Editorial Agenda 2017
Can Africa realise its potential? The continent has long promised to become a more important engine of global economic growth, but too often the promise has not been fully realised. In recent times there have been a number of positive developments; these include the rapid growth of mobile money service providers such as M-Pesa to reach the unbanked; steady growth despite lower oil prices denting the performance of key economies; strong demographics with a young and growing labour force; and growing investment in infrastructure. This focus considers the outlook for the continent and both its established and emerging economies.
Correspondent banking: feisty or flagging? As many of the global players in the banking sector scale back their activities, correspondent banking – where services are provided by a bank in one country on behalf of a financial institution in another – should be poised for a period of strong growth. However, a recent report by the International Monetary Fund (IMF) found that correspondent banking relationships were actually in decline as many banks retrench and review their business lines, with regulatory concerns in areas such as anti- money laundering (AML) also a factor. How marked is this trend and can it be reversed?
PSD2: the clock is ticking: If they have not already begun their preparations for the introduction of the Payment Services Directive, aka PSD2, European banks will need to make it a priority task this year. The regulation, regarded as one of the most disruptive in the financial services sector, will begin to make an impact in January 2018 and aims at giving greater access to competitor banks and third party payment service providers. This focus looks at how PSD2 is likely to transform the banking landscape and asks whether the current players are ready for the fundamental changes.
Focus on Latin America: Overall economic growth across the region has stalled as recession in Argentina, Brazil and Ecuador, coupled with a deepening crisis in Venezuela, undermines the stronger performance of economies such as Mexico, Paraguay and Uruguay. This focus examines the prospects for key Latin American economies in 2017 and whether new leaders in Argentina and Brazil can turn around their performance. How are corporate treasury departments coping in this challenging environment and how deep is the impact caused by volatility in key currencies such as the Brazilian real and the Mexican peso?
The trapped cash challenge: For companies with overseas operations, the problem of accessing money earned outside of its home country is nothing new. Foreign exchange controls, capital requirements, taxation and regulation all contribute to the challenge of trapped cash-although the situation is somewhat different in the US where many companies deliberately opt against repatriating cash made abroad because of the country’s relatively high corporate tax rate. As more companies look to new markets to offset sluggish growth at home, will the problem of trapped cash deepen and what are the most effective strategies for dealing with it?
A greener agenda for treasury: Treasury departments have for many years been urged to go paperless as their main contribution to their green economy, but a growing number have more ambitious plans. As the business case for sustainability and ethical policies grows, many treasurers are recognising that adopting a comprehensive green agenda doesn’t have to involve expense and can have substantial benefits for their organisation. These range from using renewable energy sources to fair treatment of suppliers. This focus examines the green initiatives being pursued by treasury departments.
What next for Germany? Europe’s biggest economy is reinforcing its role as the major powerhouse within the European Union (EU) following the UK’s decision to exit. However, some warning lights are flashing: German exports to a number of key markets such as China are flagging; many companies have had to reduce prices to maintain demand and return on capital has deteriorated for a number of major German corporates. Added to this was the sharp fall in sharp price experienced by Deutsche Bank and other major financial institutions in 2016. Ahead of the federal elections later this year, how are the country’s corporate treasurers responding to the tougher business environment – and is chancellor Angela Merkel on course for a fourth term in office?
Towards a cashless society: As the volume of cash payments steadily declines in many leading economies, the prospect of the cashless society within the next decade is becoming very real. Australia, for example, could be cashless as early as 2022 as individuals and business increasingly use smartphones and other alternatives to make payments. This focus explores the benefits to corporate treasury of dispensing with any reliance on cash, but also looks at the challenges this presents to businesses and the potential drawbacks, such as invasion of privacy.
Panda, dim sum and masala bonds: In a continuing low interest rate environment, Chinese and Indian issuers have tapped the international investment market by developing bonds issued outside their country but denominated in the local currency. Pandas, dim sums and masala bonds are among those that have been developed and issued in recent years. This focus looks at the characteristics of each type of bond, who the issuers have been, the potential for further growth and whether the concept has taken hold in the world’s other major emerging markets.
Treasury and geopolitical risk: Global political and economic threats have steadily moved onto treasury departments’ radar in recent years. The trend appeared to accelerate in 2016 thanks to Brexit, a particularly fractious election campaign for the US presidency and the continuing instability caused by the refugee crisis. Are financial professionals prepared for the resulting political tensions and the threat posed to global business. How much of a voice do they have in the lobby groups that defend the interests of business? What assistance and services are available to treasurers who want to mitigate the impact of geopolitical risk?
In-house banks – a good fit for your company? in-house banks (IHBs) have grown steadily in popularity and are being used by many multinational corporations with operations outside their home country. They were given a further boost in Europe in 2014 with the launch of the single euro payments area (SEPA) and the standardisation of EU payment formats. IHBs give treasury teams greater control and oversight of the business, while also offering cost savings. However, this focus also looks at the potential pitfalls and asks whether some companies fully consider how and why the IHB is to operate before going ahead with implementation.
Coping with currency volatility: Fears of a ‘currency war’ caused by major economies allowing their currency to depreciate and gain competitive advantage had eased somewhat before the Brexit decision last June. However, the pound’s sharp fall against the US dollar and the euro in the second half of 2016 reignited concerns, while uncertainty over the outcome of the US presidential election caused major fluctuations in the value of the Mexican peso. FiREapps reports that currency crises have been a regular event of the past two years and this focus examines the hedging strategies available to corporations vulnerable to the impact of currency volatility.
Focus on the Middle East: The global implementation of the Basel III capital adequacy regime might be making banks safer, but what are its other effects – including those possibly not envisaged when the new rules were being compiled? This focus looks at how banks have been responding to the new environment and the impact on others, ranging from hedge funds to money managers. Has the fresh capitalisation needed by many banks in order to meet Basel III’s requirements been readily available? How much has the new regime affected the cost of doing business?
Robotics on the rise: Robotics and artificial intelligence is already radically changing sectors of the financial services industry such as wealth and investment management, as robo advisors replace traditional consultants. A similar transformation is underway in many other sectors, which could either free up many of their employees from routine tasks so they can focus on more value-added work or, alternatively, mean they no longer have a job. This focus looks at both the potential risks and benefits of robotics and also asks what the implications are for corporate treasury departments.
SEPA and its successors: More than two years on since the launch of the single euro payments area (SEPA), it’s time to assess how cross-border payments in the Eurozone have been transformed. Has SEPA proved a success and have predictions that the benefits would not be commensurate with the cost of preparation been borne out? Has SEPA provided a template for the development of cross-border payment schemes in other parts of the world? The focus will also look at other payment initiatives, including the global payments innovation (gpi) scheme introduced by SWIFT at the end of 2015.
Brexit one year later: Twelve months after the British electorate voted for the UK to terminate its membership of the European Union (EU), we look at how the historic decision has changed the business landscape – both for corporate treasury departments directly affected by Brexit and those in continental Europe that are also impacted. Has the resulting depreciation of sterling proved a benefit for UK corporates or have there been more resulting headache than help? How have treasury departments amended their hedging and other risk reduction policies?
The fight against fraud: Guarding against fraudsters – particularly those working from the inside – is a continuing challenge for companies, although security systems are often still too lax in many of them. However, even where corporates have stepped up their game the threat may not have gone away. As criminals become ever more sophisticated, so detecting and eliminating fraud becomes tougher. This focus looks at the measures that businesses can take to mitigate against losses from fraud and how they can respond when they do fall victim.
The growth of Islamic finance: In late 2016, it was announced that gold had become an acceptable investment in Islamic finance for the first time as Shariah-compliant rules for trading in the precious metal were agreed. Gold now joins equities, real estate, Islamic bonds (sukuk) and takaful (insurance) as vehicles approved for Islamic finance. At the same time, many banks and financial institutions beyond the Middle East have adopted the basic principles of Shariah, which include greater transparency, enhanced risk mitigation and profit-sharing. This focus examines the growth of Islamic finance in recent years and considers what other classes of investment might be added to the list of those deemed to be acceptable.
Trade deals, trade tariffs and trade finance: Two major events in 2016, the election of an avowedly protectionist president in the US and the UK vote to exit the European Union (EU), promise to fundamentally alter trading relationships between countries. The ‘America first’ rhetoric of president Trump puts the future of the Trans-Pacific Partnership (TPP) in doubt and he also pledged to renegotiate the North America Free Trade Agreement (NAFTA), while at the same time expressing enthusiasm for a trade deal with the UK. This focus will look at how trading relationships have altered over the past year and offer forecasts on what the future is likely to bring. In addition, it will look at how the growing trade finance industry has been affected.
POBO and COBO: gaining traction: Payments-on-behalf (POBO) and collections-on-behalf (COBO) structures were given a boost once the single euro payments area (SEPA) finally became a reality in 2014. They also increasingly make sense as international payment formats steadily become more standardised. However, alongside the various benefits of POBO and COBO are challenges that must be taken into consideration by companies. Each of these is examined in this focus, which looks as how POBO/COBO projects can be successfully implemented once the vital support and buy-in from management has been secured.
Cross-border payments: After a prolonged gestation period, the single euro payments area (SEPA) finally became a reality in 2014. This focus looks at developments in cross-border payments now being made in the SEPA era and how the payments landscape could further develop in the years ahead, now that real-time payments are finally starting to gain traction in the US. Will SEPA be used as a template for cross-border initiatives in other regions of the world, or will these need to be radically different?
Towards the bank of tomorrow: In the wake of the global financial crisis and a tougher regulatory environment, banks are reassessing their role, the services that they provide to corporate clients and the ways in which they provide them. Even the biggest global players have decided that the ambition to be all things to all people is unrealistic in today’s environment. The accelerating pace of change and the arrival of disruptors in the banking sector has added to the need for a fundamental rethink. This focus offers some projections on how the industry might be transformed over the next 10 years and what size and shape the bank of tomorrow might take on.
Open banking APIs: The era of the open banking application programming interface (API) is nigh, thanks to the European Union’s revised Payment Services Directive, aka PSD2. Effective from the beginning of 2018, PSD2 provides third parties with access to the valuable client data accumulated by established financial institutions and the path to gaining this information is via an open API. How will Europe’s banking landscape be transformed in this new era and will commercial APIs still be relevant, or will their use be steadily phased out if other regions of the world follow Europe’s lead?
Financial hubs of the future: The UK has begun the Brexit process that will lead to its departure from the European Union. The uncertainty surrounding London’s future status as a world-leading financial hub means that competing locations such as Luxembourg, Brussels, Frankfurt, Dublin, Paris and Malta are already stepping up their efforts – with conspicuous success in some cases – to entice business away from the UK capital. We examine the respective merits of the rivals and consider what impact a diminution of London’s role would mean for corporate treasury departments. Will the net result be simply to increase the status of New York, rather than boost any of Europe’s cities post-Brexit?
The case for business ethics: Initiatives and regulation to stamp out bribery and corruption in the business world has made steady, if uneven progress in recent years and more companies recognise the benefits of good business ethics. However, an April 2017 survey by EY across Europe, the Middle East, India and Africa found many employees believe that bribery is still regularly employed by companies to secure contracts and senior management is deficient in fostering a culture of ethical behaviour. Moreover, with the Trump administration’s plans to dilute or even abolish Dodd-Frank in the US, could some of the checks and balances that have persuaded companies to raise their standards be about to disappear?
Small is beautiful: Around the world, small businesses are regularly lauded as “the backbone of the economy”, yet since the global financial crisis many complain that they find it increasingly tough to access funding from their banks, which they accuse of focusing on larger corporate customers. There is also a heavy casualty rate among small to medium enterprises (SMEs) during their first year of business. This focus looks at how SMEs can survive and thrive in an increasingly tough environment and the increasing number of funding options that are available. Amid recent signs that the long-term trend towards greater globalisation has slowed, or even halted, can SMEs benefit from the change?
Counterparty risk: In the wake of the 2008 global financial crisis, the focus on counterparty risk within corporate treasury departments increased substantially. The prospect that major financial institutions could fail was followed by the sovereign debt crisis in the eurozone, helping to push counterparty risk to one of treasurers’ main concerns. The crisis also raised questions about the reliability of ratings issued by the major credit agencies. This focus looks at whether counterparty risk has lessened over recent years, or whether treasurers have become more adept in managing it. Could current geopolitical and economic uncertainties see it again start to become a major concern?
Interest rates – the only way is up: After a tentative start at the end of 2015, US interest rates are slowly but steadily moving higher while there are signs that the era of ultra-low, even negative interest rates in Europe is finally nearing an end. This focus looks at how far and how fast interest rates on both sides of the Atlantic are likely to rise and the repercussions for companies that have grown accustomed to the low cost of lending that has prevailed for the best part of a decade. Are many treasury departments likely to change strategy, or will the fact that rates are still relatively low by historic standards mean that the impact is muted?
Blockchain: moving beyond a concept: At the beginning of the year, 2017 was billed as the moment when blockchain and digital ledger technology (DLT) would make the move from theory to reality and begin its transformation of the finance world. More sceptical voices suggest that it will be a few more years until blockchain starts making a visible impact. However, it is increasingly evident that banks have recognised the potential of the new technology and many have adopted a proactive stance, working with the developers that could potentially disrupt their industry. This focus will offer a progress report on the various initiatives between start-ups and banks, the prospect of national currencies being issued on the blockchain and the regulatory hurdles still to be surmounted.
AFP/Sibos conference previews and reports: It’s conference season and two annual events for which attendance is essential for many financial professionals take place this month – the US Association for Financial Professionals’ (AFP) conference is being held in San Diego, while SWIFT is holding Sibos 2017 in Canada’s main financial centre of Toronto for the first time in six years. Unfortunately for those planning to attend both, this year the two events take place on the same week in mid-October. GTNews aims to compensate by offering full previews, highlighting key issues and reporting on keynote sessions at the two conferences.
The tech-savvy treasurer: It’s generally agreed that the profile of the corporate treasurer has steadily grown since the global financial crisis and he/she has the attention of the board. As the duties and responsibilities placed on treasury have grown, so has the reliance on financial technology (fintech) and the steadily growing portfolio of regulatory technology (regtech). This has, in many cases, increased reliance on their colleagues in the IT department, but will tomorrow’s treasurer need to demonstrate an ability to work unaided with fintech? If so, how tech-savvy will they need to be, or will automation relieve them of this added workload?
Cash management innovation: A recent GTNews article described virtual accounts as ‘the brave new world of cash management’ and it’s certainly an innovation that offers benefits to corporates and their relationship banks alike, as the latter seek opportunities to reinvent their services. In addition to cost savings, virtual accounts are also regarded as a timely response to the increasing regulatory pressures in Europe and elsewhere. This focus also looks at virtual account management (VAM) technology and the range of corporate treasury solutions that it supports.
Emerging markets – challenges versus opportunity: Economic growth in the major G7 nations has been sluggish at best in the years since the financial crisis. Even the promise held a decade ago by the quartet of Brazil, Russia, India and China – aka the BRIC economies – has faded to a great extent. The world’s developing economies appear to many to offer the strongest growth opportunities over the decade ahead. This focus will identify those regions with the best prospects and the challenges that moving into a new territory can present, from currency hedging and working with local banks to recruiting suitable talent and complying with sanctions requirements.
America (still) First?: As the Trump presidency approaches the end of its first year, this focus will examine how the US business environment has altered and the progress to date in fulfilling election pledges – from slashing the rate of corporate tax to diluting the impact of Dodd-Frank. What is currently top of the agenda for US corporate treasury departments and are they in optimistic mood for prospects over the next three years? We also examine whether the real-time payments initiative launched in 2016 has allowed the US to catch up with other parts of the world that were earlier to adopt.
Bracing for the next downturn: It was inevitable that the programme of quantitative easing (QE) on both sides of the Atlantic could only be maintained for a limited period. With signs that many major economies either returned to growth or saw the rate accelerate during 2017, central banks have decided that the stimulus is no longer needed and are easing off the pumps. Yet can growth be maintained in the year ahead with QE and will companies planning bond offerings still be able to find willing investors? Moreover, can businesses that have been maintained by an era of ultra-low interest rates still survive once they start moving higher?
Please note: The above editorial calendar is subject to change.
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