Banks and TPPs. The clock is ticking in the PSD race. Consequently, there is no justifiable reason for any bank to delay starting these projects.
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