The Global Treasurer Forum and Awards 2014: Sharing Ideas, Experiences and Knowledge

The challenges facing corporate treasurers at large international firms have never been greater with cyber-risk now a primary focus for many. New technology has automated previously manual cash management tasks, and globalisation encouraging evermore tech-reliant cross-border operations and currencies. The search for good funding and investment opportunities in a low interest rate environment is also an ongoing concern for treasurers, with regulations such as the imminent single euro payments area (SEPA) never far from mind either. All these issues and more were addressed at the ‘gtnews Forum 2014’ in London this week.

It is not just these traditional bug bears that are keeping treasurers awake at night, however. The coming Basel III capital adequacy regime, for instance, is also causing anxiety about the changing liquidity, trade finance and other established procedures at banks as they reassess who provides them with capital and what lending rates are on offer to corporates in the new capital base intensive environment.

Cyber-threats to internal systems, anti-money laundering (AML) stipulations in the financial supply chain, the economic prospects for emerging markets and the renaissance in correspondent banking all demand strategies, knowledge and expertise too, and there is no better place to get it than from the treasury peers attending the ‘gtnews Forum 2014’.

To cope with changing treasury and finance practices, regulations and technological demands, and learn some best practice tips from others in the sector, Steffen Diel SAP’s head of treasury finance and Oliver Eiss, director of corporate finance at GlaxoSmithKline (gsk), joined their peers Alan Chitty, treasury controller at SABMiller, and Angela Clark, head of treasury at Misys, among many others, to discuss the best way to meet some of the treasury challenges outlined above.

Shariq Daudi, Etihad Airways, head of long term planning and budgeting was also at the ‘gtnews Forum 2014’ to hear James McCormack, a managing director at Fitch Ratings discuss risk. The event also included Bob Lyddon of the IBOS Association among its presenters, outlining the changing bank relationship and regulatory matters for treasurers. Keyur Patel, co-author of the book ‘Banking Banana Skins’ warned attendees about the common mistakes to avoid – not least avoiding being locked into uncompetitive rates as banks refocus on multinational corporates (MNC) accounts for capital to the detriment of others or rely overly on aging proprietary technology systems.

Cyber-risk Threat

The day-long ‘gtnews Forum 2014’ began, however, with a fascinating presentation from Darren Argyle, head of the European, Middle East and African (EMEA) information security practice at Symantec, who discussed the cyber-threat to businesses and what can be done to combat it. With distributed denial of service (DDoS) events and data breaches on the rise, not mention industrial espionage and consumer hack attacks and the very public and expensive security breaches at US retailer Target – where 110m customer cardholder details were lost – eBay and other companies, the issue of protecting your company couldn’t be more topical. The Heartbleed bug, Edward Snowden revelations and cryptolocker encryption blackmail malware also present serious threats to the on-going open protocol nature of online business and the data commonly used by finance professionals.

As Argyle said: “These attacks are proliferating and you need to be ready, especially as more and more data is being stored for corporates to manage. The big data challenge, for instance, is rising from 7.9 zettabytes (ZB) of data next year to 40ZB in 2020, which is almost the equivalent of all human speech ever stored.”

Moore’s law, which dictates that computer power doubles every year, is driving hyper-connectivity, increased global collaboration among businesses, and causing hyper-complexity and vulnerabilities. “It is for these reasons that the ‘World Economic Forum (WEF) 2014 Global Risk’ report had cyber-risk as one of its top five threats and Lloyd’s of London now includes it on their risk index,” said Argyle, who went on to share some scary statistics:

• US$113bn was the estimated cost of consumer-facing fraud alone last year, according to Symantec’s 2013 consumer survey.
• Sixty per cent of organisations typically suffer 25 data breach incidents a month, with it taking 243 days on average to even discover a breach in companies’ security parameters.
• There are 340,000 specifically targeted web attacks a day. These non-spam targeted attacks have gone up by 91% over the last year, claims Symantec, as criminals and hacktivists increasingly try to get money out of corporates via distributed denial of service (DDoS) attacks, or damage them reputationally. The latter was exemplified by the case of Visa which came under attack for refusing to process WikiLeaks payments after the attempted arrest of Julian Assange.
• Each day, 1.2m new malware variants are discovered.

“One of the key concerns for corporates is hacktivist sabotage and industrial espionage, leading to patents and valuable proprietary information being lost, including financial data,” concluded Argyle. Much of this espionage threat emanates from Russia or China, with the Mandiant report last year naming particular Chinese military units and buildings as the chief suspects in coordinated espionage attempts against American and western targets.

With regard to how to protect your data, counterparties and financials, Argyle recommended using established security standards such as ISO 27001. Trade body protocols from the likes of the ISF, ISACA and so forth can also be helpful, and Argyle highlighted the increasing usage of cyber-risk insurance by companies, alongside a recommendation to adopt a layered cyber-resilience approach which assumes that an attack will happen, but crucially plans how best to deal effectively with it via the use of established planned responses.

The Coming Regulatory Avalanche

Good planning is essential for dealing with the coming regulatory avalanche facing corporate treasury and finance professionals from the likes of the US supranational Foreign Account Tax Compliance Act (FATCA) tax rules; Dodd-Frank; and the global Basel III capital adequacy regime, which will have impacts for treasurers as banks’ refocus their lending practices and reassess capital weighting.

Bob Lyddon, general secretary of the IBOS banking association, whose members account for 57% of global gross domestic product (GDP), listed the most pertinent regulations facing treasury and finance professionals in the payments and cash management field as:

• The single euro payments area (SEPA), which has delayed its migration deadline from 1 February to 1 August this year. It is the most imminent regulatory compliance project facing treasurers.
• FATCA.
• Dodd Frank, specifically the clause 1073 rules covering money transfers.
• Basel III liquidity rules and new bank lending practices, with the amount of capital a corporate can offer a bank for its balance sheet increasingly dictating the terms on offer to it.
• The European Payment Regulatory Package: This includes the 4th anti-money laundering (AML) directive from the EU; its Payments Service Directive (PSD) 2 stipulations; the fund transfer regulation; and the multilateral interchange fee regulation, which will cut the fees available to card schemes and banks from transactions just as the PSD is expected to open up the European payments field to more competition. Falling profits could potentially lead to a worse service for corporates in the future.
• European Banking Authority (EBA) stress tests, part 3: After the assessment of real estate threats and sovereign risks carried out over the last few years for the EBA’s on-going stress tests examining the health or otherwise of European banks, the third iteration this year will focus on the entire business model. According to Lyddon it is expected to be much tougher, “with an assessment due to be delivered to bank CEOs on a Friday in autumn, who’ll be told to repair any capital shortfalls by the Monday, necessitating disposal action or other capital raising plans now, of course, well ahead of the autumn timeframe”.

Fitch: An Economic Outlook and Sovereign Risks

Next up in the Forum’s afternoon presentations was James McCormack, managing director and global head of sovereign and supranational ratings at the Fitch credit rating agency (CRA). He provided an economic outlook for the corporate treasurers present in the audience and a trend analysis and explanation of the sovereign rating system used around the world, with 14% of Fitch ratings before the 2008 crash for example being in the triple B range, switching to 27% after the crash.

“Developed markets’ sovereign ratings and performance got weaker during and after the 2008 crash, while emerging markets got stronger but that trend is slowing now,” said McCormack as gradual economic recovery comes to the US, UK and some stability returns to certain parts of the eurozone. A reversal of fortunes is underway as developed markets recover, or at least stabilise in the case of continental Europe, while emerging markets dip.

McCormack provided five reasons why emerging markets are less favourable now than they were previously – assessments that every corporate treasurer would do well to remember when deciding where to allocate capital and circulate cash:

1. Weaker economic growth in emerging markets (EM) and a need for structural reform means demand will fall: As Fitch’s McCormack observed Brazil and India need better infrastructure, Russia needs better business oversight and China structurally needs more internal competition. Many ‘BRIC’ countries and other EM markets are facing slower growth and internal problems that could retard growth in future years, certainly compared to the stellar last five years that emerging economies have had, and treasurers should plan accordingly.
2. Weaker commodity prices: Emerging markets are naturally hard hit as the commodity boom ends and oil, gas, metal and other prices fall back from historic highs, affecting the sovereign ratings and economic prospects of emerging economies still further.
3. Change in global funding conditions: As higher interest rates slowly return to the US and perhaps other advanced economies, emerging markets that have grown on the back of a cheap dollar and receptive international environment will suffer.
4. Advanced economy imports not strengthening: Global trade is still relatively weak compared to historical highs and the fact of less imports going to developed markets will hit EM growth, which is of course exacerbated by falling commodity prices.
5. Geopolitical risks: The change in government in India with the BJP party coming to power and the imminent election in Brazil this October will dictate the performance of these economies in the coming years, said McCormack. He also highlighted the downgrading of Ukraine to a triple C rating and Thailand to triple B+ after the recent conflict and coups there as examples of geopolitical risks that could move markets.

Fitch is predicting economic growth of 2.25% in 2014 for the US and only 1.1% for the eurozone, with the respective figures for 2015 being 3.1% and 1.4%. Yet as McCormack pointed out there are fluctuations in performance on a country-by-country basis in the eurozone, with the southern Mediterranean countries generally struggling more with a debt overhang versus northern European countries. The UK, outside of the eurozone but inside the EU – at least for now with a promised 2017 in/out referendum dependent on if the Conservative government is re-elected next year – is showing strong signs of growth.

“We’re predicting above trend growth in the US, but economic growth in Europe will still be slow,” concluded McCormack.

Banking Banana Skins and Treasury Impacts

Keyur Patel, co-author of the Centre for the Study of Financial Innovation (CSFI) 2014 report entitled ‘Banking Banana Skins’, was the final speaker at the Forum. He provided an assessment of the risk concerns worrying banks which are likely to feed through into corporate funding and lending practices for treasuries. His CSFI organisation surveyed 650 bankers, regulators and other banking professionals across 59 countries this year for its 2014 report, to identify what they thought were the biggest risks facing global finance, and as Patel said “to take the temperature of the global banking industry”.

The findings of the ‘2014 Banking Banana Skins’ report, sponsored by PwC and available for free download via their website, were that the top five risks facing the sector are:

• Regulation (6)
• Political interference (5)
• The changing macro-economic environment (1) – as interest rates go up and quantitative easing (QE) ends.
• Technology risk (18)
• Profitability concerns (7) – as capital requirements and regulation increase.

The figures in brackets represent where the risks appeared in the previous year’s survey, with the rapid rise of technology risk, including the cyber-security risks outlined by Darren Argyle at the start of the day, particularly noteworthy.

Vox Pops: Audience Reactions

Igor Panivko, director of Konica Minolta Ukraine and a financial planning and analysis (FP&A) specialist, found the ‘gtnews Forum 2014’ event to be very interesting and useful for his treasury knowledge, “but I’d have liked more on financial planning and analysis (FP&A) during the conference during the day-time,” he added, while admitting it was nice to see a specific FP&A category as part of the imminent evening ‘gtnews Awards’ [see below for the 2014 winners].

Hugh Davies of the Zanders treasury consultancy also liked the real-world practical examples of treasury work highlighted during the evening at the subsequent ‘gtnews Awards 2014’, as he found some of the day-time presentations at the Forum to be “macro-level overview talks, although I did like Bob Lyddon’s IBOS overview of the regulatory landscape and particularly the coming AML and Know Your Customer (KYC) rules.”

gtnews Awards 2014: Winners Announced

As attendees gathered for the subsequent fifth annual ‘gtnews Awards 2014’ at the Intercontinental Hotel, which followed the day-time Forum, the compere for the day, Craig Martin from the Association for Financial Professionals (AFP) organisers, said that the judges had worked long and hard to read through all the entries to the Awards in order to reward the best treasury projects. The judging panel included Jörg Bermüller head of cash and risk management at Merck KGaA; Keara Killian, director of treasury at Getty Images; and Graeme Middleton, group treasurer at Honda Motors Europe, among many others.

Oliver Eiss, director of treasury and corporate finance at GlaxoSmithKline (gsk) in London, also on the judging panel, presented the awards in cooperation with Jim Kaitz, the CEO of AFP, who stressed the peer-reviewed nature of the gtnews Awards and the importance of human interaction at the evening dinner, for the purposes of knowledge sharing, networking and treasury advancement.

The winners of the ‘gtnews Awards 2014 for Global Corporate Treasury and Finance’were as follows:

Cash Forecasting Award Winner – AIA Group Limited
AIA Group centralises cash and liquidity forecasting, streamlines cash operations processes to straight-through-processing via SWIFT, while additionally providing visibility and transparency of cash balances and flows across all group headquarters with SAP cash management functionality. Its treasury unit’s efforts were recognised with the cash forecasting trophy at the gtnews award dinner.

Financial Planning & Analysis (FP&A) Award Winner – Etihad Airways
Etihad Airways re-engineered its five year profit and loss (P&L) forecasting process to roll-out a new decentralised process that uses FP&A adaptive planning skills to establish a clear roadmap for future company performance.

Funding the Organisation Award Winner – SAP AG Early Refinancing Project
SAP established a two-tiered-structure, segregating banks in two different credit commitment levels, to optimise bank relationship management and achieve a leaner approach that reduced credit margin from 45bps to 22.5bps. They reduced their yearly credit fee by 50% and establish a EUR2bn revolving credit facility.

Global Treasury Award Winner – Texhong Textile Group Ltd
Texhong Textile Group has successfully introduced a cross-border auto-sweeping solution that eliminates the need to borrow externally in order to support its day-to-day working capital needs. The new solution allows for the utilisation of excess cash positions in China to fund global expansion and increases operational efficiency via enhanced liquidity reporting and balance data.

Payments Award Winner – Siemens AG
Siemens AG now offers Chinese currency (CNY) as an additional option to its group companies outside of China. This allows them to pay third-party suppliers and collect from customers in China much more easily and has also enabled SAP to eliminate the hedging process in China and move its hedging procedures to more competitive offshore environments.

Risk Management Award Winner – Tui Travel
Hotelbeds, a wholly-owned subsidiary of Tui Travel Plc, has successfully implemented InstantFX, a solution introduced with the assistance of Citi that supports the retrieval of guaranteed foreign exchange (FX) rates from the bank. The solution provides live pricing and automatic uploads of hotel booking information as part of a fully automated process and delivers the best rates.

Supply Chain/Trade Finance Award Winner & Judges Choice – Rolls-Royce
Rolls-Royce has worked with Citi to develop a new Supplier Tooling Finance Programme. The aim is to give its suppliers access to three-year tooling capital funding at good rates, leveraging Rolls-Royce’s strong credit rating. The judging panel liked this project so much they also awarded it the judges choice ‘best of the best’ award for the most noteworthy project.

Treasury Technology Award Winner – Nasdaq OMX Group
Nasdaq OMX overhauled their clearinghouse processes to comply with the European Market Infrastructure Regulation (EMIR) and better support the flow of all cash and settlement transactions for securities deals into the Quantum treasury management system. The project has delivered improved visibility, control, risk reporting and decision-making capabilities.

• For more information about the gtnews Awards, future case studies based upon the awards entries, and all other information please visit www.gtnews.com.

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