Developing Issues: Pension De-Risking; FBAR Concerns; Everyday ERM

May 28, 2014
A quick look on what’s on iTreasurer’s radar screen this week.

Several topics came out of this week’s iTreasurer editorial meeting, including a look at how companies are looking at using captives to help mitigate pension risk; also an update on some of the kinks still found in FBAR (Report of Foreign Bank and Financial Accounts) rules as well as a look at how companies are looking to ingrain enterprise risk into every employees day-to-day. We’ll also look at how some companies take a look at risk as an opportunity vs. a problem that needs solving.

Captives and pension risk

Captives are expanding in all directions. Not only are they not just the purview of insurance experts in Bermuda or some other tropical paradise, they’re now coming back to un-exotic locales like Vermont. Further, captives are capturing a wider array of functions, this time pensions risks. Many companies are looking to go the route of Coca-Cola, which several years ago created a Dublin-based reinsurance captive to manage pension obligations in several territories. According to broker and risk expert Marsh, which helped Coca-Cola implement its captive, the main benefits of the arrangement “are operational efficiencies derived from centralization of activities and financial management” – words embedded in most of the mandates of today’s corporate treasuries.

FBAR still an issue

Nearly two years after its official implementation, companies are still concerned about FBAR or Report of Foreign Bank and Financial Accounts. This rule, in which any US signer or those who “have an interest” in a foreign bank account is required to disclose this information as part of their personal tax return and file the mandatory FBAR report, remains a problem for companies and those signers. At a recent NeuGroup Global Cash & Banking Group (GCBG) meeting, members discussed how they’re vexed with differing interpretations of what it means to “have an interest.” Most members have interpreted it to mean all individuals who have access to a bank account, including those with electronic banking authority, must file the appropriate document with their individual tax return. Others, have viewed the ruling more broadly and are not including this full list of individuals. Since there is no penalty for over reporting, many are choosing to do so.

ERM for all
One takeaway from a recent NeuGroup Corporate ERM peer group meeting was that a successful enterprise risk management program has the support of senior management, the board and perhaps most importantly, from every employee in the company. In fact, it’s woven into the strategic plan.

This ERM meeting featured a company that set out to build a comprehensive ERM program with the above goal in mind. The Fortune 500 tech company saw it as a strategic priority and pushed the program to be world class in stature and while many companies’ ERM programs are characterized by an assessment calendar with a 12-month cycle, this company’s program has risk discussions all year long, with calendared steps along the way. In this way, ERM was top of mind and timely, which trickled down to all levels of the organization.
Risk: danger and opportunity
And while enterprise risk is critical to managing the companies risk exposures, it doesn’t mean that risk itself is thing to be avoided. One company in the NeuGroup universe looks at what risks it can optimize to benefit the companies. With this in mind, iTreasurer will go look at corporate risks as an opportunity and a danger.

Stepping into RMB
Given the rapid pace of renminbi regulatory changes, and the uptick in global MNC adoption of these new measures, there has been a significant increase in the use of RMB for payments, moving the RMB into the number eight spot as a SWIFT payment currency. Although it remains a tiny fraction of the total (1.3 percent), the market views the upward movement as a positive sign of what’s to come as internationalization efforts continue. RMB can now be integrated as a part of a corporation’s overall liquidity management strategies with pooling of RMB and cross-border RMB lending becoming common place.

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