Liquidity Management: is Europe the new Asia?

For many treasurers, Europe has historically been a benign environment for liquidity management. In contrast with regions such as Asia or Latin America, consistent regulation and unrestricted movement of funds has made for comparatively straightforward liquidity management. However, a variety of recent and forthcoming changes, including Brexit, bank ring fencing and the second Payment Services Directive (PSD2), will make Europe far more demanding over the next few years. Nevertheless, as Adnan Ahmed, Regional Head of Liquidity for Europe, Global Liquidity and Cash Management, explains, these changes are considerable opportunities for those treasuries that act now to ensure that their businesses, banks, systems, infrastructure and processes are agile.

Brexit

Brexit represents one of the greatest challenges for European liquidity management because of continuing uncertainty over the form it will ultimately take: ‘hard’, ‘soft’ or somewhere in between. At present there is no sense of linear progression to a predictable outcome, which makes planning future liquidity structures near impossible, especially in the context of rules relating to cross border transfer payments in Euros.

For example, there may be implications for treasuries regarding the creation of intercompany positions and the movement of funds in relation to their corporate tax positions. At present, whether or not the bank account is resident or non- resident is largely immaterial and the movement of funds is straightforward. This may no longer be the case post-Brexit.

The tax implications for a particular liquidity structure, or the consequences of an entity moving funds to another entity, or to the same entity in another jurisdiction, remain unknown.

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