Balancing Compliance & Efficiency

How would you describe the importance of Latin America in global terms?

Globally, Latin America remains a relatively minor region, with less than 10% of the world’s population and lower purchasing power than many western economies. However, the potential in these markets is huge, and we are seeing significant growth. For example, Brazil, Chile, Peru and Columbia are witnessing growth of around 7-10%, which will continue to attract foreign MNCs that have less growth potential in existing markets. For some industries, such as consumer staples, commodities and intermediate products, Latin America is one of the most important regions globally.

How has working in Latin America changed over recent years from a cash and treasury management perspective?

In many ways, it has become easier for foreign companies to operate in the region over the past 15 years or so. Technology has improved and, with the exception of the period of financial crisis, the number of banks and vendors supplying companies in these markets has increased. These organisations have increasingly recognised that their MNC client base need access to services in areas such as centralisation, standardisation of technology and processes, and a standardised approach to communication. However, despite the fact that there have been many improvements, the fiscal and regulatory compliance burden has actually increased, creating new challenges for treasurers in Latin America. For example, while it is relatively straightforward to centralise payables, techniques such as cash pooling that are familiar in other regions are often not achievable. While in countries such as Mexico, Uruguay and Chile, cash can be concentrated, this is more difficult in Central America, Ecuador and Colombia, and impossible in Brazil and Venezuela.

For some industries, such as consumer staples, commodities and intermediate products, Latin America is one of the most important regions globally.

You mention the increase in the regulatory burden. What does this mean in practice? 

There are a myriad different scenarios, and the regulatory requirements differ in each country, so it is impossible to take a systematic approach across the region as a whole. In addition, in some cases, regulations in some countries have been adopted more widely. For example, while all FX transactions have had to be registered with the central bank in Colombia, this requirement now applies almost everywhere for statistical and anti-money laundering reasons. While it is not difficult to comply with this requirement, it is labour-intensive and reduces efficiency, often to comply with US international regulation.Another challenge relates to the tax on transactions levied by the relevant government or central bank as a percentage of the transaction value. While each amount may be small to very small, if the cash flow is for a different amount than its face value, it is difficult to concentrate cash efficiently. Furthermore, automatic reconciliation and account posting becomes very complex.

How would you characterise the banking environment in Latin America?

Although certain multinational banks have had a long-standing presence in the region, the combination of the global financial crisis and the attractive opportunities that exist in Asia has caused many to retreat, rationalise or halt growth plans, resulting in an overall loss of banking coverage in Latin America. However, we are now seeing new market entrants and existing players are expanding their geographic footprint through both organic growth and acquisition. Banks such as Bank of America Merrill Lynch have focused on developing their cash management offerings for large multinationals to help address the challenges that exist. However, there remain some constraints in the availability of international banking partners for SMEs.[[[PAGE]]]

How are companies managing the problems of bank coverage?

With developments in technology, some of the leading banks are able to provide broader regional coverage without necessarily maintaining a direct in-country presence, such as centralised payments processing. Corporations are also rationalising their in-country banking needs wherever possible, with considerable investments in centralised services. For example, many companies are establishing financial shared service centres in countries that have efficient, open banking structures and a focus on business compliance, such as Costa Rica, Panama and especially Uruguay, that have a skilled workforce and an attractive cost and regulatory environment.

What do you see as the key priorities for treasurers over the coming years?

I would identify four key priorities:

Firstly, to take advantage of new technology opportunities, such as SWIFT Corporate Access, as they become more readily available, to increase transparency, security and automation in financial processing;

Secondly, to rationalise and standardise banking relationships, ideally based on a single cash management platform, to increase visibility and control over cash and reduce costs;

Thirdly, as the regulatory compliance burden will continue to pose challenges, to find ways of standardising and automating the reporting requirement as far as possible;

Finally, to leverage opportunities for improved liquidity management and cash concentration, such as in Uruguay, Mexico and Chile where cash pooling is straightforward and available, and to seek alternative solutions, such as notional pooling, or liquidity recognising by your core banks of trapped liquidity, in countries where this is more difficult.