Published: November 01, 2011
The treasury department at Transport for London (TfL) consists of a team of ten people working under the Group Treasurer. It is a fully centralised department responsible for the group’s banking arrangements, investments, debt activities and risk management associated with these areas.
In 2008 TfL received government approval to enter into derivative instruments for the purposes of risk mitigation (Section 49 TfL Act 2008). This was a landmark agreement as no other local authority has the power to do this. As such, the development and implementation of the derivatives programme was closely scrutinised not only by its executive management team, but also by the following external bodies: the TfL Board, chaired by the Mayor of London Boris Johnson, its auditors, the Greater London Authority, the Department for Transport and Her Majesty’s Treasury.
In order to give our stakeholder’s confidence in our ability to manage a derivatives programme, we set about looking for a solution that would help us implement best practices. We were in the process of choosing a new treasury management system (TMS) and decided that the best solution for TfL was to opt for a TMS and a separate valuation tool. We chose Reval as the most capable of supporting our requirements. Reval was also highly regarded by our auditors and banks with which we have relationships. Having the right solution in place gave confidence to all parties concerned that our treasury team was able to manage and mitigate our risk effectively.[[[PAGE]]]
We are at the early stages of using Reval, and so far have a number of forward starting Interest Rate swaps, which we mark to market using Reval. In addition to this, we have over £6bn of loans and various financial leases, for which the fair values are also being calculated in Reval. This has resulted in a dramatic reduction in time spent by the treasury department on the year-end accounts, even with the one-off data entry burden this year.
In previous years, much time within the TfL treasury department was spent on calculations, sense checking figures and explaining outputs. Reval does all the hard work and provides senior management with total visibility of the detail, if required. At first, we tended only to produce figures as we had been used to, but soon we discovered all the information behind the figures that was present and available for use.
We also found additional uses for Reval, which we didn’t anticipate. For example, the system is very user friendly, and the cash-flow and accrual functionality for debt and financial instruments has proved very useful. This has been used to produce reports for presentations and to check outputs from our treasury management system.
Additionally, we have found Reval’s online seminars very useful. They are concise and get straight to the point, and they are presented in a way that allows us to pick and choose relevant topics. Given the fact that any professional can participate in a seminar, on demand at his or her desk, much can be learned in a short space of time, without the usual downsides of offsite training or sitting through less relevant material on a generic course topic.
Overall, Reval has given us the confidence and ability to use financial instruments for the purposes of risk mitigation, and in doing so it has allowed us to lock in future borrowing rates at historic lows, saving millions of pounds for TfL and the taxpayer.
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