Risk Management

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Risk and Efficiency in 2016 The themes that dominated 2015 are inevitably shaping 2016, with high levels of market volatility, a slowdown in the fast-growing Asian economies, and instability across parts of the Middle East, Turkey and Russia.

Risk and Efficiency in 2016

Risk and Efficiency in 2016

An Interview with Steve Elms, EMEA Region Sales Head, Corporate and Public Sector, Treasury and Trade Solutions, Citi

As budget processes start in earnest for many companies, treasurers and their banks are looking to the year ahead. In this edition, Steve Elms, EMEA Region Sales Head, Corporate and Public Sector, Treasury and Trade Solutions at Citi outlines some of the priorities and challenges amongst treasury clients.

What do you see as your corporate customers’ key priorities in 2016?

The themes that have dominated 2015 are inevitably shaping 2016, with high levels of market volatility, a slowdown in the fast-growing Asian economies, and instability across parts of the Middle East, Turkey and Russia. In this environment, treasurers are focused on managing uncertainty and reducing the impact on their business. Secondly, many are aiming to capitalise on significant technology investments made over the past few years in their treasury management system (TMS) and/or enterprise resource planning (ERP) tool to drive further efficiencies through processing optimisation, enhanced reporting and financial analytics.

As treasurers plan their investments in the year ahead, they are keeping a critical eye on potential returns, so they are becoming more selective, accelerating projects that offer the greatest cost efficiency, operational or market risk management, and holding off on others.

Given this diversity of priorities, what challenges would you particularly identify?

Financial regulation has been a dominant topic over the past six or seven years, and regulations have risen to the fore as they reach the final implementation and adoption stages. Although many have had direct implications for financial institutions there have been a significant knock-on effect and implications for corporations.

For example, the increasing cost of regulation and compliance across a diverse local network has challenged banks to remain competitive whilst still offering a comprehensive end-to-end service unless they are strong players in that market or product line. As a result, we have seen a number of well-publicised network retrenchments and strategic exits. These can be extremely disruptive to clients’ day-to-day business and strategic investment plans. Consequently, treasurers and CFOs are seeking assurance that their banks will continue to support their needs across the markets and product lines that are essential to their business, and in doing so they are revisiting their bank relationships accordingly.

In addition, treasurers have been focusing on bank-agnostic connectivity and standards to streamline the flow of transactions and reporting across systems and counterparties. This is resulting in treasurers, and their banks, working to achieve the delicate balance of counterparty and operational risk management whilst seeking banks’ continuing support and commitment to the network and product lines that are essential to their business

Another key implication of current regulatory change is the change in banks’ appetite and ability to offer specific products and services as they implement Basel III and CRD IV. There are questions, for example, about the sustainability of notional pooling, and the divergence seen between banks on how such products are offered depending on their country of incorporation, balance sheet and regulatory capital implications. Consequently, some corporate treasurers will find that their banks are no longer in a position to offer products they have offered in the past, or that the pricing or presentation of these solutions changes. Understanding these changes and in some cases seeking alternatives will be a major priority for many treasurers, given the importance of cash pooling to regional and global liquidity management.

To what extent have corporate treasurers already started this process?

One issue that is important to note is that solutions such as notional pooling are not only impacted by Basel III and CRD IV: BEPS (Base Erosion and Profit Shifting) implications have also driven the increase in the number of treasurers reviewing their regional and global liquidity arrangements with a number considering physical pooling (e.g., zero balancing) as an alternative. Given Citi’s long-standing commitment to notional and physical pooling and proven expertise in regional and global liquidity management, a large number of clients are engaging with us.

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