A quick look at what’s on International Treasurer’s radar screen this week.
Several topics were discussed in this week’s International Treasurer editorial meeting, including a look at multi-currency pooling, complying with derivative rules and the so-called SEPA Plan B idea being floated (unofficially) ahead of the February 1, 2014 SEPA deadline.
Pooling
Multi-currency pooling topped the agenda of a recent NeuGroup European Treasurers’ Peer Group (EuroTPG) meeting. This session was built around case studies from two members who shared their knowledge and expertise. It started with a basic question: Why notional pooling? The big-picture benefit that can be derived from notional pooling is transparent, simple and effective cash management on a global basis without the need for wholesale migration of bank accounts to the same banking entity for a far-flung global enterprise. The same account structure can stay in place with an overlay structure with the pooling provider (e.g., like meeting sponsor Bank Mendes Gans (BMG)); no FX conversions are needed and interest income on positive balances compensate for interest expense on overdrafts.
Control of and visibility into global balances is enhanced through online real-time reporting (which can be provided through a bank portal like Citi Treasury Vision, BMG’s Megabank and/or fed into an in-house system), and once the daily balances are known, they can be invested for maximized yield in the currency of choice.
EMIR Prep
Also a topic of high interest at the EuroTPG meeting was the challenge of derivative regulations, particularly those in Europe. Some of the takeaways at the meeting included:
- In-house managed compliance most common: It appears to be the norm in the group to handle swaps reporting for EMIR compliance in-house rather than ask bank counterparties to report on members’ behalf.
- Details of reporting requirements still not clear: In terms of EMIR categorization, one member is an NFC+ (an Non-Financial Counterparty (NFC) over the clearing threshold), which carries more reporting obligations, including daily swap valuations in addition to the portfolio reconciliation; the member said complications arise from the 56 required reporting fields, and exactly what they are, with more confusion stemming from European Securities and Markets Authority (ESMA) not defining, for example, what “key terms” are.
- Choice of SDR not as straight-forward for some: A few members have chosen DTCC for swap reporting for US affiliates under Dodd-Frank (other Dodd-Frank reporting will be done by the swap dealers, per the DFA reporting hierarchy). Another member noted that DTCC’s Office of Foreign Assets Control (OFAC) clause is in violation of Germany’s export law and, as a result this company may need to revisit the choice of reporting provider, or renegotiate the DTCC agreement somehow.
SEPA Plan B
The numbers are not looking good for SEPA compliance. According to a recent update from the ECB, “many stakeholders have decided to migrate only in the last quarter of 2013, or even later.” This “gives rise to operational risks and limits the possibilities of tackling any setbacks or unexpected developments during the changeover.” One idea that’s been coming up in news reports is a SEPA Plan B.
According to Garry Young, director of corporate services at CGI, the migration numbers so far are “frightening.” “It’s difficult to see how SEPA migration will be completed on time at this present rate of compliance, he wrote in a blog at the end of October. “Officially, the deadline will not be extended. There’s been too much political and financial investment and the ECB always insists that ‘there is no plan b’ to achieving full compliance.”
But while there is no official acknowledgement of a Plan B, it appears some companies might force the issue and just shoot for that, which is minimal compliance. Companies might also start hiring third-party providers to help with that minimal compliance, using SaaS providers like Reval, Kyriba and Experian.
At the EuroTPG meeting, it was revealed that most members were comfortable with where they are with payments. But some foresee some problems with direct debits. And there have been mixed reports about which banks will be able to help companies that are not compliant (if they are even allowed to do so).