“Sometimes if you are a cash-rich corporate that doesn’t know what to do with the cash in your treasury during the present negative interest rate environment, the best thing to do is to borrow,” said RTL’s Masquelier who spoke on day two of the Payments International 2015 trade show, corporate treasury stream, in London on 19 March.
It is certainly a strange world where money is effectively ‘taxed’ during the span of negative interest rates.
“The fact is that in the eurozone at the moment you have to fight to recover the adverse economic situation: it’s much better in the UK versus the eurozone presently,” added Masquelier, who outlined the general economic environment for European treasurers.
He made his comments in the context of a speech examining how the treasury function has evolved over the years, from everyday cash management towards a more risk-focused approach. As part of this treasuries have become increasingly automated and technology reliant, said Masquelier, freeing up treasurers to focus on risk and opportunity-spotting as they gain more time from centralised and automated finance structures.
Unfortunately, regulation is also increasingly taking up treasurers’ time. “We only got the European Market Infrastructure Regulation (EMIR) EUR1-3bn exception for hedging trades, as opposed to profit seeking trades, because we lobbied for it,” he told his audience. “But we’ve still got other rules, which may not be directly targeted at us but will still have a treasury impact, such as Basel III and the EU’s Markets in Financial Instruments Directive (MiFID) II.”
The IFRS9 accounting standard and tax regulations such as the US Foreign Account Tax Compliance Act (FATCA) were also cited by Masquelier as more direct regulatory obligations impacting treasurers. No wonder automated cash management software and other technology aids are now deemed necessary for freeing up time to deal with all these demands on a treasurer’s time.
A slide illustrating the gradual centralisation move towards shared service centres (SSCs), payment factories (PFs), and collections or payments-on-behalf-of structures (POBO/COBO) was shared by Masquelier; one that was instantly recognisable to many treasurers in the corporate stream at the this year’s show
A snapshot of the
gtnews/JP Morgan 2014 treasury survey
was used as evidence to support Masquelier’s assertions that the nexus between efficiency, technology and regulation was now a key driving force in centralising treasury operations. The top five risks keeping treasurers awake at night, according to
readers, are: cash flow; productivity; technology; regulation; and protecting the company from fraud.
“Soft people skills are also important for modern treasurers,” he added, highlighting the fact that treasurers nowadays are expected to advise on risk and to be able to diversify away from their traditional cash management core function.
Masquelier concluded by ‘future-gazing’ on what treasury might look like in 2020. He described a “T4.0” technology environment, where strategic ‘big data’ analytical capabilities would likely be to the fore. “Cyber and fraud threats will also need to be considered,” he said, “in a world where everything will be ISO certified for messaging, security and other standardised operations.” Standards give efficiency, of course, but require cooperation to come into being, so treasurers’ soft skills will certainly be needed here.
Case Study: Best Practice for Payment and Collection Factories
Another session on day two of the trade show saw the treasurers at Swiss global pharmaceutical group Roche and Telecom Italia share their experiences of centralising accounts payable (A/P) and receivables (A/R) and moving towards a payment or collection factory
Martin Schlageter, Roche’s head of treasury operations, said that he’d recommend an evolutionary approach. “You cannot start from zero and go up to a 100mph fully centralised operation immediately,” he cautioned.
Roche has a huge foreign exchange (FX) exposure as the majority of its business is done overseas and treasury has to process numerous inter-company loans. “We handle 45 different currencies and Swiss francs [CHF] in turnover,” explained Schlageter. He outlined how treasury once had 500 interfaces before undertaking its centralisation journey 10 years ago, when it consolidated on SWIFT. The group then introduced an in-house bank (IHB) on its path towards a payment factory (PF).
“Next we’re moving towards a collection factory (CF) at Roche as we don’t want open accounts anymore and need to persuade subsidiaries to use only our IHB, reinforcing the more efficient, faster and more transparent operational structure that we want.”
Treasury centralisation initiatives undertaken by Roche over the past decade mean that the corporate is now well placed to deal with new demands, such as the single euro payments area (SEPA) harmonisation drive.
“We could now operate a single virtual bank account for instance,” said Schlageter. This would, however, require the full promised benefits of SEPA to actually accrue. Ongoing teething problems about differing cross-border tax and legal approaches have negated these so far. “It’s an ideal add-on, if possible, and would improve on any shared service centre (SSC).”
“Having an IHB and good banking partners also helped us respond quickly when sanctions were recently imposed on Russia,” said Schlageter, responding to a question about how his treasury handled its screening obligations. “I was quite shocked when there was initially discussion about maybe blocking Russia from the SWIFT network too, but we are part of this world and have to deal with it as it is. In the past we’ve had to deal with issues in Venezuela, Argentina and other countries as well; you just have to get on with it.”
Massimo Battistella, manager of A/R at Telecom Italia told the treasury audience that his company is completely different. “We don’t have huge overseas operations or much of a footprint abroad excepting Brazil, which is anyway pretty autonomous,” he said.
“Telecom Italia has still got tremendous benefits from introducing a payments-on-behalf-of (POBO) structure, however. We began our centralisation journey 15 years ago and from a technical point of view it proved to be quite easy to do. We’ve since introduced more and more rounds of centralisation. Organisationally, moving towards a PF can be more of a challenge.”
Battistella discussed the need for a strong legal environment if you are going to centralise, which partly explains why his company has yet to move towards a CF. “Telecom Italia is waiting until after the new SEPA rules and strengthened sanction and anti-money laundering (AML) controls settle down before deciding whether to proceed towards a CF. We’re actively looking at it now as more clarity slowly becomes apparent.”
But the practice of introducing a CF has been largely limited to big multi-national corporations (MNCs) so far, admitted Battistella, with large, multiple overseas units giving the most benefit; not something that applies to Telecom Italia’s more domestically focused business.
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