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Flex Treasurer: The life of an interim treasurer
| 16-2-2017 | Patrick Kunz |
An interim treasurer is just like a normal treasurer. The difference is that he has a flexible contract and changes “jobs” more often. Assignments can be to replace the existing treasurer due to leave or sickness. This means that he gets to take an operational role and be part of the normal organization, often until a “permanent” solution is found. I did several of these roles, which often last between 3-6 months and 1 year.
Treasury Support
Another option is to provide support to an existing team/treasurer/CFO on a treasury related project. These can be short term or longer projects. Often the projects cannot be filled with the existing capacity of the team and hiring a permanent FTE for this is not an option. Another reason can be to finish the project quicker due to nearing deadlines. These projects are often several weeks to a couple of months. For example I helped a big semi-profit organization from Rotterdam to investigate into embedded derivatives in the firm to comply with new regulation. The project was finished in several weeks and the accountant accepted my conclusions in the annual report. Also I build a RAROC model for one client to periodically rank their banks based on return versus risk adjusted capital. A powerful tool to compare banks and their profitability compared to their lending.
Treasury Expert
An interim/flex treasurer does not have to be a fulltime position. At big corporates and multinationals this is often the case but smaller firms often don’t have fulltime treasurers. Sometimes the controller or the CFO fulfills the treasury position “parttime”. A part time (external) treasurer could potentially add value here. The controller/CFO has extra time for his “normal” activities and an expert is hired for the treasury task. This can be from a couple of hours a day to several days. For example I helped a real estate company with the valuation and (weekly) margin calls on their interest rate derivative portfolio, their cash management optimalisation, treasury reporting and ad hoc work. 8 hours a week.
Treasury Scan
Are you not sure if treasury is optimal at your company? A treasury scan might be a solution. A ‘quick and dirty’ scan is possible in 1 day if treasury data is collected beforehand. The costs of a treasury scan are therefore limited and often earned back from treasury savings which were identified by the scan and later realized by either the flex treasurer or the company itself; often in combination.
Do you recognize one the above situations? Do you want to know more about an (interim) Flex Treasurer?
Please click on this link or visit my expert page on treasuryXL.
Patrick Kunz
Treasury, Finance & Risk Consultant/ Owner Pecunia Treasury & Finance BV & Flex Treasurer
Treasury and regulations: A changing environment
| 15-2-2017 | Theo Paardekoper |
Companies need to comply to their regulatory framework in their industry. For the treasury department a regulatory framework is applicable which is basically linked to the financial industry and not linked to the industry of the company. Because regulations in the financial industry are changing it is important for the treasurer to update.
Regulations
Important regulations and rulings for treasurers are EMIR, MIFID and MIFID II/MIFIR.
Other regulations that are applicable for the financial industry, like UCITS and AIFM (regulations for investments funds) and CRD rules (capital requirement directive as a result of BASEL III) do not effect the corporate treasury directly, but the side effect of these rules can have effects on pricing and product offering by financial institutions.
Anti Money Laundring regulations (MOT-melding in The Netherlands) are not only applicable for banks. Also corporates are mandatory to register these transactions at the Finance Intelligence Unit of the Dutch Tax autorities.
The regulations mentioned above are all linked to the European regulatory framework and are valid in addition to local laws, like the WfT (Wet Financieel Toezicht) in the Netherlands.
EMIR (= European Market Infrastructure Regulation)
This regulation is valid since August 2012 and was initiated after the Lehman Brothers bankrupty in 2008. The main goal of EMIR is to improve transpancy of the OTC market to create a clear overview of all the derivative positions. This was one of the main problems that became clear after the Lehman bankrupty. It was totally unclear to get a view on the derivate positions and risk of a counterparty. Emir also introduced a solid clearing member (named CCP) and Trade Repository members to register your OTC derivates. To register your positions a LEI (Legal Entity Identifier) can be obtained at the Chamber of Commerce.
EMIR is not (yet) applicable for small pensionfunds.
MIFID (= Markets In Financial Instruments Derivatives)
Main objective of MIFID is to increase competition in the investment industry and to protect consumers. The well-known 40/20/2 rule to define a professional or non-professional counterparty is one of the items to protect consumers and force financial institutions into a duty of care. One of the results is a direct view on the Market-to-Market pricing of the companies derivates and monitoring of margin call obligations.
Also the classification based on knowledge is an important item and can be part of discussion during a lawsuit.
Mifid increased the number of trades in the OTC market what caused a more fragmented view on market pricing. Financial institutions are forced to provide the 5 best quotes in the market to their clients.
MIFID II
In January 2018 this new set of regulations is applicable. Mifid II made Mifid regulations also applicable for commodity and CO2-rights traders. Also market data suppliers must be registered to comply with MIFID II. Structured deposits (return is not interest based but linked to an other ratio link EUR/USD or oilprice) will also fall under the scope of Mifid. Change of classifications on behalf of Mifid II classifies local governmental entities as non-professionals. Health Institutions governmental education and housing associations are not clearly excluded as non-professional.
Mifid II will mainly “change the game” of manufacturers and distributors of financial services, but this regulations will give corporates more tools in case of a conflict about a trade. The negative side effect of new regulations is that pricing in the market will increase because of reduced competition as a result of higher entry barriers in the market.
Any action required for a corporate treasurer?
It is up to your bank to comply to MIFID II. So I would say “no”. The bank will inform you with new legal documentation and product information in the near future.
Theo Paardekoper
Independent treasury specialist
More articles of this author:
Treasury education and training: what’s next?
Managing treasury risk: Commodity Risk (Part IV)
| 14-2-2017 | Lionel Pavey |
There are lots of discussions concerning risk, but let us start by trying to define what we mean by risk. In my fourth article I will write about commodity risk, what the strategies around commodities are and how to build a commodity risk framework. More information about my first three articles can be found at the end of today’s article.
Commodity Risk
Commodity risk occurs due to changes in price, quantity, quality and politics with regard to the underlying commodities. This can refer to both the commodity as a whole and an input component of a finished good. Commodity risk usually refers to the risk in a physical product, but also occurs in products like electricity. It can affect producers, suppliers and buyers.
Traditionally, commodity price risk was managed by the purchasing department. Here the emphasis was placed on the price – the lower the price, the better. But price is only one component of commodity risk. Price changes can either be observed directly in the commodity or indirectly when the commodity is an input in the finished product.
Availability, especially of energy, is crucial for any company to be able to undertake operations. Combining commodity risk over both Treasury and Purchasing allows these 2 departments to work closer and build a better understanding of the risks involved. It also allows for a comprehensive view of the whole supply chain within a company. A product like electricity is dependent on the input source of production – gas, petroleum, coal, wind, climate – as well as the price and supply of electricity itself.
There are many factors that can determine commodities prices – supply and demand, production capacity, storage, transport. As such it is not as easy to design the risk management model as it is for financial products.
General strategies that can be implemented
Acceptance
Acceptance would mean that the risk exposure would be unchanged. The company would then absorb all price increases and attempt to pass the increase on when selling the finished product.
Avoidance
Avoidance and/or minimizing means substituting or decreasing the use of certain input components.
Contract hedging
Contract hedging means using financial products related to the commodity, such as options and futures as well as swapping price agreements.
Correlated hedging
Correlated hedging means examining the exposure of a commodity – the price of crude oil is always quoted in USD – and taking a hedge in the USD as opposed to the crude oil itself. The 2 products are correlated to a certain extent, though not fully.
Commodity risk framework
Commodity price speculation – most contracts are settled by physical delivery – affects the market more than price speculation in currency markets.
To build a commodity risk framework, attention needs to given to the following:
Problems can arise because of the following:
It requires an integrated commitment from diverse departments and management to understand and implement a robust, concise policy – but this should not be a hindrance to running the policy.
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