The Importance of Bank Relationship Management

Since the Internet bubble burst and the world has become more aware of the abuses in corporate finances, there has been increased interest in accountability at the executive level for the financial operations of the company. Towards that goal, regulations (especially in the US and the EU) have been put in place to hold companies and their executives accountable for effectively and securely controlling their operations. Failure to do so not only puts the company’s finances and executives’ career at risk but can also now involve stiff penalties and jail time.

While an increasing emphasis has been placed on audits and compliance to look for abuses in financial processes and systems, the management of bank accounts has continued to lag others in tracking and maintenance. There are a multitude of reasons, including:

• The globalisation of companies and the nature of their banking activities have resulted in companies having numerous relationships around the world.
• Regulations and processes for managing bank relationships can change from country-to-country-based on local customs and laws. Each bank relationship has its own process to open, close, and maintain bank accounts including a multitude of forms, format of company mandates, and other internal compliance requirements.
• Traditionally, systems/processes for the provisioning and managing accounts and personnel access rights/responsibilities have been done manually or with local systems that don’t scale across geographies and business units.
• The volatile nature of personnel turnover, organisational restructuring, and bank account and relationship changes make controlling all these details in a timely manner a complex and time-consuming task.

As a result, companies have little or no real-time visibility into a complete inventory of bank accounts or which personnel in the company have access to what functions at which accounts across which banks. Nor can they determine without a significant amount of work if the company is compliant with its own internal guidelines or if there is a breach, or attempted breach, in the operational reliability or security of their own accounts. Furthermore, because the company has little visibility over all its worldwide banking relationships across all the departments/divisions in the company, they miss an opportunity to leverage those relationships to benchmark and lower fees and streamline internal operations.

The payback for a company to take an active role in managing bank relationships can come early and often. Replacing the time consuming manual tasks around the bank relationship processes would be a great place to start. Reducing the amount of time and fees around organising your annual bank account audit from months down to hours can also be significant. Having a deeper understanding of your total relationship with each bank as a global diversified financial institution can pay handsome dividends when it is time to negotiate fees. After all, banks provide services, such as trade services, capital markets services, and insurance services, that go well beyond cash management account services, but often corporations negotiate each of these services in a vacuum.

Bank Relationship Management

Companies must manage and mitigate the inherent financial and operational risks associated with their banking activities. Yet most organisations don’t have good performance metrics to measure these risks; however, through the use of regular reviews it will aid the company in determining what services they are utilising with each banking partner along with the costs of those services and then enable a comparison across all banking partners to negotiate more favorable fees and rates. Typically companies rely on their banks to manage these relationships and provide the company with the needed information, but there is technology in the market that can assist with the overall management of your banking relationship.

There is an emergence of a new category of relationship management – bank relationship management (BRM) – that models the trends toward customer-managed relationships and puts control in the hands of the customer. It has three primary goals:

1. Lower the risk and complexity associated with managing a company’s interaction across all their banking relationships, reducing the risk of fraud or an audit violation, or the risk of liability from non-compliance with company and industry guidelines.
2. Put the customer in charge of their banking relationships by supplying them with the information they need to drive the relationships with their banks, resulting in better visibility, lower fees, better cash utilisation and more accurate performance reporting.
3. Administration tools to lower the cost and amount of time spent on account administration, authorisation, mapping to bank mandates and tracking and provide more information on performance, fees and optimising use of funds.

Bank relationship management provides processes and technology that help a company track and manage all their bank relationships by:

• Providing a single view of all accounts and activities with a bank, worldwide. This includes bank accounts, insurance, lines of credit, and foreign exchange.
• Providing a single view of authorisation rights or each person and for each account, and the tools to set, terminate and manage those rights (provisioning the account).
• Providing a view of all fees on these accounts as well as a view of all fees paid to each bank.
• Helping set company guidelines for account management and bank management best practices and map these to individual bank mandates.
• Reporting on activities that are outside of the company compliance guidelines or a person’s access rights.
• Providing summary reports for auditors.

While there are a number of solutions that can track account transactions, BRM goes beyond that function to give a company control of those accounts and the ability to proactively manage the relationships with the banks across accounts. Bank relationship management provides a solution for the mitigation of fraud rather than just logging activities for auditing when a breach is finally discovered.

Figure 1: Bank Relationship Management

Conclusion

With the increased emphasis on meeting internal controls and compliance guidelines and putting in place cost-effective and manageable systems, BRM should be an integrated part of every company’s financial systems. The right system will not only help reduce risk and strengthen compliance, but will also save money by reducing audit costs and bank fees, lowering overall administration costs, and improving the speed of account creation and ongoing maintenance. In addition, companies now have one view of all banking related account relationships around the world, arming them with the information necessary to better negotiate fees and rates across bank relationships.

While traditional risk reduction, compliance related activities have traditionally increased cost and administration to meet the requirements of regulations; banks relationship management is one area where the right system can offer the company the ability to have their cake and eat it too.