treasury technology & the counterparty risk challenge south florida afp 2011
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Treasury Technology & the Counterparty Risk Challenge South Florida AFP 2011. Treasury Technology - Capability v 21 st Century Demand. Company & Speaker Background Counterparty Risk Management Process, process, process..... IT2 – IT-Who?. Company Bio – IT2. - PowerPoint PPT PresentationTRANSCRIPT
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www.it2tms.com
Treasury Technology & the Counterparty Risk ChallengeSouth Florida AFP 2011
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Treasury Technology - Capability v 21st Century Demand
• Company & Speaker Background
•Counterparty Risk Management
•Process, process, process.....
• IT2 – IT-Who?
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• Global enterprise founded in 1982, with US HQ in New York• Consistent record of sustained strong growth and profitability• 250+ multinational & domestic corporate & FI clients• Client examples: A. Schulman, BMC Software, Campbell Soup
Company, Costco Wholesale Corp., Marriott, Tyco International, Volkswagen International Finance
• Over 90 professional employees world-wide, 100% dedicated to the design, development, delivery & support of the IT2 best practice treasury management system
Company Bio – IT2
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• Aon Corporation – 14 years– Europe front office dealing– Bought together 3 cash departments into single
Treasury– TMS/TWS responsibility
• Treasury Software – 11 years– 3 vendors– System specialist, sales, client relationships– CT based
Speaker Background
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www.it2tms.com
Counterparty Risk
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Counterparty Risk Management
Counterparty uncertainty• Risk Indicators• Counterparty Limits• FAS 157
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What are Today’s Main Issues and Challenges?
Post Global Financial Crisis
#1Counterparty Risk
What is my Exposure?
How do I assess the Risk?
#2Liquidity Planning & Funding
How much cash do I have today?
How much cash I expect to have or
need in the future?
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A Little History
• Counterparty risk is nothing new – Herstatt, BCCI & Barings
• Financial domestic regulators have a duty to protect the financial system
• A personal experience
• So then, today’s challenges....
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Risk Indicators - Why are new risk indicators needed?
...the biggest bankruptcy in U.S. History.
Standard & Poor’s
Ratings
Investment
Grade
AAAAA+AAAA-A+AA-
BBB+BBBBBB-
Non-Investm
ent Grade
BB+BBBB-B+BB-
CCC+CCCCCC-CCC
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What Other Indicators Can be Used?
Risk PolicyBased on credit rating and other
factors...EQUITY
PRICECDS SPREAD
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Risk Techniques – Current & Planned
62%
28%
5%13%
28% 25%24%
42%
68%
Which of the following credit risk analysis methods does your treasury department perform?
Already in place In the next three years Not planned
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Fair Value Measurement
Are two derivatives with identical terms but with different counterparties worth the same?
Fair Value = Market Value + Credit Valuation Adjustment (CVA)
CVA =quantitative risk assessment of counterparty non performance
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Best Practice – a widely used term but what should your Treasury consider?
That is your choice...considerations may include:
• Active financial instruments used to manage treasury operations
• Countries where risk sits today and tomorrow
• Existing policy and procedural control framework
• Internal and external audit buy-in and agreement
• C-level risk preferences
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Some to Consider
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Risk Indicators linked to Limits
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Credit Valuation Adjustment
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www.it2tms.com
Bank Account Administration
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Bank Account Administration
• Bank Account Administration
• Electronic Bank Account Management (eBAM)
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Common Bank Relationship Challenges
Can I be sure that I have visibility into
my global cash position? Do I fully
understand my counterparty
exposures and relationship
activity on a global basis?
Are cash related fraud or
operational risks big concerns?
How can a Bank Account Administratio
n system help?
• Single repository for bank all account information
• End to end automation and control of bank account open, closure & maintenance processes
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Introduction to Electronic Bank Account Management (eBAM)
• eBAM will not solve everything but will avoid issues:– Long and painful process to open/close;– Lack of standardization between banks;– Low STP;– Risk of human error;– High costs.
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How can I tackle this issue?
• In order to achieve a high degree of cash visibility first need to:– Achieve visibility into all open accounts– Implement a control process for opening and
closing accounts• In order to lower costs and mitigate risks :
– Implement controlled signatory and service management processes
– Implement standard processes across business and in turn across multiple bank relationships
– Leverage electronic communication between subsidiaries and banks
– Demand a flexible reporting framework
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Process, process, process
• Enhanced focus on Treasury
• Policy & Procedure
• Real time, accurate information
• SOX Control
• IT Buy-in, Procurement involvement
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Bank account administration
Central account register for all bank account information
Controlled workflow for opening, maintaining and closing bank accounts
Streamline communication with banks
1
2
3
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IT2’s Central Account Register
Single repository for all bank
account information
Bank Details
Account Details
Signatory Details
Service Details Bank
ContactsAccount Documentatio
n
Account Balances & Transactions
Bank Fees
Trading & Competitiveness
Statistics
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Controlled Workflows
Opening Requests Maintenance Requests
Closing Requests
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Bank Account Administration in IT2
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Bank Account Administration Visibility - Dashboard
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Process
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Conclusion
• What to do ?– Consider current Policy– Discuss with SOX Committee and Audit teams– Understand peer group approach– Seek advice from consultancy company
– Target needs– Technology or not
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Bank Account Administration – Summary
Integrated eBAM solution
Enhanced enterprise cash visibility
Counterparty exposure visibility
Complete transparency
Full control & audit
Reduced operational risk
Streamlined workflow
BEST
PRACTICE
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Sample of 250+ IT2 Customers
Volkswagen
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Questions?
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