Constructing a Treasurer s Bridge Across the U.S./Canadian Border

Transcription

1 Constructing a Treasurer s Bridge Across the U.S./Canadian Border presented by: Hamish Forrest BMO Harris Bank N.A. Director Global Treasury Management April 24, 2012

2 Agenda The importance of the U.S./Canadian trading relationship U.S. and Canadian banking environments Clearing processes in the U.S. and Canada Image exchange Receipts management Disbursements including ACH/EFT Information reporting Fraud Working capital management Cash balances Cash concentration sweeps/investments Impact of regulatory requirements on cross-border banking/transactions Looking ahead Things to Consider 1

3 The Importance of the U.S. / Canadian Trading Relationship 2

4 U.S. s Largest Trading Partners (2011) Canada $597 China $503 Mexico $461 Japan $195 Germany $148 United Kingdom $107 South Korea $100 Brazil $74 France $68 Taiwan $67 Source: US Census 3

5 Canada s Largest Trading Partners United States $597 China $58 Mexico $27 Japan $23 Germany $15 United Kingdom $27 South Korea $10 France $5 Source: Industry Canada 4

6 Opportunities Trade Balance almost $600 billion in 2011 The U.S. accounts for 74.9% of Canada s exports Canada is a largest market for U.S. Goods Largest energy trade relationship Stock of U.S. foreign direct investment in Canada - Nearly 61% of total Canada is the sixth largest foreign investor in the U.S. 5

7 What Does This Mean? The world s largest trading partnership An abundance of cross-border transactions Growing number of firms with operations on each side of the border Banking differences that can affect your treasury operations 6

8 U.S./Canada Banking Environments 7

9 Banking Landscape Financial Instituions:$13.8 trillion in assets* Top 4 financial institutions hold 48% assets** National coverage but without a complete geographic footprint Need to use multiple Banks: (On average 5 banksbut range from 2-18 banks with comprehensive treasury capabilities)*** 14,700 Financial institutions * 6,290+ banks 1,067 S&L United States 7,292 credit unions 70,000+ branches and bank offices across USA Canada Financial industry > $2 trillion in assets Top 5 banks hold 80% assets 11 direct clearers + Bank of Canada Most corporations use the larger domestic banks for treasury offerings Complete geographic coverage 124 other deposit-taking institutions 62 banks in total ~ 14,700 branches across Canada Consolidated cheque processing through two processors (Symcor or Intria) Canada has 6 clearing centres Federal Reserve has 1 check clearing center * Federal Reserve ** FDIC *** 2011 AFP Benchmarking Study 8

10 Canadian vs. U.S. Banking Systems Banking in the U.S. Fragmented thousands of financial institutions No post-dating of checks Processing float Multiple mail deliveries per day for lockbox Controlled disbursement accounts Sweep accounts Earnings credit Credit interest on DDAs recently introduced ACH (CCD, CCD+, CTX) EDI Check remains king for corporates (but decreasing) ACH Block Wires common payment method Consolidated - 6 major financial institutions Cross-country branch network Post-dated cheques allowed Same-day value for cheques Single mail delivery per day for lockbox Pre-dating of clearing transactions Credit interest on DDAs Service charges EFT (CPA 005) (no remittance detail) EDI Banking in Canada Decreasing cheque volumes in favor of electronic Consumer debit transactions exceed credit card transactions Consumer PAD utilized extensively Wires large value payments 9

11 Banking Facts What s the Difference? United States Canada Governance Federal, state and case law Bills of Exchange Act and the Canadian Payments Association Clearing options Federal Reserve, Correspondent Bank relationships, Exchanges (ViewPoint, Endpoint Exchange etc.) Channel Checks comprise a large percentage of cleared items One centralized cheque clearing system Electronic payments make up the largest percentage of items cleared Clearing Time frame Multiple days (normally one to two) Same day value for CAD items crosscountry Frequency Defined business day clearing times Overnight clearing of cheques Oversight of electronic items NACHA Canadian Payments Association 10

12 Cross-Border Bank Accounts U.S.-domiciled Canada-domiciled Currency USD CAD offered via correspondent relationships CAD and USD Clearing USD CAD and USD 11

13 Clearing in the U.S. and Canada 12

14 U.S. Check Clearing Process 13

15 Canadian Cheque Clearing Process 14

16 Image Exchange United States Check 21 Image replacement document Image cash letter/deposit Image exchange Remote deposit capture ARC BOC Lockbox ACH - ARC Image processing of check Point of receipt/purchase ACH POP BOC Canada Focus on converting transactions from cheque to electronic TECP (Canada s initiative to implement cheque clearing/processing via image) has been cancelled Expect a rebirth for image clearing in the coming years 15

17 Differences in Receipts Management 16

18 Receipts Regional deposit Robust mail delivery Lock box service significant cash management service ACH (EFTs) EDI Wire payments Check conversion (ARC) Deposit capture (Check 21 and BOC) Remote deposit Widespread Image services Merchant services Debit/credit cards United States Nationwide deposit Mail delivery once per day Lock box service not as widely used as the U.S. EFTs ( ACH) EDI Wire payments Merchant services Debit/credit cards Canada 17

19 Differences in Disbursements 18

20 Disbursements Checking accounts/controlled Disbursement Accounts (US) Electronic Data Interchange (EDI) Wire payments Payroll cards Backdating (CDN) Automated Clearing House (ACH) payments and check blocks (US) Escheatment Corporate/purchasing cards 19

21 Disbursements ACH/EFT United States Canada Formats Multiple (PPD, CCD, CCD+, CTX, ARC, POP, TEL, WEB, IAT) Intrabank-proprietary Bank exchange - CPA Standard 005 Standards NACHA rules CPA standard 005 Remittance information Multiple formats No remittance info 20

22 Disbursements ACH/EFT United States Canada Formats Standard EDI Standard EDI Conversion ACH Wire Check EDI (Big 5) EFT Wire Cheque Remittance Information Included with transaction, part of reporting Big 5: Included in transaction reporting Client to client agreement for exchange of data Settlement Normal payment mechanism Big 5: Net settlement Others, normal payment mechanism 21

23 Information Reporting Bank-specific proprietary reporting tools Bank Administration Institute (BAI) reporting EDI information SWIFT and multi-bank reporting Imaging Balance availability reporting 22

24 Fraud More fraud occurs in the U.S. 66% of all companies reported attempted or actual payments fraud in 2011* 85% of those companies experienced check fraud attempts * More advanced fraud protection tools available in the U.S. Fewer fraud protection tools in Canada, however less fraud occurs Enhanced legal protection in Canada * 2012 AFP Payments Fraud and Control Survey 23

25 Fraud Prevention Tools Best practices for check fraud (laid lines, watermarks, fonts) less effective in U.S. image environment Electronic payments Check imaging Positive pay / reverse positive pay Payee name verification ACH block & filters and ACH positive pay (U.S.) Check block (U.S.) 24

26 Timeframes for Fraud and Returned Checks United States Canada Altered item 24 hours* 90 days Counterfeit item 24 hours* 24 hours Forged drawer 24 hours* 24 hours Forged endorsement 24 hours* 6 years * UCC varies from state to state and timeframes can be negotiated between the client and their bank 25

27 Timeframes for Fraud and Returned ACH United States Canada Unauthorized B2B PAD, with agreement 24 hours 10 days Unauthorized B2B PAD, without agreement 24 hours 90 days Unauthorized B2C PAD 60 days 90 days 26

28 Working Capital Management 27

29 Cash Management Balances Interest on account balances Earnings credits Bank account overdrafts Reserve requirements Deposit insurance fees Cash concentration (Canada) vs. daily sweep (U.S.) 28

30 Cash Concentration in the USA Zero Balance Account (ZBA) Sweep Checking Account 1 + $5.00 Interest or Earnings Credit or both Interest Checking Account 2 -$5.00 Concentration Account + $10.00 Sweep Account + $10.00 Checking Account 3 +$

31 Cash Concentration in Canada ZBA Consolidated balance reporting Account netting Interest earned on Master Position Chequing Account 1 Chequing Account 2 + $5.00 -$5.00 Master Position + $10.00 Chequing Account 3 +$

32 Impact of Regulatory Requirements on Cross-Border Banking/Transactions 31

33 Did You Know? International ACH (IAT) Investment vehicles Tax implications Anti Money Laundering (AML) Know Your Customer (KYC) 32

34 Things to Consider. Don t assume that because you know the services available in the U.S. that you know what will be available in Canada, or vice versa Have someone at the bank dedicated to your account who is knowledgeable Understand the fraud prevention tools that are available to you on each side of the border and use them Network with your peers 33

35 Questions 34

36 Thank You Hamish Forrest BMO Harris Bank Director Global Treasury Management Chicago, Illinois

37 Appendix A U.S. and Canadian Treasurer s Guide to Cross-Border Cash Management Session Takeaways 36

38 Appendix: Table of Contents Comparison chart: legislation 1 Comparison chart: products and services 3 Sample Cross Border Client 10 Sample substitute check 13 Web references 14 37

39 Comparison Chart: Legislation Key Banking Facts U.S. Canada Number of Financial Institutions ~ 14,700 Financial institutions ~151 (77 banks) Geographic Coverage Primarily State/Regional branch network Primarily nationwide branch network Layers of Regulation Regulation U.S. Canada Federal and state governance (National/State chartered banks) Federal governance State/Provincial Regulation States have option to limit interstate banking and branching (Riegle-Neal) No significant provincial regulation Primary Oversight Bodies U.S. Canada Primary Federal Body Department of the Treasury Department of Finance Central Bank The Federal Reserve Bank of Canada Supervision of Financial Institutions The Office of the Comptroller of the Currency (OCC) Office of the Superintendent of Financial Institutions (OSFI) Deposit Insurance Federal Deposit Insurance Company (FDIC) Canadian Deposit Insurance Corporation (CDIC) Deposit Insurance Limits ACH/EFT Payments US$250,000 for interest bearing accounts Unlimited for non-interest accounts National Automated Clearing House Association (NACHA) C$100,000 / eligible deposit per member institution (domestic currency only) Canadian Payments Association (CPA) Securities Settlement Depository Trust & Clearing Corporation Canadian Depository for Securities 38

40 Comparison Chart: Legislation Legislation U.S. Canada Central Bank Establishment Federal Reserve Act (1913) Bank of Canada Act (1934) Bank Reserve Requirements Currently 10% (Regulation D, Federal Reserve) y/reservereq.htm#table1 Non-existent Anti-Fraud/Terrorism Legislation Anti-Fraud Legislation U.S. International Money Laundering Abatement and Financial Anti-Terrorism Act Canada Proceeds of Crime (Money Laundering) and Terrorist Financing Act Anti-Terrorism Legislation USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) of 2001 Proceeds of Crime (Money Laundering) and Terrorist Financing Act 39

41 Comparison Chart: Products and Services Funds Availability Clearing U.S. Canada Clearing Options Change in clearing environment with U.S. Check 21 Nationwide Deposits/Float Float - will vary depending on several factors Can vary from one to three days Federal Reserve Image Exchange networks; Viewpoint, Endpoint Exchange, etc Direct sends to banks Check clearing services The payment system is a network of banks, central banks, securities firms, service providers, and industry-owned utilities that ensures both the smooth transfer of funds for business and financial transactions and the timely settlement of securities transactions Same day availability for domestic currency 11 direct clearers Symcor/Intria Canadian Payments Association (CPA) operates the national clearing and settlement system, and relies on two systems for the clearing and settlement of payments: the Automated Clearing Settlement System (ACSS) and the Large Value Transfer System (LVTS) Receipts U.S. Canada Limited to the FIs interstate branch network. Float on deposited items Float has been decreasing due to check 21 changes Mail Delivery Multiple deliveries per day One delivery per day Nationwide deposits/same day availability. A cheque drawn on an account in one part of the country can be cashed in virtually any part of the country and charged to the issuer's account the same day. Lockbox Extensive use, lots of options. Moderate use, basic options - primarily used to reduce internal administration costs. 40

42 Comparison Chart: Products and Services Receipts U.S. Canada EFT/ACH Ability to include additional payment information (e.g. invoice number) for cash application. Ability to transmit files via internet or telephone. Multiple ACH formats. No unique identifying information to accompany transfer. Only B2B or B2C debits/credits. Interbankproprietary format, governed by one standard (005) CPA format for bank exchange. EDI North American (ANSI) standards North American (ANSI) standards Incoming Wire Payments Real time reporting Real time reporting Foreign Currency Accounts Limited availability and options A number of banks will offer the ability for corporate clients to initiate payments in a number of different currencies. These payments are, however, largely restricted to wire payments as opposed to checks or ACH equivalents. US$ accounts easily available with extensive options. Check Conversion to an ACH/EFT payment (ARC) Remote deposit capture Allowed in the U.S. with some restrictions based on check format. Consumers can opt out. Product of Check 21 - legislation authorizing financial institutions to truncate checks and exchange images instead of paper checks. This law also allows for the creation of substitute checks or IRDs (Image replacement documents). Business can deposit check without going to FI or sending to lockbox by scanning and sending image to FI Non-existent limited B2B Non-existent 41

43 Comparison Chart: Products and Services Disbursements U.S. Canada Control Disbursement Commonly offered banking service Non-existent A controlled disbursement account is not an option. It is simply not offered. Keep in mind, that if your supplier deposits your cheque today they will receive value for it today. It will also be charged to your account as at today. However, you will not know until first thing tomorrow morning that it has cleared your account. Account Reconciliation/Positive Pay EFT/ACH Positive Pay was introduced in U.S. much earlier than Canada and does not differ considerably amongst the banks. Moved faster towards payee name matching as part of the positive pay service. Many positive pay options available Partial and full reconciliation available. Some unique information can be remitted with the payment. The amount of addenda information is dependant upon the type of ACH payment generated (i.e. CCD, CTX, etc.) Partial and full reconciliation available. Payee name verification available, but not as widely used yet as it is a relatively new feature in the Canadian banking environment. No unique information with payments. Even if a bank were to route a payment through the U.S., when it came back to Canada any addenda information would be lost. A pure EFT payment (i.e. an electronic funds transfer payment generated in accordance with CPA Standard 005) will not have addenda information. There is no way around this. Any payment that has addenda information is either an EDI payment or an ACH payment that has been initiated by/through a Canadian FI who has a partner relationship in the U.S. to handle these southbound payments. 42

44 Comparison Chart: Products and Services Disbursements U.S. Canada EDI North American (ANSI) standards North American (ANSI) standards Outgoing Wire Payments A popular payment method Primarily used for large value, low volume payments - increase in web based wire payment mechanisms. Payroll Cards Available option (good for employees with no bank account) Not a significantly marketed banking service. Remote cheque presentment Non-existent All items are cleared to the data centre closest to the payee branch, regardless of the location of the drawee branch. Once delivered to the closest data centre items are deemed as presented for payment. This means that an item drawn on a branch in Toronto, yet deposited to a branch in Vancouver would: be delivered to the Vancouver data centre, and be deemed as presented for payment once delivered to the Vancouver data centre of the drawee branch - even though that branch is located in Toronto. Check Value No limit C$25,000,000 Backdating of Checks Not allowed Standard practice ACH and check blocks Full or partial blocks available on specific transaction types. Non-existent 43

45 Comparison Chart: Products and Services Reporting U.S. Canada Online Information Reporting Internet based Internet based BAI Reporting Available - Works with Treasury Management Software Available - Works with Treasury Management Software EDI Reporting Available North American (ANSI standard) Available North American (ANSI standard) SWIFT Reporting Available (international standard) Available (international standard) Multibank Reporting Available Available Online Image Availability Lockbox and Disbursements Imaging Lockbox and Disbursements Imaging Availability Balance Reporting Float + Available = Ledger Available = Ledger on C$ Accounts Controlled Disbursement Presentment Reporting Morning presentment on Controlled Disbursement Accounts. Not available. 44

46 Comparison Chart: Products and Services Balances U.S. Canada Daily consolidation of bank account balances Typically handled by ZBAs Typically handled by account netting services Interest on Credit Balances on Business Checking Accounts Options are to receive credits towards your bank service fees, earn interest on your business accounts. or a combination of both. In addition you can sweep the account balance to a daily investment account. Interest on Corporate accounts recently allowed with the passage of the Dodd Frank Act Canadian banks can, and will, pay you interest on the funds carried in your current accounts. This is not earnings credits, this is a credit to your bank account. As a consequence there is not a significant need for sweep arrangements that are common in the U.S. (where funds are automatically swept to an overnight investment account). Bank Debit Balances In the U.S. your bank account cannot be overdrawn, instead a normal credit agreement will allow for the debit balance in an account to be funded from a loan account. Common business practice Earnings Credit on Credit Balances Used to offset account service fees Not used Deposit Insurance Fees Based on Risk Score. It is common practice for FIs to pass these charges directly to account holders. Based on Risk Score. Absorbed by banks as overhead expenses. 45

47 Comparison Chart: Products and Services Initiative Point of Truncation Check Imaging U.S. Canada Image exchange and presentment common practice Remote Deposit, Back Office Conversion, Bank Branch capture. POS for Consumer checks or ARC conversion for mail in payments Liability Point of Capture N/A N/A N/A Forecast Implementation Began Oct 2004 N/A 46

48 Sample Cross Border Company Company Profile Canadian company publicly traded on the TSX 5,400 employees in 18 countries Three lines of business Product 1: Manufacturing plants in 18 countries, including Canada and the U.S.. US& Canada accounts for 80 to 85% of this line of business. Product 2: Four plants total in Canada, U.S. and Mexico Product 3: Two plants in the U.S. Decentralized structure (including accounts receivable and payable) U. S. Treasury practices Canadian Treasury practices Number of Banks Funds Movement Information Capture One primary relationship plus local banks for payroll in some states Daily zero balancing is done in both countries to an in-country corporate account; balances are not generally transferred over the border BAI files with balances and details are pulled from banks on both sides of the border and loaded into a treasury workstation One primary relationship Daily zero balancing is done in both countries to an in-country corporate account; balances are not generally transferred over the border BAI files with balances and details are pulled from banks on both sides of the border and loaded into a treasury workstation 47

49 Sample Cross Border Company U. S. Treasury practices Canadian Treasury practices Collections: Lockboxes Payables Fraud Control Lockbox: Used by all plants; no local deposit banks allowed; requires additional electronic reporting services for many plants Controlled Disbursement: Required on all disbursement accounts Positive Pay is Required on all checking accounts In the U.S. pay no issue items are returned unless bank is told otherwise Lockbox not used; bank branch within minutes of each plant Controlled Disbursement is not available; same day value means forecasting/guestimation of daily funding requirements Positive Pay is Required on all chequing accounts In Canada pay no issue items are paid unless bank is told otherwise ACH debit full block required on all accounts other than for payroll or tax payments ACH debit block is not available in Canada 48

50 Sample Cross Border Company U. S. Treasury practices Canadian Treasury practices Cash balances /Overdrafts Much more concern over keeping a positive balance without leaving too much cash in the account Canada uncommitted overdraft facility covers unexpected overdrafts; caps on interest-earning account balances Statements Payroll Available on-line on first day of following month; cleared check lists available any time; images of cleared checks available on-line but checks are no longer returned to company The percentage of employees paid by direct deposit is growing; however, still a fairly high number of employees require/request check payment (10%- 50% depending on the plant); often requires a local bank for a payroll account On-line real time; cleared cheque lists available on-line weekly; cleared cheques are returned to company Employees are primarily paid by direct deposit (two of the three Canadian plants and the corporate office are 100% direct deposit) 49

51 Check 21 Substitute Check 50

52 Web References U.S. U.S. Federal Reserve System U.S. Department of Treasury U.S. Federal Deposit Insurance Corporation The Office of the Comptroller of the Currency U.S. Treasury - Office of Foreign Assets Control American Bankers Association U.S. Legislation Federal Reserve Act Riegle-Neal Interstate Banking and Branching Efficiency Act Depository Institutions Deregulation and Monetary Control Act Gramm-Leach Bliley Act Independent Community Bankers of America NACHA - Electronic Payments Association 51

53 Web References Canada Bank of Canada Department of Finance Canada Office of the Superintendent of Financial Institutions Canada Canadian Bankers Association Canada Deposit Insurance Corporation Canada Revenue Agency Canadian Payments Association Intria Canadian Depository for Securities Financial Transactions Reports Analysis Centre of Canada - Money Laundering - Terrorist financing Financial Consumer Agency of Canada Department of Justice Companies Creditors Arrangement Act Statistics Canada Symcor 52

54 Web References Other References CHIPS (Clearing House Interbank Payments Systems) SWIFT Best References AFP AFP Canada 53

55 BMO Harris Bank is a trade name used by BMO Harris Bank N.A. Banking deposit and loan products and services are provided by BMO Harris Bank N.A. Member FDIC. Brokerage products are offered through Harris Investor Services, Inc. (HIS), a registered broker/dealer, member FINRA/SIPC, and SEC-registered investment advisor. Insurance products are offered through Harris Bancorp Insurance Services, Inc. (HBIS). Investment banking services are provided by BMO Capital Markets Corp. (BMOCMC) and BMO Capital Markets GKST, Inc. (GKST), a Municipal Bond Dealer and member FINRA and SIPC. Financial planning and investment advisory services are provided by Sullivan, Bruyette, Speros & Blayney, Inc. (Harris SBSB), an SEC registered investment advisor. Family Office Services are provided by Harris mycfo, Inc. Investment advisory services are offered by Harris mycfo Investment Advisory Services LLC (Harris mycfo), an SEC-registered investment advisor and wholly-owned subsidiary of Harris mycfo, Inc. Stoker Ostler Wealth Advisors (Stoker Ostler) is an SEC-registered investment advisor. Investment advisory services to institutional clients are provided by Harris Investment Management (HIM) or its wholly-owned subsidiary HIM Monegy (Monegy), SEC-registered investment advisors. Products offered by HIS, HBIS, BMOCM, Harris SBSB, Harris mycfo, Stoker Ostler, HIM, and Monegy, which are affiliated companies and wholly owned subsidiaries of BMO Financial Corp.,: Are not insured by the FDIC or any Federal Government Agency, not a deposit of or guaranteed by any Bank or Bank Affiliate, may lose value. The purchase of insurance or an annuity is not a condition to any bank loan or service. Not all products and services are offered in every state and/or location. Third party web sites may have privacy and security policies different from BMO Harris Bank. Links to other web sites do not imply the endorsement or approval of such web sites. Please review the privacy and security policies of web sites reached through links from BMO Harris Bank web sites. 54