Reconciling offshore challenges for financial controllers with their domestic operations

By overcoming some common fears, financial controllers who manage transaction flows in Brazilian real can achieve significantly greater efficiency, predictability and transparency in their payments function, according to Fernando Mazzanti, commercial director at StoneX Group.

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Date published
October 28, 2021 Categories

Few role functions create more headaches for corporate controllers and other accounting professionals than the transfer of funds in and out of countries which have non-convertible currencies. This is primarily due to the complications and additional processes that must be taken to successfully utilise non-deliverable forwards (NDFs), and the need for transaction documentation to match the books in the corporate accounting office.

The Brazilian Real (BRL) stands out as one of the more challenging currencies to manage from this perspective. Accounting and requirement issues are generally compounded by exchange rate volatility and inflationary concerns. Thousands of companies with headquarters outside of Brazil are regularly presented with such a challenge, given the country’s primary role in the global commodities space as a major producer and exporter. Moreover, recent demographic trends and forecasting, alongside the rise of the digital economy, suggest that transaction flows in BRL will continue to increase substantially for companies across the globe. Success in this jurisdiction will hinge on fast, efficient, and predictable two-way flows between offshore headquarters and their Brazilian operations.

Eight years ago, I was directly privy to the frustrations expressed by financial controllers working for our customers. It was my responsibility to reach out to different local banks and secure the appropriate exchange terms needed to settle transactions into Brazil from offshore locations.

At the time, it was becoming increasingly difficult – if not impossible – for us to provide:

1) Consistent, affordable FX rates;

2) Predictability and transparency;

3) Documentation where the cost on both sides of the transaction matched precisely.

In order to overcome these challenges for customers and elevate our overall level of service, StoneX (previously known as INTL FCStone) decided to open its own foreign exchange bank in Brazil. The entity, INTL FCStone Banco de Cambio S.A, now facilitates both inbound and outbound services in the Real.

Continued close cooperation with the Brazilian government was essential during the development of the bank and by April 2018, the group had achieved the final approvals and licensing necessary to start operating the service. Whilst inbound business experienced a significant uptick due to the advantages offered through the new FX bank, outbound flows did not. The division quickly realised that several innate fears on the part of financial controllers were blocking the materialization of such new business. These concerns included:

Fear of Change – financial controllers were, very often, reliant on the use of NDFs to complete their hard currency conversions. A classic case of “better the devil you know”, as it were.  We needed to convince institutions of the benefits of managing their flows in BRL, the local unit.

Fear of Red Tape – the onboarding process for clients in today’s highly regulated environment – especially given the levels of due diligence and KYC required– remains significant. Many controllers may be reluctant to undertake additional KYCs for the purposes of adding another provider to their existing line-up. It was imperative to explain that the group’s one-time onboarding process had several advantages that outweighed a treasurer’s reluctance to complete an onboarding. Chief among these: a single registration would eliminate repetitive documentation issues and inconsistencies inherent to transacting in NDFs.

Fear of the Unknown – StoneX simply did not have the same reputation or brand recognition enjoyed by many of the global banks operating in Brazil. Unfortunately, this made creating new business relationships challenging for the group – sales-cycles typically mandated additional time convincing the customer of the bank’s advantages.  This may be viewed as ironic, given that the group continues to provide those exact payment services to some of the very same banks for their payments to Brazil.

Accordingly, the group needed a large international company, with a significant onshore presence and business requirements in Brazil, to start utilising our services and thus, provide the proof of concept and execution required by the marketplace. Fortunately, one of our major banking customers recommended our services to a client of theirs, as we filled the exact needs that their alternative providers had been unable to satisfy. Such benefits included FX rate consistency, process standardisation and documentation and figure reporting that mirrored headquarters’ books.

A global leader in supplying gelatine and collagen products to the food, health and pharmaceutical industries, the prospective customer had many offices spanning six different continents, with a particularly large presence in Brazil. These offices earned revenues and incurred costs in real, which was offset against euros at their headquarters in Germany. Flows between Brazil and Germany accounted for approximately €1m per month, and reconciling these flows was a particularly arduous and inefficient process.

After understanding the potential value-add of our services, the company signed up on a trial basis. The trial’s success would be evaluated on a single requirement: transaction documentation between Brazil and Germany would need to precisely match each month. The trial engagement launched in October 2020 during which time the customer began to use Banco de Cambio’s proprietary online payments platform to manage their inbound and outbound flows. This was supplemented by direct access to customer service experts in Sao Paolo, who aided and provided real-time updates for any queries or troubleshooting

Upon conclusion of the trial, both parties reconvened to review the transaction documentation. The figures produced over the engagement period matched precisely, as promised. Moreover, the customer reported a high level of satisfaction with the product and a uniquely consistent transaction process, alongside service transparency and overall customer support. To date, they are still a major customer of the business and have added additional flows from their US offices to the engagement. Not only is this a testament to the benefits of efficiency, predictability and transparency that Banco de Cambio are able to provide financial controllers with, but also to the advantages available to those institutions who are prepared to overcome their fears of change, red tape and the unknown.

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