- Joanne Gill
- Head of Global Custody and Agency Services within Equities & Asset Management Services EMEA, Bank of America Merrill Lynch
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.[[[PAGE]]]
Choosing the right bank
In order to manage risk as effectively as possible, treasurers should look for banks which provide a clear link between their markets desks and all of the solutions that companies use to manage their cash, short-term and long-term debt, liquidity, investment, trade, FX and other requirements. Working with a bank that is able to execute trades as well as providing settlement and custody services can also enable companies to reduce their operational risk, as funds never leave the bank.
Other factors also need to be taken into account when choosing a bank. The impact of two of the most significant regulatory reforms of recent years, Basel III and AIFMD, is now broadly understood by corporations, asset managers and the wider market. However, the scope of regulatory change continues to expand. Recently, huge fines incurred by some banks for failing to effectively segregate client assets have highlighted regulators’ increasing watchfulness and rigour.
In this climate, companies need to work with banks that take a proactive approach to regulatory change, particularly when it comes to developing appropriate solutions for their clients. Banks which are making bold moves in this area, such as the integration of IPA, custody and escrow services, are likely to be thinking about how best to serve companies’ needs in a changing environment.
Organisations should also aim to work with banks that are able to communicate the impact of regulatory change effectively, and suggest suitable strategies to position the organisation for success. Armed with better information, treasurers will be better placed to increase control over their cash, improve the effectiveness of their strategies and mitigate risks.
