Investment

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Taking a Proactive Approach to Global Assets Regulatory developments such as Basel III and the European Union’s Alternative Investment Fund Managers Directive (AIFMD) are affecting everything from the cost of transactions to the way in which companies approach the financial markets.

Taking a Proactive Approach to Global Assets

by Joanne Gill, Head of Global Custody and Agency Services within Equities & Asset Management Services EMEA, Bank of America Merrill Lynch

Keeping a company’s asset management strategy up to date is important in any climate – and is particularly critical during periods of upheaval. In the current market, regulatory developments such as Basel III and the European Union’s Alternative Investment Fund Managers Directive (AIFMD) are affecting everything from the cost of transactions to the way in which companies approach the financial markets. This, in turn, is prompting corporate treasurers to think differently about asset management.

Regulatory change may affect companies in different ways, depending on their priorities, goals and business models. For example, many companies are no longer willing to accept exposure to a single counterparty in the current environment. Treasurers are also placing increased emphasis on the need for asset protection, segregation and diversification, resulting in greater demand for custody services.

Treasurers are increasingly being tasked with managing the impact of regulatory change – and in some cases, they are responding to these changes by adopting banking services which may not have previously been on their radar. Organisations which are looking to manage increasingly large cash balances are using custody services more widely than in the past. Treasurers may also be seeking alternatives to bank lending, leading to a greater need for securities-based services.

As their needs evolve, treasurers should aim to work with banks which fully understand the impact of these changes – and which are proactively developing their solutions in order to help companies control their cash more effectively.

Seeking joined-up solutions

One goal which is moving up the priority list for many companies is that of achieving a more holistic view of their bank relationships. This, in turn, is leading to greater demand for tools and services which can address companies’ requirements at a global level.

As corporations pursue greater efficiency in managing their balance sheets and fluctuating investment requirements, treasurers are continuing to ask for greater visibility and control across their cash and securities. One way in which banks can provide this is by using a single global platform for securities processing. By taking an integrated approach, and offering access to an array of financial solutions across prime brokerage, clearing, collateral management, securities lending and custody, banks can create a fully integrated servicing experience, from execution to final settlement.

In particular, banks can integrate issuing and paying agent (IPA) services, which relate to the issuance of short- and medium-term debt for funding, with custody and escrow. While these three areas have traditionally been seen as distinct and separate, they have considerable synergies and effectively span a cash continuum that ranges from safekeeping of cash (escrow), to investment of cash (custody) and short-term finance (IPA).

For companies, using the same bank for execution and custody – or for escrow and day-to-day transactional banking – can result in more streamlined cash flows. In addition, companies can benefit from simplified reporting as a result of the integration of IPA, custody and escrow services and their delivery. Treasurers can also achieve a single view of their requirements across multiple accounts as a result of more integrated services.

The ability to take a holistic view across cash and securities – through closer integration of solutions – is also attractive from a risk management perspective. For many treasurers, managing the risks associated with investment is a pressing concern and is often viewed as more important than achieving return on investment. But all too often, banks offer stand-alone solutions for execution, settlement, custody and global treasury management – rather than offering joined-up solutions reflecting how companies actually think about risk.

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