Cash Management: Bank Account Management

The management of a global network of bank accounts is not a simple process. Corporates often operate complex webs of accounts that have grown organically through different business developments, and which have accumulated as a rather random consequence of M&A activity. Additionally, many bank-corporate lending relationships require that an account structure should be opened and operated in return for the granting of credit facilities and other banking services, generating the need for multiple banking arrangements.

There are also legal and regulatory requirements in some places that necessitate the operation of local bank accounts, for example for taxpaying purposes. In the US, old banking regulations and some banking practices led many companies to establish banking relationships in many of the states in which they conducted business operations. And for companies operating cash-based businesses in remote parts of the world, it makes good business sense to use local banking arrangements to secure and deposit the cash, even if this involves the diversification and diffusion of the bank and bank account structures. It is not unusual for a US$1bn turnover corporation that operates in 50 foreign countries to be operating several hundred bank accounts, with 25-plus banks. This creates several challenges, particularly around areas such as cash visibility, efficiency and fraud.

BAM Technology

BAM would seem to be an issue demanding a technology solution. Thus it is surprising that little in the form of effective solutions has been offered until recently, except in the US, where standalone bank account administration system solutions have been used for some time. The alternative has been in-house developed solutions. The reason for this regional difference seems to be that American treasuries are much more often responsible for overseeing the organisation’s entire network of bank accounts than the rest of the world, where this activity is more often seen as the finance department’s responsibility. This centralised approach to cash management in its broader sense has stimulated the development of more effective technology support.

The key feature of a bank account administration solution is its central database of bank accounts, with the records including operating and interest management detail, plus identification of the authorised signatories and signature management rules – such as the number and qualifying criteria of individuals who must sign to authorise the preparation and release of a payment above a pre-defined value, or tier of values. The database therefore acts as the central repository of information for the organisation’s global network of bank accounts. As previously mentioned, it is unlikely that the database will be fully up-to-date because of the length of time that updates take to execute, but at least it forms a basis for reports and audits – and for business process improvement projects in general cash management.

There are a number of organisational changes that logically lead to BAM automation. These include the formation of central treasuries and regional treasury centres, and of in-house banks and payment factories, sometimes in shared service centres. In all these cases, the drive for enhanced corporate efficiency, and also for central visibility and control over cash, generates the will to invest in the necessary technology to achieve improved results.

eBAM

The facility to open, modify and close bank accounts electronically, in real time, represents a massive gain in performance quality. As eBAM initially evolved as a SWIFT initiative, this provided the stimulus for treasury management system (TMS) product managers to build eBAM compliant solutions into their cash management solution. A product of this development was the evolution of integral BAM solutions, providing the means to implement and operate the central bank accounts repository described above within the TMS. This alone represents a significant performance improvement.

TMS eBAM solutions create, transmit, receive and interpret eBAM messages for opening, amending and closing bank accounts, and additionally for account network reporting processes. SWIFT has developed eBAM messaging standards, through a series of account management (ACMT) XML messages. These messages are accredited by the International Organisation for Standardisation (ISO), complying with ISO 20022. Thus treasury can be confident that eBAM messages that have been accurately created in the TMS will be immediately and fully intelligible to the receiving banks. The eBAM message set is free to use, and corporates may use other channels than SWIFT for eBAM intercommunication if they wish. Through SWIFT, eBAM messages use FileAct, which is generally employed for file transmission, for example for bulk payments.

An important prerequisite for starting corporate-bank eBAM communications is that the underlying basis of the relationship must have already been securely established, through the relevant bank or banks’ know your customer (KYC) due diligence procedures.

A most important general security feature is that valid eBAM messages must be personally signed with a valid digital signature. This function is performed in SWIFT by the 3SKey digital signature management function, described as a multi-bank and multi-network personal digital identity solution. eBAM implementation also permits the use of other robust signature control solutions.

From the corporate perspective, eBAM operation is quite straightforward once the preliminary general validation of the bank relationship has been completed. SWIFT publishes a guide to implementation, including explaining how to attach documents such as signature records and rules and board resolutions to the XML messages. Once eBAM operations have been set up, the corporate’s TMS can construct and transmit account opening, modification, closing and report requests to the bank. The messages can include scanned images of the required documentation.

These messages still require robust validation at the bank, which may be time-consuming. But since the process includes acknowledgement messages sent back by the bank, treasury now has the means to track the progress of each operation. The eBAM solution offers much higher levels of control, transparency and audit quality than have been previously available. The reporting function offers particular research and audit benefits: the corporate might, for example, submit a real time request meaning, “Tell me all the accounts I have with the following country/region/currency… profile.” The enhanced communication and feedback capabilities of the eBAM workflows provide key opportunities for achieving important quality improvements.

eBAM Adoption Benefits

With eBAM, treasury can enjoy substantially increased levels of control and visibility, and can be sure about which executives are currently authorised to view and operate bank accounts, on a worldwide basis. If something important changes, for example an authorised signatory has left the organisation and a new person has been appointed to this role, eBAM enables treasury to communicate this information to the bank instantaneously – and to track the reaction on the bank’s side. Activities that can take several weeks for resolution are now transparent and much more open to monitoring.

The enhanced security and accuracy of the bank account management process can also bring a more strategic level of quality to cash management operations, provided that the eBAM project has been effectively rolled out to the entire enterprise. This exercise automatically builds confidence that there is now an accurate central view of all bank accounts – and their balances. This provides a high level of assurance that the consolidated cash position can be accurately assembled, and therefore that the required environment for effective cash management, interest income/expense performance and accurate cash reporting and forecasting is in place.

SWIFT has been working with major banks to bring corporates on board with eBAM through the G.R.E.A.T (Global Rapid eBAM Adoption Team) Project, a part of the Common Global Implementation (CGI) eBAM workgroup.

Treasury Organisation and Policy Implications

Contemporary eBAM technology solutions accommodate multiple kinds of treasury organisations and policies with respect to the administration and security of bank account management instructions. Contemporary TMS offerings have web-based modules that enable the intercommunication of eBAM message requests across a global network of corporate entities. A key solution element is the available degree of flexibility over the imposition of authorisation and approval control before messages are sent to the banks from a central point of origin. Three broad types of organisational and policy structure can be handled:

  • Fully centralised, in which a central treasury controls the approval and release of eBAM messages
  • Fully decentralised, in which local finance offices retain full eBAM control
  • A hybrid solution, in which the local offices originate and verify the messages, and there is a necessary central approval step before auctioning takes place.

In all cases, an eBAM corporate-bank workflow fully compliant with the specific treasury policy and bank requirements may be implemented.

Outlook for eBAM

There seems little doubt that eBAM represents the potential for complex operations to improve the quality and security of their global bank account management, and therefore their cash management operations in general. Currently, enthusiastic adoption has generally been amongst the largest global banks and multinational corporations. It will only be through client-led demand that the process will accelerate. This will require some level of eBAM cost/benefit research and analysis to take place on a broad scale, before that happens.

It should be added that a really efficient eBAM implementation substantially enhances the theoretical degree of bank independence among corporates, as it should be so much easier to execute the hitherto onerous operation of manually transferring substantial cash management bank relationships.

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