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What do you want to know about Treasury?
| 30-10-2017 | treasuryXL |
With this in mind, we decided to proactively launch a new initiative – Treasury for non-treasurers. We consider this as our call to action.
Who are these people?
These can be students; career professionals in other disciplines who are curious; people in the finance industry who are considering either a career change or specializing in the field of Treasury; anyone who just wants to understand what a treasurer does on a day-to-day basis.
What is our aim?
Having always written for the professional, we were confronted with the challenge of getting our information across to people who do not have in depth knowledge. After a lot of research and analysis we decided that the best approach would be to attempt to simply explain the workings of Treasury, without going into too many technical details.
What will be in our articles?
With our knowledge, that relies also on the invaluable input of our expert community, we are considering a framework encompassing such topics as:
This is a comprehensive and challenging list – but not impossible – which will, hopefully, increase people’s understanding and perception of the treasury function.
What we need?
Feedback – and plenty of it please.
These articles will not be written chronologically but, if there are certain topics that you wish to have explained then please do not hesitate to contact us. It is only with your input that we can truly create a service to meet your demands. We think we know what you would like to know, but only you can tell us!
What next?
Hopefully, when the series is a success, we can consider publishing e-books. Credit would always be given to those they have taken their time and effort to impart their knowledge and wisdom to others.
Who are you?
Please feel free to contact us and let us know more about you:
So, come back regularly and watch this space!!
Tell me and I’ll forget. Show me, and I may not remember. Involve me, and I’ll understand.
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FX-Risks Versus Technology
| 27-10-2017 | Treasurer Development | Minor Treasury @ Hogeschool Utrecht | Frans Boumans |
Today’s blog has been written by Daphne Piereij and Martijn Mullié, who are 2 students studying for the minor Treasury Management at the University of Applied Sciences in Utrecht. We welcome their contribution – it is good to see the youth engaging in Treasury matters! Here is their opinion on FX – risks versus technology.
“The one unchangeable certainty is that nothing is certain or unchangeable.” Those words were uttered by former US president John F Kennedy in a State of the Union address before Congress in 1962.
This still applies to the current state of the world. Especially within the financial markets and with FX Risks. Managing these risks have been completely revolutionized the past decades because of the new innovations in technology.
Traditionally traders manually update their volatility surfaces and bid-offer spreads, and that default pricing would have gone directly out to clients. More efficient is to use the electronic market data and automate much of that process, particularly in the most liquid currency pairs, creating a more transparent, data-driven practice.
According to McKinsey these are the trends in FX risk management with evolving technology and advanced analytics:
Big Data
Faster, cheaper computing power enables risk functions to use reams of structured and unstructured customer information to help them make better credit risk decisions.
In the future while this technology evolves and the quality of analytics of big data becomes better it will be easier to manage FX risks.
Machine Learning
This method improves the accuracy of risk models by identifying complex, nonlinear patterns in large data sets. Every bit of new information is used to increase the predictive power of the model.
Keeping in mind the words of former president John F. Kennedy the world will never be predictable and neither will the financial market. Because it’s not ran by machines but by humans, and humans are in general unpredictable. Which means this process has no end until the financial markets are managed by machines which are predictable.
Crowd Sourcing
The Internet enables the crowdsourcing of ideas, which many incumbent companies use to improve their effectiveness.
The internet can motivate people with challenges to work together to make algorithms for analytic functions so market data can be used more efficiently. It’s not always the most effective method to use the in-house developers to create algorithms. To make the most effective FX risk management algorithms is very hard and time consuming. Crowd Sourcing enables a whole different aspect to create algorithms, using more brains to create these immensely complicated methods to decrease FX risks.
Resources
https://www.mckinsey.com/business-functions/risk/our-insights/the-future-of-bank-risk-management
https://www.risk.net/risk-management/5276541/managing-fx-risk-how-to-prepare-for-the-unpredictable
Minor Treasury Management
More information about the minor Treasury Management at the University of Applied Sciences?
Please contact Frans Boumans.
Frans Boumans
Manager Minor Treasury Management @ University of Applied Sciences in Utrecht
How to connect to your bank electronically
| 26-10-2017 | François de Witte |
One of the main challenges in treasury is ensuring the connectivity with your banking partners. Currently corporates use the e-banking, or “electronic banking” channels. ‘Electronic banking’ can be defined as the way in which a company can transmit transactions and obtain reporting instructions to a bank remotely and electronically.
In the present article about bank connectivity, we will outline the current types of e-banking channels in the market, their advantages and the attention points.
Interactive banking channels
For interactive e-banking channels, typically the communication is initiated by the corporate client from a PC within the finance department and the instructions are transmitted to the bank through the internet.
Banks are developing their portals more and more: ING Business Payment, Connexis, KBC-Online, IT Line, RABO Corporate Connect, etc. They also provide a full range of services through them.
Illustration of the interactive electronic banking channel:
Currently the interactive- banking channels are widely used by corporates and other organizations, because they are easy to implement, user-friendly, enable to work on a standalone basis and less expensive. However, the drawbacks are that they are not always that suited for mass payments, and that each bank has its own system. Consequently, if you work with different banks, you will have different electronic banking channels for each bank, which adds to the complexity.
In some countries, the banks have put their efforts together to create a multibank interactive electronic banking channels (e.g. Isabel 6 in Belgium and Multiline in Luxembourg).
In my view, the interactive e-banking channel is best suited for corporates having not too high volumes of transactions and working with only few banks, or in countries were multibank electronic banking channels are available.
Host to host electronic banking channels
Some corporates or public institutions have very high volumes to treat, and will need for this a specific direct connection with their bank, a so-called “host to host” (H2H) connection. This is an automated solution for high volume data transfer between banks and their corporate clients.
Sophisticated H2H connectivity solutions give banks the flexibility to exchange information with their corporate clients in preferred file formats, agreeing on network protocols, and security standards.
The following figure illustrates this type of e-channel:
H2H e-banking channels allows for automated payments and collections, attended (where the client needs to take an action) or unattended (directly initiated by the IT system) connection / authorization. They can treat very high volumes, and to integrate the data into ERP systems.
However, they are also more expensive, because they require a specific IT set-up and usually the services of a middleware provider to ensure the connectivity between your ERP or IT system and the bank.
Up to some years ago, corporates had to set up H2H connections with each of their banks, but now several multibank H2H solutions have been developed by the TMS (Treasury Management Systems) providers or by other multibank providers such as TIS, MultiCash and Power2Pay.
In some countries, the banks have set up common interbank protocols enabling an easier and standardized connection. The best know is EBICS, which is currently in use in Germany and France.
In my view, the host to host banking e-channel is best suited for corporates having very large volumes of transactions and requiring a high level of integration with their ERP or IT systems.
SWIFT e-banking
SWIFT has extended from a bank-to-bank platform to a corporate-to-bank platform, and has also launched its own bank connectivity solution, SCORE (Standardized Corporate Environment). SWIFT enables hence to replace the various e-banking systems with a single, bank-neutral multibank e-channel. This means that treasurers and finance managers can connect with their banks worldwide in a consistent way using industry-recognized standards.
Outline of a SWIFTNET Multibank set-up (source SWIFT):
Companies can connect to SWIFT in many ways. One option is to establish a direct connection to SWIFT, but this can be a technically complex exercise. As a result, many of the companies connecting to SWIFT do so via a SWIFT service bureau. In such a set-up, most of the technical challenges are resolved by the service bureau
The third SWIFT connectivity option is Alliance Lite2. This solution enables corporates to connect to SWIFT in a quicker and less expensive way.
The SWIFT channel offers, beside the multibank character, many other advantages, such as the SWIFT standards, services beyond payments, such as FX and deposit confirmation and securities transactions, and an improved security / reliability compared to the classic e-banking systems
However, the Swift e-banking solution is not easy to implement, and can be quite expensive (in particular for the direct connection and the connection through a service bureau. Hence this solution is more suite for very large corporates and institutions, working with many banks.
Conclusion:
When looking at setting up the e-banking connectivity, several factors need to be taken into consideration, such as the number of banks and transactions, the complexity of the organization and the treasury. Smaller organization can perfectly work with the interactive e-banking channels, whilst larger and more complex organizations need to consider the multibank H2H connections or a SWIFT setup.
In the framework of PSD2, with the XS2A (access to accounts), banks in the EU/EEA will have to provide access to authorized third parties. I expect that thanks to PSD2 the cost of multibank e-banking platforms will go down, which is good news for corporates.
François de Witte
Founder & Senior Consultant at FDW Consult