2016 Year in Review

Top Takeaways from 2016

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way…“ — Charles Dickens, a Tale of Two Cities

If ever there was a Dickensian type of year, 2016 was it. Never a dull moment, and treasury management reflected it, from picking up the pieces following the shocking Brexit, to confronting the challenge of Section 385 (which turned out to be a smaller burden), to then pick up the pieces again after a shocking US election. But all the while, treasurers maintained their solid presence as the company cash-management stalwarts.

As with last year’s compilation, this year’s edition of the top takeaways from The NeuGroup’s 2016 meetings have been categorized by the challenges treasurers faced, including those involving investments, the dollar, cash, regulations, taxes, and bank relationships as well as several others. Under these categories, The NeuGroup’s peer group leaders, bringing to bear their many years of experience as treasury practitioners and the intelligence they’ve gathered from this year’s 30-plus meetings (which included more than 400 members, 200 companies, and 18 groups), have offered what they feel were the year’s top takeaways.

Banking Relations

(ATLG) It’s all about the relations and reliability. At the inaugural meeting of the new Assistant Treasurer Leadership Group, members discussed in a closed-door session banks, service levels, counterparty risk and relationship managers. Many expressed dissatisfaction with some of their banks as well as risk concerns associated with other banks. Some cited experiences where a bank had pulled out of a credit deal at that last minute, or failed to come through with a timely request. Members also had conflicting experiences with some citing very productive relationships with certain banks while other cited very problematic relationships. The group determined that the quality of your relationship comes down to two factors. The first is the amount of business you have with the bank; banks pay more attention to this. The second factor is the RM— Relationship Manager. Their experience and tenure with the bank has an impact on their clout and what they can do to get things done for you timely and effectively.

(ATPG) Asia banking strategy: centralized vs. decentralized. Comfortably using one bank for all of your needs is everyone’s dream but will probably remain just that—a dream. Members of the Asia Treasurer’s Peer Group discussed their approaches to bank rationalization and relationship management. One of the key criteria is simply bank strength and stability. Some banks have suffered significant financial pressure recently and members are reacting by reducing exposure. How much activity is centralized vs. decentralized depends on what the activity is. Global strategic functions such as FX are likely to be centralized. Payment execution is more likely to be a decentralized function with more banks. One member is looking to have more decentralized bank relationships to reward banks that will do challenging credit in hard markets. Another company has more autonomy than most in local markets in order to work with local banks as a filter for additional business. If they do a good job they can be recommended for the revolver.

(GCBG) Bank relationship management is challenging. Corporates have to fairly divide the treasury wallet, deal with frequent coverage changes (and with inconsistent levels of coverage) and manage the disparity between product and systems capabilities across banking partners. Although most members have not changed their approach to bank relationship management after Basel III, they are feeling the effects in their relationships. Members agreed that they are experiencing consolidation of bank relationships, revisions to legal documentation in place and taking second looks at notional pooling structures, among others. In fact, 58% of members said that at least one bank had told them the value of their relationship had changed in the last three years and 33% terminated or significantly reduced a banking relationship due to lack of value to the bank over the same period. It seems that the way banks value their client relationships has changed.

(GCBG) Bank account challenges on the rise. Most members (96%) reported an uptick in compliance-related activities concerning bank accounts. Keeping current with signatory changes, including discrepancies between corporate and bank records, as well as managing documentation for opening and closing accounts and know-your-customer (KYC) were among the top challenges.

(Tech20) Each bank has different touch points to bank regulation. Post-Basel III, banks have a triangle, or more like a pentagon, of touch points involving capital, liquidity and leverage regulation that affect different banks differently. Some banks are heavily funded by deposits, others are looking to increase their deposit funding. Certain banks have capital to burn, while competing banks need to raise additional capital. The same can be said for leverage. Knowing where each bank is with regard to these touch points will help explain its behavior.

(Tech20) Use wallet leverage to offset negative rates. The demand for wallet creates hassles as well as opportunities for treasurers. One member shared how he was able to reduce the negative interest charge on deposits in Denmark (from -.07% to +.02%) by switching from a local deposit bank to a global bank with the promise of opening up an RFP for its entire European cash business. The company is now in the process of migrating European cash to this bank. Judging from the pre-meeting results, this is the preferred path for just 31% of the member respondents. Generally, members are split in their preference for other options for deposits in negative-rate jurisdictions, including removing positive cash balance participants from bank pools or drawing upon bank funds to bring the net position down (23%), paying banks additional fees/ECR adjustments (23%), or paying negative interest to take deposits (23%).

(tMega) Reach out to the treasurers of financial counterparties. To get further context to the counterparty credit risk signals, one member noted regularly reaching out to the treasurer of his key trading counterparties. These relationships can prove to be quite insightful and “give an extra level of comfort” to complement the counterparty risk indicators, the treasurer noted.

(tMega) Banks not always pushing partner services. One challenge treasurers have with unlocking beneficial third-party services is that bank partners are not always pushing their services in the asks-for-wallet. Thus, members that want to access these services via their banks to get the wallet credit need to press them and get to the right people at the bank to make the connection.

Capital markets

(LATMPG) Cross-functional teams are the way to go. Capitalizations and intercompany financing have many aspects and cannot be managed by treasury alone. The expertise and points of view of another team like tax, legal and the business units are critical to the success of a funding strategy. Establishing a committee helped to make it official and set cadence on a process that had to happen each time funding was needed.

(LATMPG) Understanding the source of the funding needs is critical to avoid finding yourself in the same position later on. Besides analyzing what is the best way to fund an operation, it is important to understand the source that created the need for funding. It starts with setting up any new entity with a capital structure that can support the business rather than just the minimum required capital. Later, as the entities find themselves in an underfunded position, find out what got them there. For example, some member companies mentioned that their Argentinian entities became decapitalized after the ARS depreciated. These companies not only funded their operations but looked at changing the functional currency of the entity or the I/C bill to avoid the same issue happening in the future. Other companies figured out that some entities were decapitalized as a result of low margins and pushed the business to come up with a business plan that made the operations viable.

(T30LC) Build contingencies into your use of proceeds. One member noted the importance of flexibility to manage contingencies of unforeseen events like the DoJ not approving their desired transaction (deal risk is never really zero). Also building in contingencies for the use of financing proceeds to avoid having to turn to capital markets both to take out a bridge and raise subsequent capital for a recap.

(T30LC) Think twice about mandatory redemption features. When this same member went to redeem bonds after a failed bid, some bondholders were willing to keep them since they were trading at a premium to the call. However, the call provision was by tranche and all or nothing so by the time treasury could get all the bondholders lined up, the pricing came in enough to make it easier just to buy back the bonds. Similarly, you can negotiate a draw provision in a bridge loan, so that it can be drawn on (say for a period of 20 days without triggering the takeout).

(Tech20) M&A-induced leverage and ratings. The rating analyst will not penalize a company for added leverage to fund an acquisition if it presents a viable plan to bring that leverage down over a 1-2 period post-acquisition. For example, if a company goes from 3x to 3.5x leverage, it should have a plan to get back to 3x as soon as practical.

(Tech20) DCM uncertainty remains. Also, while debt capital markets and bridge lending have been and will likely remain strong, the early part of this year cast a shadow of doubt in everyone’s mind that this will continue, especially for lesser credits. All firms should watch large M&A deals in their sector to see what is possible with financing in current markets.

Cash and Investment Challenges

(AT30, ATLG) Attention to working capital often requires a trigger. Two AT peer groups discussed working capital management and tools. The key observation is that it doesn’t get a lot of attention until there is a crunch. Based on member accounts, companies are often driven to a focus on improving working capital when either intentional or unintentional events press them into it. One example cited at the meeting was of a major global manufacturer that made a large acquisition at the time of the financial crisis and economic downturn when revenue and cash flow were shrinking. A corporate-wide focus on working capital improvements brought them through that season successfully. A large medical devices company is in a similar situation having made a large and highly leveraged acquisition. The company elected to maintain its hefty dividend and capital expenditures. Meanwhile the integration of the new company has left the acquirer with a greatly diminished grasp of its cash flow. This increased demand for cash combined with decreased visibility has moved the company to improve working capital.

(GCBG) Pay up, buddy. Searching globally for the highest returns on overnight deposits can pay off. One bank told a member it could pay more for deposits in Singapore, 45 bps, and then told competitor banks they had to beat that rate. Now it has four banks offering 65 bps, one holding the cash in the US and two in Singapore; one of the Singapore banks is Australia’s ANZ. Another is offering 70 bps, although there’s a limit on withdrawals.

(LATMPG) LatAm seems to be behind the rest of the regions. Most members consider their cash- flow forecasting to be at least satisfactory. The weaker elements of their processes are automation and accuracy, both of which lag behind other regions. This is not unexpected as the bank disparity and currency control sometimes force corporations to leave the region outside of global systems and liquidity structures. Also, members said that forecasting data is most commonly provided at the local level, with input from various corporate functions. However, these local teams are not accountable for accuracy, which usually falls on treasury.

(TIMPG1&2) Massive shift out of prime money market funds. It is estimated that over one trillion dollars left prime funds ahead of the October SEC MMF rules implementation, most of it went to Government money market funds. Many members have moved liquidity funds from prime funds to Government funds, but they wonder how long this will last. When will the spread between the two justify movement? Members shared alternatives to prime funds such as short-term bond funds and separate accounts and triggers for what will make them reconsider alternatives, and when.

(tMega) Varying jurisdictional interpretations on notional pooling. One factor in the extent and degree to which banks will curb notional pooling, or raise their pricing, is their governing regulatory jurisdiction. The US (the Fed), the UK (FSA) and Eurozone (ECB) all have varying interpretations on right of offset. This helps explain why a Bank of America appears to be more sanguine about the longevity of its notional pooling structures, for example. Unfortunately, The Netherlands, where ING-owned Bank Mendes Gans (BMG) is based, has gone from one of the most-liberal right-of-offset jurisdictions to potentially one of the more conservative, under proposed ECB rules. BMG grew to international prominence due to its extremely efficient cross-border notional pooling service, along with its multilateral-netting service. Indeed, it created these MNC treasury services as a quasi-captive of Dow Chemical in the 1960s. Despite BMG’s assurances to the contrary, current users in tMega are not confident that the bank will find suitable workarounds to the regulatory issues confronting its notional pooling services.

(tMega) Virtual accounts coupled with new technology offer promise. While a viable, reg-compliant alternative to notional pooling has not yet emerged, services combining virtual account structures with enabling automation technology seem to offer promise and are worth keeping tabs on.

China and Emerging Markets

(ACFO) There is upside to a slowdown. China’s rapid growth over the years has fueled a booming economy but also a shortage of qualified workers and market forces have driven up wages significantly. China CFOs of Western companies have long complained of this and lamented their ongoing battles with corporate HR on why they continuously need more money for salaries and annual increases well above the corporate averages. With key employees routinely leaving for greener pastures paying 30-40% more, local leaders have quite a problem. But as with any economic cycle the tide has turned. The dramatic slowdown in China’s economy has put a big damper on these salary excesses and brought wages and increases down from the stratosphere to more palatable ranges. Companies are now giving much lower raises and suffering little to no departures, which is a welcome relief. Another benefit from the slowdown is that some companies are finding they are having fewer fire drills and have more time to address long overdue projects to improve operational efficiencies.

(ACFO) Digital connections with customers and key business partners is mainstream in China. Many companies in the US and Europe would love to have the digital connections with their customers that their Chinese counterparts enjoy. The Chinese have completely embraced cell phones as their primary medium for communication, social networking, researching, and shopping. Alibaba, Alipay, Baidu, WhatsApp, and WeChat are just a few examples of online tools being used for communication and purchasing. WeChat purportedly has over 700 million users. Alipay, a Chinese retail payment medium is already being accepted in certain U.S. cities to accommodate Chinese visitors. In the US and Europe, companies seek to acquire customer email addresses. In China they want your mobile number.

(AT30) Doing business in sanctioned countries creates banking problems. Traditional banks are unwilling to assist with money movements in and out of sanctioned countries. Several member companies do business in these places and find that banks willing to support them do not meet the needed risk profile. Members have to get approval to use these banks, referred to by one member as “the cleanest dirty shirt.” The problem is such a challenge that one pharmaceutical company foresees not doing business in some of these countries simply because you can’t get money in or out.

(FXMPG1&2) Make sure you have an updated China contingency plan (and Asia contagion plan). China may have a long-term internationalization plan and an economic plan for growth, but what if something happens that threatens your outlook and your exposures there? Also, “when China wobbles, the rest of Asia tumbles,” so a China- and Asia contagion plan is imperative. Maybe you have one, but when was it last updated? Would it still work if you needed to spring into action? Each plan is company specific, and maybe the assumptions have changed as well as conditions on the ground. Send it around to the relevant business and finance people and vet it again. What is the BCP for China and other troublesome countries? Many people in the company may never have lived through a contagion event, so don’t isolate treasury from the business: talk to the line management again. It is good practice to review plans at regular intervals and also to identify a trigger for additional review.

(LATMPG) Understand the source of tension between treasury and the business units. Most regional treasurers have two mandates: guide the execution of the corporate treasury strategy in their region and support the local entities in carrying out the business strategy. At times, it might seem that their two mandates are at odds and that the regional treasurer’s objectives are not aligned with those of the business leaders. That is far from the truth, as both share the ultimate objective of adding value to the enterprise. However, the fact that the business units focus on maximizing the OPINC line profitability, and treasurers focus on aspects that impact below the OPINC line, like an efficient use of cash, the cost of capital and FX volatility impact, causes tension in their relationship. Many times, it is hard for each side to understand the other’s point of view as well as the impact they have on each other. Open communication and engagement are key to showing the business units that both share the overall objective of maximizing shareholder value.

(LATMPG) Moving cash in and out of Argentina has become easier. The Argentine Central Bank no longer requests approvals for imports before authorizing a foreign exchange transaction. The level of detail that corporates have to submit to get approval is significantly less now. This new environment allows corporates to manage their cash smarter and reduce FX risk, by pooling cash out, funding as needed, and leveraging USD-denominated bank accounts when needed. The transactions are cleaner, in many cases eliminating local intercompany lending. Still, it is important to manage FX quotas actively to avoid accumulating cash balances in the country. Post-meeting update. As of the end of April, the Central Bank eliminated quotas for import-related foreign exchange transactions.

Dollar & Foreign Currency

(FXMPG1&2) Start gathering data on emerging market currencies. With so many citing emerging markets as one of their top concerns, and with FX generally getting extra scrutiny, take stock of the currencies out there and break them into those that do and those that don’t matter to your company.

(FXMPG1&2) Is your hedge program holistic? Members’ views on what constitutes a holistic hedge program include a clear and well-understood risk appetite and risk management philosophy, centrally managed at the corporate level (incorporating FX, interest rates, commodities and counterparties), a thorough understanding of the company’s true exposure and what’s being hedged, as well as integration of treasury’s risk management efforts into the business and operations.

(FXMPG1&2) Where is the real risk in your FX portfolio and could you measure it if management asked for it? One member posited that the job of an FX manager is to develop the most profound insights into the financial market risks facing the company over a meaningful time horizon and using the best available tools, and translate those insights into a set of views that senior management can understand, and recommend a set of actions that correspond to their risk tolerance.

(tMega) FX conversion rate flexibility. The era of valued-added FX services with cross-border payments empowers treasury, with its FX expertise, to mitigate currency risk for both itself and its small counterparty efficiently. Depending on the business needs of both sides, it can even spin this into a profit center by adding spread or margin to the FX conversions.

(tMega) Rate certainty. One member company has added to its customer service a means to provide a transparent FX conversion rate that is locked in from the time they click to the time the payment is made (e.g., their credit card is charged in the currency of that card account). Even the rate of conversion on a potential return of the item can be locked. Working with its bank partners, treasury can purchase a rate-lock guarantee for the number of days needed for this purchase-to-return cycle. Collecting historical data on the rates over time also allows analytics to show the true risk experience and reduce the cost of executing this rate lock with the bank.

Payments

(GCBG) Payment rails to change dramatically? Really? Most members attending the meeting had never heard of the Federal Reserve’s Faster Payments Task Force, which is facilitating numerous faster-payment initiatives among private institutions, a few of which are well underway. Only three members are engaging financial technology (fintech) firms to explore new payment solutions. Meanwhile, 57% said fintechs may improve the payments industry, and 71% they would likely stay with a bank payment solution over a fintech’s.

(GCBG) What’s new? The Fed’s task force is reviewing upwards of 20 faster-payment proposals and will provide a first assessment in early 2017 and a second mid-year. It has no intention to mandate a system but rather to let the market decide. Currently, there are 18 real-time payment systems in other countries, although they tend to be narrow in scope. Several US initiatives are already underway:

• Nacha’s same-day ACH initiative was launched in September without a hitch.
• The Clearing House (TCH) will begin piloting its real-time payment initiative in early 2017 and bring more banks onboard later in the year and into 2018. Both the Nacha and TCH initiatives will operate domestically, and TCH is being designed to connect same-day with payment systems globally.
• SWIFT is seeking to improve its current infrastructure involving correspondent banks, speeding up transactions and attaching more payment information.

(Tech20) Direct connections to different payment systems. The most expeditious way around the problem of disparate local payments systems is to find a way to make payments directly into the major local payments systems currently in operation. The alternative method in use today, intermediary links to local payment systems (e.g., correspondent banks), create cost, loss of liquidity and loss of information on the remittance advice received by the beneficiary of a payment. Blockchain technology offers a means to connect the different payment systems without needing to create a single, new global system to replace them all, which would be politically impossible to scale. Ripple is focused on doing this, with its “Interledger” version of Blockchain, by enabling financial institutions to make payments directly into other payment networks. This will speed cross-border payments, reduce settlement risk, cut cost and ensure information flow.

(Tech20) Value of data driving transaction fees lower. On the consumer side, the value of the data embedded in payments is driving down transaction fees ever closer to free thanks to fintech companies seeking to win share and seeking to make viable business models out of monetizing payments data. This is consistent with many other business models tied to mobile smartphones and consumer payments are increasingly being initiated from smartphones, especially in countries like China and India. On the B2B side, companies may want to pay for the data, starting with fully populated remittance advice to automate reconciliation, but eventually to feed big-data analytics engines and artificial intelligence applications to improve cash and A/R forecasting. Unfortunately, there is so much remaining opportunity on the consumer payments side that it will take some time for some consumer innovations to migrate to B2B. Regulation and compliance, including KYC, is also much stricter on the B2B side, which will also slow some of the migration of consumer payment innovations to business.

(Tech20) Governance and controls needed. For non-bank payment platforms to really take off on the business-to-business die, they will need to implement stronger account governance and control capabilities to allow companies to use them with the same comfort and compliance as they do bank accounts.

(Tech20) Differentiate on the supplier and customer experience. One member company described how its payments process innovation initiative began with a desire to improve its app developers’ (supplier) experience with the receipt of payments. Timely payments with certainty on the amount, low feed and into the type of account of their choice created a competitive advantage to help encourage them to develop apps for its products. Creating an efficient mechanism to deliver with the help of a bank would also reduce the cost of delighting suppliers as opposed to Fedexing them a check. Having contracted for exclusivity with its solution, it also forced competitors to innovate different solutions with other banks partnering with fintech companies.

(Tech20) Make low-value payments directly to sellers’ or buyers’ accounts in their local currency. A key benefit of innovative payment services is that an eCommerce company can accept sellers on its site much more readily and offer them payments in their local currency, directly into their local accounts. This gets more sellers enabled, sooner and eliminates their FX risk via instant currency conversion. Similarly, for buyers, they can choose to pay in their local currency from a local account or even another currency if they have an account or means to pay in that currency. This opens up eCommerce site purchases in countries where a local site is not available, but where shipping arrangements can be made from a site where the company is operating.

(EUROTPG) Innovation with virtual accounts. Members gave meeting sponsor HSBC good feedback on their innovation plans with virtual accounts. These plans include more granular layering of virtual accounts, even down to the invoice level for auto-matching, for on-behalf-of payments and receipts. They also include new re-optimized pooling structures that may deliver many of the same operational benefits of notional pooling and in-house bank structures. From a member perspective, hopefully, virtual accounts also will not come with the same compliance headaches as physical ones and, eventually, virtual account portability might make it easier to shift cash operations, payment and collection structures between banks or other payment service providers enabled by the European Commission’s PSD 2.

Regulatory

(BTPG) Documentation and validation a conundrum. With new liquidity stress-testing, banks are being forced into uncharted territory when it comes to understanding the liquidity impacts of various stress scenarios backed by data-driven analysis. There just isn’t that much real data. The challenge is similar with negative rates; there is only very little historical data to validate capital, much less liquidity impacts on the various components of bank balance sheets. Meanwhile, the results from some of the models using data that do exist often make little intuitive sense. A “management overlay” or override then becomes necessary, and how do you document and validate that? This has become a real conundrum. Bank supervision is becoming in large part a model validation exercise, and this starts with the data inputs and ends with governance around output. Having a second-order defense in the form of segregated risk groups to back-stop judgment calls is the new normal for banks. Unfortunately, it can go too far: you might find them validating everything, even the bond math that Bloomberg uses to feed the bank bond-pricing data. This can result in documentation that balloons into a hundred or more pages for each mºdel. It’s ridiculous.

(BTPG) Lack of regulation and funding sources are their disadvantage. The Fintech model may someday fall apart due to the discovery that no regulation is not always good or that their sources of funding dry up. This is why the Lending Club crisis is an important case study.

(BTPG) The Fed has gotten the message on tailoring, but boxed in politically. The Fed has gotten the message that it needs to better tailor bank regulation and supervision to banks by size (and to some extent risk of business lines). The question is what will they do about it. There is a growing realization that $250bn is a more realistic dividing line for systemic importance than the $50bn line that was somewhat inadvertently drawn with Dodd-Frank. Indeed, the Fed staff might go even further to do away with demarcation lines and look instead to the systemic risk of the businesses performed by the bank. The problem is that Democrats have staked their politics to the idea that reopening Dodd-Frank is a mistake that regulators are boxed in. With Trump winning the White House there is a much higher chance that the Fed staff could find political backing to redraw the line at or closer to $250bn. They might even get this done in a lame-duck session, before a new Vice Chairman for Banking Supervision could be nominated, which would give the change side even more leverage.

(T30) MNCs exempt from margin but not from self-disclosures. Corporate end users escaped margin and clearing regulatory requirements, but by March 1, 2017, margin rules spurred by the Basel Committee will require all their hedging entities to complete self-disclosure letters in order to continue trading swaps. Chatham’s Amol Dharkalkar explained that the letters are mainly to streamline the information gathering process for the banks so they know who they’re trading with. Information to be included in the letters includes: General biographical information; entity classifications/status in the US; same for the EU; other sections to be completed according by jurisdiction, as requested by bank counterparties.

(Tech20) Pooling is not dead. With some of the most cumbersome and hard to interpret proposed rules removed in the final Section 385 regulations, it will still behoove treasury to take a careful inventory of intercompany loans and ensure they are in place for legitimate reasons and with terms and conditions updated to live up to the spirit of the OECD’s BEPS initiatives. But the good news is that efficient treasury and liquidity management practices will not be killed off by the regulators (at least not yet).

Taxes

(LATMPG) Moving away from being reactive to being proactive. In one member’s case, the introduction of the OECD BEPS rules forced the company to rethink their processes for permanent inter-company funding. The resulting process takes into consideration tax and legal compliance, financial and accounting results, and operational performance. The new approach allows handling funding in a more proactive way as each regional credit committee reviews the funding needs of each entity. However, there are still funding needs that are being handled on a more reactive basis. The establishment of this process and the credit committees has been a step in a long-term strategy that includes setting up an in-house bank. The process relies on financial analysis, a credit rating model for each entity and a market-based debt pricing methodology.

(LATMPG) Take inventory of all intercompany loans and their terms and conditions. Not only that, but if needed, tighten them up to comply, with particular focus on interest rate and tenor as well as documentation of the justification for the loan. Also, make sure that all transactions are up-to-date on payments and in compliance with other terms and conditions. If as part of the revision you decide to leave some loans as they are with the expectation that they will be grandfathered in, keep track of them diligently as any modification to the conditions after the rule is published would make these loans subject to the new rule.

(tMega) Documentation and compliance headaches likely. It’s a certainty that treasurers and their tax and legal departments are going to face more onerous documentation and compliance issues with intercompany transactions going forward due to Sec 385. This is already part of a trend with OECD BEPS action items, country reporting and related actions to the BEPS items, as well as growing scrutiny around transfer pricing between multinational affiliates. One member described his company’s effort to review intercompany transaction documentation and develop standard templates and processes to simplify and ease the compliance effort. Members were encouraged to follow their lead.

(tMega) Country reporting will end up being a big data problem. While the OECD BEPS action item on country reporting made attempts to limit sharing and disclosure of tax information, the practical reality looks more and more like data shared will end up in a big database and used to work out ways to grab revenue by every tax jurisdiction that can make a claim with the data and data analysis at their disposal.

(T30) Tax reform a priority for House Speaker Paul Ryan. Previously chairman of the House Ways and Means Committee, Ryan has been advocating tax reform for years, and in June the House published its “blue print for American” roadmap. Trump has modified some of his campaign planks to resemble the House blue print more closely. Trump’s campaign proposal would lower the tax rate to 15% for all businesses that want to retain the profits within the business, while the House blueprint would lower the rate to 20% and apply a special rate of 25% for business income earned by pass-through entities.

Technology/Cyber

(GCBG) TMS implementation continues apace, but it ain’t easy. Several attendees said their departments are implementing or are considering the implementation of treasury management systems (TMSs), and they’re measuring compatibility with their existing technology. A few mentioned leveraging their TMSs to improve cash forecasting. However, TMS implementations can be challenging—one attendee noted a “journey” that took two years, due to a corporate restructuring. Kyriba was the TMS most commonly mentioned by members.

(GCBG) Cyber fraud schemes escalate. Members report incidents of cyber fraud attempts jumping over the past half year. Fraudsters are seeking information by phone, email, social media and other means, often executives’ personal information, and they’re getting better at targeting companies’ weaknesses. For example, they understand how digesting acquired companies and the resulting systems changes can provide cracks in the merging companies’ defenses and seek to exploit them.

(T30LC) Get in front of problems with a TMS. One of the key takeaways from a member presentation of key impacts of a Reval implementation was that it enables his people to anticipate and get in front of problems—instead of chasing them. In this way, the TMS project was not about headcount reduction but getting away from “manual” and repurposing people away from clerical jobs and getting them more excited about their work.

(T30LC) TMS business case helps communicate the value of treasury to senior executives. Another point for the discussion sparked by this member presentation was the extent to which others implementing a TMS echoed how effective the TMS business case was in communicating not only all that treasury does for the organization of value, to many who often overlook treasury’s role, but it also underscores the need to invest further resources in the function, starting with the TMS.

(tMega) Blockchain worth investigating. One member was asked about a project investigating Blockchain user stories with a cross-functional team. He noted that the use cases in treasury are going to come online fast; for example, with syndicated loans, FX settlement and insurance, so it pays to monitor developments. That’s because many, if not more, interesting uses cases will come on the business side, he added. “Anything involving the transfer of ownership will be made much easier with Blockchain.”

(AT30) A unique approach to preventing fraud. As members discussed the challenges of managing thousands of bank accounts and signers, one shared that they have the “walk of shame” where business unit CFOs who have fraud in their organizations have to stand up before a room of 75 people and explain what occurred. Apparently it is pretty effective.

(T30) Irrational fear of SaaS? Cyber security top of mind, one member said SaaS “scared the life out of our CFO,” so the company implemented its TMS software within its own firewalls. Another noted, however, that nobody is safe from cyber attacks today, adding that cybersecurity is a core competency of SaaS service providers. Separately, one of the biggest advantages to delivering software via SaaS is the inability to tailor it, said one member, noting no more custom reports requested by the CFO or other senior management. With IT resources always scarce, acceptance of SaaS is becoming much more mainstream.

Treasury Organization (Centralization, Decentralization, IHBs, M&A)

(AT30) Integration versus autonomy has several factors. It is tempting to conclude that when you purchase a company it should naturally be integrated into the broader business. But that would be wrong. Acquired companies are left autonomous for good reason. Some companies buy and sell business routinely and believe it is a waste of time to integrate a business that may be sold within a few years. Some companies elect to leave targets autonomous for operational reasons. An AT at a technology company noted that only companies purchased within one of their shared services areas get integrated. And of course some targets remain autonomous simply because the parent is so acquisitive staff can’t keep pace with the volume. In this case, it may be prudent to have a team of people dedicated to acquisition integration, which is an expressed need at a pharmaceutical distributor. But a pharmaceutical manufacturer in the group that is not very acquisitive relative to others does have an integration team.

(AT30) “What if”… is a great metric. Several members noted that to call out their value to the company they report the impact to the company had they not hedged. One member reports the balance sheet hedging gain/loss and the impact had they not hedged. Another member does the same but uses a worst-case scenario. Reporting actuals to forecast for both hedging and cash flow is also a common metric.

(ATPG) Treasury Center locations in Asia can be tricky. The top three locations for TC’s in Asia have Singapore, Hong Kong, and more recently Shanghai. However, deciding which is best is not easy. Shanghai was becoming increasingly attractive as it was steadily reducing regulatory barriers to getting cash out of the country, and more and more companies have been establishing and growing their China businesses. But that trajectory is now reversing as the country is putting the barriers back in place to keep capital in the country. Therefore, it is not as attractive as before because of the new restrictions and also the unpredictability. Singapore has been the destination of choice due to its modern amenities, low tax rates and very business friendly government. They clearly “get it”. But the country is small and many companies do not have meaningful business operations there. If you believe a TC needs to be close to the business, Singapore loses some advantage.

Hong Kong was the original target location given its long history as a financial center. But it has been losing ground as a preferred destination to Singapore and Shanghai and now upping its game with better incentives. And if this wasn’t already enough, other Asian countries such as Thailand are getting into the TC game.

(Tech20) Don’t be afraid to try new things, listen and learn. One Tech20 alumnus noted that becoming treasurer at a member company, which brought him into Tech20, was a new role for him and how helpful Tech20 was for learning about key treasury activities. Not being afraid to try new things, he served in a variety of finance roles, prior to become treasurer, and this gave him the experience he needed to become CFO. “Listening is a good skill-set too,” he noted; by listening to what others have to teach you, you can learn to take on roles that you have less experience with.

(tMega) Strong team with key direct report needed. All tMega members agreed that having a strong team led by an experienced assistant treasurer or senior director is vital to support treasurers facing a growing list of challenges, and indispensable for those rotating into the treasurer role without a lot of recent treasury experience.

(tMega) M&A valuation experts wanted. The one area of responsibility that topped the tMega treasurers’ wish list, that only very few had currently, was to have a team of M&A valuation experts, independent from corporate development, reporting to them.

(tMega) Cash and operations roles trail with comp. Cash and operations roles in treasury tend to get the lowest average comp levels, even as workload and importance of work rise in response to bank regulation, tax and related compliance matters. Tmega H2, really the FTE and Comp survey.