Automating Treasury Functions with SWIFT
Previously struggling economic regions are now starting to increase security, efficiency and integrity while reducing costs through the utilisation of automation and technology. Certainly treasury services, which are transaction intensive as well as system intensive, have come a long way in terms of efficiency. Treasury functions were typically manual processes that were cumbersome, labor intensive and costly. But today there is a new culture brewing that involves best practices the implementation of automation and higher standards. Today’s more stringent regulations have also played a key role in getting treasury departments at banks to update their processes and automate.
Part of the reason automation will optimise a bank’s business and lower its total cost of ownership (TCO) is because a treasury functions can be quite complex. Usually the core function of a treasury department at any bank is the measuring, monitoring, and controlling of interest rate risk (IRR). IRR is the risk that changes in prevailing interest rates will adversely impact the value of the bank’s assets and liabilities.
There are other functions often housed within the treasury department, including a process known as funds transfer pricing (FTP). At a high-level, the FTP process centrally manages the funding requirements of the entire bank in lieu of having each division fund its own balance sheet. Financial enterprises are opting to adopt automated treasury management and communications technologies in order to reduce risk, boost operational efficiencies and improve profitability.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is one of the more popular global treasury systems used by financial institutions worldwide. SWIFT is considered the operator of a worldwide financial messaging network because it exchanges messages between banks and other financial service providers. Global banks are going through the due diligence in applying for a SWIFT Bank Readiness Certification because it is seen as an accolade and increases their profile with customers. For instance, Bank of America Merrill Lynch (BofA Merrill), which provides treasury services to 86% of the Global Fortune 500 and to 95% of the US Fortune 1,000, received its SWIFT Bank Readiness Certification in April.
With this merit comes a great opportunity in which BofA Merrill is granted access to SWIFT’s online database, which it views as an important customer advantage as part of its treasury solution offerings. For many banks, including BofA Merrill, SWIFT helped improve visibility, risk management and cash flow control. Corporate customers in particular like that SWIFT delivers an effective approach in automating and standardising financial transactions via their banking partners.
As a secure, standardised global platform, SWIFT easily integrates into corporate treasury management and enterprise resource planning (ERP) environments. Recently the HSBC Group, which serves customers worldwide from around 8,000 offices in 87 countries and territories in the US, Europe, the Asia-Pacific region, Latin America and the Middle East, collaborated with the ERP giant SAP and SWIFT to develop a custom corporate-to-bank integration and treasury solution to fulfil HSBC’s corporate customers’ needs for a sole single platform that seamlessly integrates a SWIFT interface within their ERP software. The goal to be reached was the development of a versatile, scalable multi-bank solution based on SWIFT’s open standards. Its capabilities would facilitate instructions for delivering or receiving securities and statements of holdings, treasury payments and notifications, intraday end-of-day bank statements, credit/debit advices and deal confirmations.
Growing rapidly and globally, SWIFT has linked more than 9,000 financial institutions in 209 countries and territories in less than a year. SWIFT is handling institutions that are exchanging an average of 15 million messages per day and that number is growing. Even though SWIFT does not facilitate funds transfer, it does send payment orders that are settled via correspondent accounts that the institutions have with each other. To exchange banking transactions and leverage the business features offered by SWIFT, the financial institutions must have a banking partnership that can be derived by the institution only if it is a bank or affiliates itself with one or more.
To access the SWIFT network, there are a variety of connectivity options and solutions to suit every budget, customer size and objectives. One option is for customers to connect directly to the SWIFT network: customers can therefore completely own and maintain a SWIFT connectivity infrastructure or, go through access of Alliance Lite, an internet-based connectivity channel to the SWIFTNet. On the other hand, customers could also indirectly connect to the system via the services of a SWIFT service bureau or member concentrator.
A reliable approach that today seems to be the most favoured by corporations is the use of a service bureau. Customers want the advantages service bureaus offer such as the additional SWIFT services. Service bureau typically will walk companies through the SWIFT process and share with their customers their SWIFT knowledge and advice.
Corporations usually opt to use a SWIFT service bureau to optimise working capital, enhance automation and standardise messaging. Many financial institutions have taken a keen interest in using a third-party approach to reap the full benefits of SWIFT functionality so that they can concentrate on their core business. We can expect even more service bureau opportunities as the region’s financial community steps up investments into key technologies that enhance efficiencies and accelerate growth.
Service bureaus vary in their offerings. For example, several enable connectivity only while others support fully managed outsourced solutions covering hosting and technical support. It is recommended that corporate entities spend the time needed to really investigate their prospective service bureau for SWIFT accreditation and compliance with SAS 70, a widely recognised auditing standard developed by the American Institute of Certified Public Accountants (AICPA).
As an active bureau, our customers are able to leverage SWIFT and reduce their TCO. Our bureau supports customers throughout the entire SWIFT process. Quite regularly we are able to expand their use of SWIFT and deliver add-on innovative services, such as anti-money laundering (AML) and fraud prevention and reconciliation solutions.
The competitive advantages are immense when using a bureau’s global treasury management services. For instance, corporate customers can free-up internal resources, slash costs and delegate maintenance and management of their SWIFT infrastructure to an outsourced service bureau.
In choosing a bureau, it is important to find one that is audited regularly by SWIFT to ensure that its network and physical environment meet stringent SWIFT guidelines and policies. We urge financial entities new to using a bureau to investigate integrating a bureau’s portfolio of AML and fraud prevention and reconciliation solutions to mitigate risk. A global treasury management services bureau provides the unique position to help banks and their corporate customers to enable broader, faster and easier corporate-to-bank connectivity.
Due to today’s volatile economic and political environments, treasurers are under intense pressure to increase the mobility, quality, and security of their services. Those achieving a competitive advantage are the ones that conduct the due diligence needed to determine the best solution for their organisation. The right solution usually entails connectivity to a reputable financial network such as SWIFT.
Relying on the experts and proven solutions is your best option for successfully automating treasury functions, especially for those customers that maintain banking relationships with multiple financial institutions in more than one region. Rest assured that if you are able to implement a fully integrated environment for financial processing, you will reduce operational risk and lower costs while achieving greater flexibility, richer information, streamlined operations, and an easier implementation of future service enhancements.