Treasury and Investment Policy

Transcription

1 Date approved: 21 June 2016 Approved by: Parent Board

2 i. Executive Recommendation... 3 ii. TREASURY AND INVESTMENT POLICY STATEMENT TMP 1 - RISK MANAGEMENT TMP 2 - VALUE FOR MONEY AND PERFORMANCE MEASUREMENT TMP 3 - DECISION-MAKING AND ANALYSIS TMP 4 - APPROVED INSTRUMENTS, METHODS AND TECHNIQUES TMP 5 - ORGANISATION, CLARITY AND SEGREGATION OF RESPONSIBILITIES TMP 6 - REPORTING REQUIREMENTS TMP 7 - BUDGETING, ACCOUNTING AND AUDIT ARRANGEMENTS TMP 8 - CASH AND CASH FLOW MANAGEMENT TMP 9 - MONEY LAUNDERING TMP 10 - STAFF TRAINING AND QUALIFICATIONS TMP 11 - USE OF EXTERNAL SERVICE PROVIDERS TMP 12 - CORPORATE GOVERNANCE Page 2 of 31

3 i. Executive Recommendation CIPFA (Treasury Management in the Public Services: Code of Practice and Cross- Sectoral Guidance Notes (2011)) recommends that all public service organisations, which includes social housing landlords, adopt as part of their standing orders, financial regulations, or other formal policy documents the following: (a) Formal and comprehensive objectives, policies and practices, strategies and reporting arrangements for the effective management and control of their treasury management activities. (b) Policies and practices which make clear that the effective management and control of risks are prime objectives of treasury management activities and that responsibility for these lies clearly within their organisation. Their appetite for risk should form part of their annual strategy, including any use of financial instruments for the prudent management of those risks, and should ensure that priority is given to security and liquidity when investing funds. (c) The pursuit of best value in treasury management, and the use of suitable performance measures, which are valid and important tools for responsible organisations to employ in support of the business and service objectives, and that within the context of effective risk management the treasury management policies and procedures should reflect this. In order to achieve the above Southway Housing Trust adopts the following: (a) A Treasury Management Policy Statement, within this document, stating the policies and objectives of its treasury management activities. (b) Suitable Treasury Management Practices setting out the manner in which the organisation will seek to achieve those policies and objectives, and prescribing how it will manage and control these activities (c) The Parent Board will receive reports on the Trust s treasury management policies, procedures and activities, including, as a minimum, an annual strategy and plan in advance of the year, quarterly routine treasury reports, and an annual report after its close, in the form prescribed in the Treasury Management Procedures. Furthermore, the Trust has adopted the recommendation in regard to information requirements as outlined in Altair Consultancy and Advisory Services Ltd independent review of the events which led to the rescue of Cosmopolitan Housing Trust commissioned by the Homes and Communities Agency (the Regulator). Page 3 of 31

4 ii. TREASURY AND INVESTMENT POLICY STATEMENT Southway Housing Trust ( The Trust or The Group ) comprises three organisations Southway Housing Trust including subsidiary companies Southway Plus and Southway DevCo. This is a Trust policy and covers Treasury Management activity for Southway Housing Trust including subsidiary companies Southway Plus and Southway DevCo and any further subsidiaries in the future unless otherwise stated. This document sets out the Treasury Management Practice Statements ( TMPs ) of the Trust. The Trust has adopted the key recommendations of CIPFA s Treasury Management in the Public Services: Code of Practice (the Code ) as described in Section 4 of that Code and as modified in CIPFA s Treasury Management in the Public Services: Guidance Notes for Registered Social Landlords (the Guidance Notes ). The Trust has also taken due regard of the former Tenants Services Authority (TSA) Good Practice Guide Treasury Management for Housing Associations. The Trust defines its treasury management activities as The management of the Trust s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with these activities; and the pursuit of optimum performance consistent with those risks. The Trust regards the successful identification, monitoring, and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the Trust. The Trust acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving value for money in treasury management, and to employing suitable performance measurement techniques, within the context of effective risk management. The Parent Board has responsibility for the implementation and monitoring of its treasury management policies and procedures. The Parent Board delegates responsibility for the execution and administration of treasury management decisions to the Chief Financial Officer who will act in accordance with the Trust's Treasury and Investment Policy Statement and TMPs. The following TMPs were produced in June 2016 and, in line with best practice, will be reviewed and, where necessary, updated on an annual basis. Page 4 of 31

5 1. TMP 1 - RISK MANAGEMENT 1.1 General Statement This policy reflects the attitude to risk of the Parent Board. The Policy and the attitude of the Parent Board to risk is reviewed and revised annually The Chief Financial Officer, or in the absence of the Chief Financial Officer the Chief Executive, will design, implement and monitor all arrangements for the identification, management and control of treasury management risk, will report at least quarterly on the adequacy/suitability thereof; and will report as a matter of urgency, the circumstances of any actual or likely difficulty in achieving the Trust s objectives in this respect, all in accordance with the procedures set out in TMP6 Reporting Requirements and Management Information Arrangements. 1.2 Liquidity Risk Management The Trust will ensure that its liabilities will always be met as and when they fall due and will ensure adequate liquidity is at all times available to meet any unexpected expenditure requirements that may arise from time to time The Trust will ensure that it has adequate though not excessive cash resources, borrowing arrangements, overdraft or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business/service objectives The Trust will only borrow in advance of need where there is a clear business case for doing so and will only do so for identified purposes or to finance future debt maturities The Annual Treasury Management Strategy (see TMP6 Reporting Requirements ) will contain a proposed liquidity maintenance requirement for the following financial year, subject to the overriding requirement that the Trust s available liquidity must not, at any time, fall below the following levels: (a) Liquid Funds equal to the forecast net outflow for the next calendar month. Liquid funds are defined as: Cash balances with a maximum deposit maturity up to seven days Undrawn committed borrowing facilities where security has been put in place to the lender s satisfaction and which are available to be drawn within a maximum of seven days, which would include secured revolving credit facilities Page 5 of 31

6 Undrawn available overdraft facilities (b) Short Term Funds equal to the forecast net outflow for the next three calendar months. Short Term funds are defined as: Liquid funds Cash balances with a deposit maturity/notice period of between seven days and one month Undrawn committed borrowing facilities where security is available and can be charged to the lender s satisfaction so that the facility may be drawn within a maximum of one month. (c) Medium Term Funds equal to half the sum of all creditor payments falling due within one year. Medium term funds are defined as: Short Term funds Cash balances with a deposit maturity/notice period of one to three months. Undrawn committed borrowing facilities where security has been nominated and which can be charged to the lender s satisfaction so as to make the facility available for drawdown within three months. 1.3 Interest Rate and Inflation Risk Management The Chief Financial Officer is responsible for monitoring the Trust s interest rate risk exposures and for determining an appropriate strategy for the management thereof within the guidelines and policies established in this Treasury Management Policy and the Annual Treasury Management Strategy (see TMP6 Reporting Requirements and Management Information Arrangements ) In managing the Trust s interest rate and inflation risk, the Chief Financial Officer will pay due regard to the following: Current levels of interest rates and inflation compared with historic trends; Anticipated future trend movements; The impact on revenue of estimated movements in interest rate and inflation trends; Sensitivity of the revenue account to movement in interest rates and inflation; and Policy and/or budgetary implications. Page 6 of 31

7 In respect of borrowings: The Trust is risk averse and will endeavour to ensure that its borrowings contain a mix of fixed and variable interest rate structures. The optimum mix will be determined in the Annual Treasury Management Strategy through sensitivity analysis on the Trust s anticipated cash flows, but within the following overall guidelines: Variable rate interest 30% maximum Fixed rate interest 100% maximum Variable rate includes borrowing linked to LIBOR, Bank Base Rate, Building Societies Base Rate, and borrowings linked to any index (e.g. the Retail or Consumer Price Index). Fixed rate interest includes borrowing in relation to which the interest rate has been fixed in excess of 12 months (note that when a fixed rate loan has less than 12 months left to its maturity it will be defined as variable) The Trust also recognises interest rate re-set risk and will seek to manage its interest rate risk management strategy within the following parameters: % total loans Max % of fixed rate loans due for re-set in any one year 30* Max % of variable rate debt maturing on any date 35** * If fixings are for 5m or less they can have the same maturity date so long as when the total debt exceeds 10m the fixed rate maturities do not exceed 30%. ** Should the total amount of variable rate funds equal 10% or less of the Trusts total borrowings then the percentage of variable rate debt maturing on any one date can be up to 100% of the variable debt Where any of the Group members has not adopted the wider constitutional Rules permitting the use of interest rate derivatives to manage its interest rate risk exposures, risk management arrangements will be entered into only within the framework of existing or future loan facilities Where any of the Group members has adopted the wider constitutional Rules, it can only utilise free standing interest rate derivatives with the approval of the Parent Board. Page 7 of 31

8 In respect of surplus funds: The principal factor governing the Trust s management of interest rate and inflation risk on surplus funds will be liquidity requirements. Surplus funds needed to meet cash flow requirements will necessarily be placed on short term deposit. Where funds are required to meet maturing borrowings, deposit placement will match anticipated maturity as closely as possible Subject to maintaining liquidity, either in the form of cash or undrawn committed and available borrowing facilities, the Trust will seek, where possible, to minimise borrowing rather than invest surplus funds, when the net cost of borrowing exceeds the return achievable by investing funds. 1.4 Exchange Rate Risk Management The Trust will not expose its cash flows to exchange rate risk and consequently will not borrow on structures which require the payment of principal or interest in currencies other than sterling. Neither will it invest in instruments which pay interest or return capital in currencies other than sterling. 1.5 Credit and Counterparty Risk Management The Trust regards a prime objective of its treasury management activities to be the security of the principal sums it invests. Accordingly, it will ensure that its counterparty lists and limits reflect a prudent attitude towards organisations with which funds may be deposited, and will limit its investment activity to the instruments, methods and techniques referred to in TMP The Trust also recognises the need to have, and will therefore maintain, a formal counterparty policy in respect of those organisations from which it may borrow, or with whom it may enter into other financing or derivate arrangements. Deposit of Surplus Funds The Trust may only deposit with/lend to institutions regulated by the Financial Conduct Authority (or the appropriate supervisory body in the European Economic Area in which they are incorporated or formed) or the Building Societies Commission, subject to satisfying the minimum ratings set out below for a minimum of two out of the three rating agencies:- Page 8 of 31

9 Rating Fitch Moody s S&P Short term F1 P1 A The Trust may also deposit funds in Social Policy Investment opportunities within limits approved annually by the Parent Board Surplus funds invested will also be subject to the following sector limits: Maximum UK banks regulated by the FCA and/or their subsidiaries (where the subsidiary has its own credit rating or is unconditionally guaranteed by a suitably rated parent) UK building societies UK government 100% of surplus funds 50% of surplus funds 100% of surplus funds AAA rated Money Market Funds 3m The Chief Financial Officer is responsible for monitoring the credit standing of all approved investment institutions and for identifying and using appropriate external information services. In the event of an approved investment institution being downgraded below the Trust s minimum credit criteria, invested funds will be removed upon maturity The maximum amount invested at any time with an approved investment institution may not exceed 3m or 35% of the total surplus funds invested and have a maturity not exceeding 365 days. The only exceptions to these limits will be the Trust s clearing bankers with whom deposits in excess of this amount may be made for up to seven days from the date of receipt of unexpected funds and for sinking funds, where special Parent Board approval can be sought for a longer investment period (such approval will only be given once independent professional advice has been received). Any exceptions to this policy must be reported to the Chair of the Parent Board immediately and to the next available Parent Board meeting, except where such an exception is due to accrued interest Where surplus funds are required to meet possible cash outflows in the near future, they must be deposited for periods that will ensure funds are available when required. Where funds are to be used to repay borrowings on maturity, deposit maturities should match the maturity of those borrowings as closely as possible. Page 9 of 31

10 Investment in Group Subsidiaries The Trust may on-lend or invest in Group subsidiaries up to a limit of 10m It is the responsibility of the Chief Financial Officer, or in the absence of the Chief Financial Officer, the Chief Executive, to ensure that all investment in Group subsidiaries are made on commercially acceptable terms to ensure the security of the principal sum it invests. Where considered appropriate, external advice may be sought The Chief Financial Officer must produce a report for approval by the Parent Board (supported by independent financial advice) showing the business case for the investment and setting out as a minimum: the business reason for the investment; the proposed amount of the investment/ on-lend; the proposed length of the investment; the proposed mechanism for the anticipated return; any fees and margins applicable; the proposed security structure The Annual Treasury Management Strategy will include a summary of all investments in Group subsidiaries providing details on: the purpose of the investment; the amount invested; the rate of interest payable; the anticipated length of the investment; and the basis of interest (variable, fixed, indexlinked etc.) The Chief Financial Officer will immediate notify the Parent Board of any changes in circumstances that may threaten the principal of sums invested in group subsidiaries. Investment in Non Group Subsidiaries The Trust may on-lend or invest in organisations outside of the Group up to a limit of 5m It is the responsibility of the Chief Financial Officer, or in the absence of the Chief Financial Officer, the Chief Executive, to ensure that all investment in Non Group subsidiaries are made on commercially acceptable terms to ensure the security of the principal sum it invests. Where considered appropriate, external advice may be sought The processes and procedures detailed in sections to must also be followed in respect of any investment in non group subsidiaries. Page 10 of 31

11 Borrowing Where borrowings are to be included in the calculations of liquidity (as set out in 1.2 above Liquidity Risk Management ) the lender must have a minimum credit rating equivalent to those set out in above Where borrowings are to be made for refinancing, residual funding or any other circumstances where such borrowings are not included in the calculations of liquidity, there is no formal requirement for the lender to have a credit rating, however the rating (or absence of rating) would be taken into account in any borrowing decision. 1.6 Refinancing Risk Management The Trust will ensure that its borrowing, private financing and partnership arrangements are negotiated, structured and documented, and the maturity profile of the monies so raised are managed, with a view to obtaining offer terms for renewal or refinancing, if required, which are competitive and as favourable to the Trust as can reasonably be achieved in the light of market conditions prevailing at the time The Trust will actively manage its relationships with its counterparties in these transactions in such a manner as to secure this objective, and will avoid over reliance on any source of funding if this might jeopardise achievement of the above. 1.7 Legal and Regulatory Risk Management The Trust will ensure that all of its treasury management activities comply with its statutory powers and regulator requirements. It will demonstrate such compliance, if required to do so, to all parties with whom it deals in such activities. In framing its credit and counterparty policy it will ensure that there is evidence of counterparties powers, authority and compliance in respect of the transactions they may effect with the Trust, particularly with regard to duty of care and fees charged The Trust recognises that future legislative or regulatory changes may impact on its treasury management activities and, so far as it is reasonably able to do so, will seek to minimise the risk of these impacting adversely on the Trust. Page 11 of 31

12 1.8 Fraud, Error and Corruption, and Contingency Management The Trust will ensure that it has identified the circumstances, which may expose it to the risk of loss through fraud, error, corruption or other eventualities in its treasury management dealings. Accordingly, it will employ suitable systems and procedures, and will maintain effective contingency management arrangements, to these ends. 1.9 Market Risk Management The Trust will seek to ensure that its stated treasury management policies and objectives will not be compromised by adverse market fluctuations in the value of the principal sums it invests, and will accordingly seek to protect it from the effects of such fluctuations The Trust s investments are held in the form of either cash, or near cash investments. It is not therefore expected that the Trust will be exposed to any significant market risk. Page 12 of 31

13 2. TMP 2 - VALUE FOR MONEY AND PERFORMANCE MEASUREMENT 2.1 General Statement The Trust is committed to the pursuit of value for money in its treasury management activities, and to the use of performance methodology in support of that aim, within the framework set out in its Treasury Management Policy Statement Accordingly, the treasury management function will be the subject of ongoing analysis of the value for money it provides in support of the Trust s stated business or service objectives. It will be the subject of regular examination of alternative methods of service delivery, and of the scope for other potential improvements. Page 13 of 31

14 3. TMP 3 - DECISION-MAKING AND ANALYSIS 3.1 General Statement Treasury and Investment Policy The Trust will maintain full records of its treasury management decisions, and of the processes and procedures applied in reaching those decisions, both for the purposes of learning from the past, and for demonstrating that reasonable steps were taken to ensure that all issues relevant to those decisions were taken into account at the time The form of delegated authority is covered in TMP 5 Organisation, Clarity and Segregation of Responsibilities. 3.2 Borrowing (where a loan has already been approved by the Parent Board) Delegated authority to borrow funds is placed with the Chief Financial Officer or in the absence of the Chief Financial Officer, the Chief Executive. The amount of borrowings required will be dictated by the business cash flow requirements and proposed development plans. The exact amount of borrowings required will vary from time to time but will be at least sufficient to meet all liquidity requirements as outlined in this Policy The procedure to follow when drawing down loans is set out in the Treasury Management Procedures. 3.3 Investing Control of investments is placed with the Chief Financial Officer or in the absence of the Chief Financial Officer, the Chief Executive. The value of investments will be dictated by the business cash flow requirements and proposed development plans. The exact amount of investments will vary from time to time and will be kept available to meet all liquidity requirements as outlined in this Policy. (a) The Trust will maintain a list of institutions with whom it will invest. These will meet the necessary minimum criteria as set out in this Policy; (b) The Chief Financial Officer will liaise with external consultants to receive regular updates on the credit standing of the preferred list and will be authorised to add or remove firms as seen fit; Page 14 of 31

15 (c) When significant funds are available to invest (typically greater than 1m) the Chief Financial Officer will approach at least two of the preferred institutions to establish the best possible terms available. The funds will then be invested in accordance with the terms of this Policy at the best rates available; and (d) In exceptional circumstances, where the Trust is holding large cash balances, the Chief Financial Officer (or alternatively the Chief Executive) will seek to increase the diversity of investment counterparties through the use of Money Market Funds. Page 15 of 31

16 4. TMP 4 - APPROVED INSTRUMENTS, METHODS AND TECHNIQUES 4.1 General Statement The Trust will undertake its treasury management activities by employing only those instruments, methods, and techniques detailed in this section. 4.2 Capital Finance (new borrowing) The Trust s rules place no restriction on the amount that can be borrowed The Chief Financial Officer, in conjunction with the Chief Executive, is responsible for and undertakes all borrowing activities on behalf of the Trust. No new commitment to borrow funds may be entered into without the specific approval of the Parent Board and only with the benefit of appropriate advice from the Trust s legal advisers, and other such specialist advice as the Parent Board may require In the case of all proposed new borrowing, the Chief Financial Officer will prepare a report to the Parent Board, containing the following information: The name(s) of the proposed lender(s) with a brief description of their experience, understanding of the social housing market and perceived market standing; Where applicable, the proposed lender(s) credit ratings; Details of the interest bases permitted under the proposed facility; The basis and level of the lender s interest rate margin; Maturity date and repayment arrangements (e.g. amortising, bullet, etc); Details of arrangement and other fees, legal costs, valuation fees etc.; Details of financial covenant requirements and any other restrictive undertakings required together with an assessment of the Trust s ability to comply therewith; Details of security arrangements; Comparison with other offers and a cost benefit analysis; Compliance with the Trust s borrowing strategy and policy; Arrangements for drawings funds; Details of any independent financial, legal or other advice received; and Any other matters that will assist the Parent Board in arriving at its decision. Page 16 of 31

17 4.3 Approved Sources of Capital Finance It is the Trust s policy to borrow from as wide a range of sources as possible but maintaining the overriding requirement that, except in circumstances specifically approved by the Parent Board any lender must have an understanding of the social housing sector. Broadly, the Trust will not normally envisage raising capital finance other than from the following sources: Banks; Leasing Companies; Building Societies; Pension Funds; Insurance Companies; The capital markets by way of issuing bonds either via an intermediary or in the Trust s own name; or Borrowing vehicle companies/intermediaries such as The Housing Finance Corporation. 4.4 Terms and Conditions of Capital Finance It is the Chief Financial Officer s responsibility to ensure that all new borrowing is affected on the most competitive terms possible and available in the market place. The Trust will endeavour to ensure that the financial covenants that are entered into with any lender are consistent with those for existing borrowing arrangements and in line with the market at the time of arranging The three key covenants that need to be considered are: (a) Interest Cover Corporate style covenants will be adopted on either an EBITDA or EBITDA-MRI (Earnings Before Interest Taxation Depreciation and Amortisation Major Repairs Included) basis at a level of no greater than 1.1:1 (b) Asset Cover The percentage by which outstanding loans must be covered by the value of secured assets (may also be expressed as a loan to value ratio i.e. maximum loan outstanding must not exceed 90% of asset values). (c) Gearing Page 17 of 31

18 The level of borrowings in relation to either the net worth of the business (usually grants plus reserves) or the historical cost of housing properties; usually expressed as a percentage. A (net) debt per unit test may also be agreed The Trust will seek to maintain minimum levels of covenant compliance in excess of the levels imposed by its loan agreements at all times. Anticipated levels of compliance and internally set compliance targets will form an integral element of the Annual Treasury Management Strategy. 4.5 Collateral (security) It is the Trust s general policy to maintain the minimum level of asset cover required by lenders. At the same time, the Trust will endeavour to ensure that its borrowing arrangements permit maximum flexibility to release and substitute collateral assets and to grant floating charges only as a short term measure pending the completion of fixed charge security. 4.6 Investment Subject to any limits and credit criteria specified in the Trust s Rules, the Trust may invest surplus funds in the following approved instruments: Short term money market deposits; Building society or bank account deposits; Certificates of deposit issued by authorised institutions; Bills of Exchange issued by authorised institutions; Treasury Bills; Gilt Edged Securities; Securities listed on the Stock Exchange whose interest and principal is unconditionally guaranteed by HM. Government; Advances to, or loan instruments issued by, public sector or quasipublic sector bodies; or AAA rated Money Market Funds. Page 18 of 31

19 5. TMP 5 - ORGANISATION, CLARITY AND SEGREGATION OF RESPONSIBILITIES 5.1 General Statement The Trust considers the effective control and monitoring of its treasury management activities essential, for the reduction of the risk of fraud or error, and for the pursuit of optimum performance, that these activities are structured and managed in a fully integrated manner, and that there is at all times clarity of treasury management responsibilities The principle on which this will be based is a clear distinction between those charged with setting treasury management policies and those charged with implementing and controlling these policies, particularly with regard to the execution and transmission of funds, the recording, and administering of treasury management decisions and the audit and review of the treasury management function The Chief Financial Officer will ensure that there is proper documentation for all deals and transactions and that procedures exist for the effective transmission of funds If and when any member of the Trust intends, as a result of lack of resources or other circumstances, to depart from these principles, the Chief Financial Officer will ensure that the reasons are properly reported in accordance with TMP6 Reporting Requirements, and the implications properly considered and evaluated The Chief Financial Officer will ensure that there are clear written statements of the responsibilities for each post engaged in treasury management, and arrangements for absence cover. The present arrangements are as follows: 5.2 Authority Retained by the Parent Board: (a) Approval of key policies, procedures and delegation of authority; (b) Approval and acceptance of all loan and funding agreements, having sought the advice of suitably qualified advisors as considered appropriate; (c) Approval of the Business Plan on the recommendation of the Chief Financial Officer or the Chief Executive; (d) Recommendation of appointment of external auditors; (e) Review of the Annual Treasury Report, approval of the Annual Treasury Management Strategy and approval of the Quarterly Treasury Report; (f) Approval of bank and dealing mandates; Page 19 of 31

20 (g) Approval of adopted interest fixings under existing loan facilities where the fixed rate will apply for a period of twelve months or more, subject to the Procedure for Hedging Interest Rate Exposure; (h) Final acceptance of fixed rate terms, Interest Rate Caps and any other risk management arrangements, which have been approved by the Parent Board, are within the rules of the Trust and which are subject to such limits as may be specified by the Parent Board; and (i) Approval of short term overdraft facilities. 5.3 Authority Delegated to the Chief Financial Officer and/or the Chief Executive: (a) Implementation of the Annual Treasury Management Strategy; (b) Delivery of the Annual Treasury Management Strategy and the Annual and Quarterly Treasury Reports to the Board; (c) Authorisation of investments entered into pursuant to TMP 1 as agreed with the Chair of the Board; (d) Supervision of the Treasury Function; and (e) Drawdown of funds required by the business plan under approved loan facilities. 5.4 Authority Delegated to Other Staff Members: (a) Opening of new bank accounts once approved by the Parent Board; (b) Arrangement of cash transfers including arranging the draw down of loans under approved loan facilities; (c) Arrangement of cash transfers relating to borrowing and investing activitiy; (d) Arrangement of investment of cash surpluses for periods of up to 365 days with institutions meeting the criteria for credit quality set out in TMP 1; and (e) To ensure that the Trust's bank accounts are reconciled properly and regularly. Page 20 of 31

21 6. TMP 6 - REPORTING REQUIREMENTS 6.1 Annual Treasury Management Strategy Treasury and Investment Policy The Chief Financial Officer will prepare for the Parent Board at its meeting in March each year, an Annual Treasury Management Strategy. This will set out the Trust s aims and objectives as they apply to treasury management for the following financial year and shall contain the following financial and other relevant data: A Resource Plan forecasting cash flows for the following financial year and succeeding two years; Analysis of current prevailing short and long term interest rates, comparison with historical trends and estimated trend movements over the next financial year. This data will be supported with externally gathered expert opinion; A statement of current borrowings and borrowings requirements for the next financial year together with a strategy for funding this requirement; A statement of anticipated cash surpluses and the strategy to be adopted for investment thereof during the next financial year; A statement of all actual and potential off-balance sheet forms of funding (or confirmation that there are none); A summary of all investments in Group subsidiaries providing details on: the purpose of the investment; the amount invested; the rate of interest payable; the anticipated length of the investment; and the basis of interest (variable, fixed, index-linked etc.). A recommendation as to the mix of fixed, variable and index linked interest rates to apply across the Trust s debt portfolio at the end of the next financial year; and Any proposals for amendments to this Treasury Management Policy In preparing the Annual Treasury Management Strategy, the Chief Financial Officer will pay regard to the following: Maintenance of a stable financial condition of the Trust; Ensuring that the Trust has sufficient cash resources available to meet both its long term and planned short term needs; and Ensuring that the Trust has sufficient cash resources available at all times to meet funding needs arising from uncertainties in the business planning process, the timing and amount of cash flow. Page 21 of 31

22 6.1.3 The Annual Treasury Management Strategy will also detail the Trust s strategy for refinancing maturing borrowing (if any) changing the mix of fixed, index linked and variable interest rates and for financing new borrowing requirements over the next three years. The Annual Treasury Management Strategy must include: Proposed sources of finance; Proposed maturities and maturity structure; Mechanisms available for controlling and managing interest rate risk exposure including fixed, variable and index linked interest; Anticipated interest rate levels; Anticipated maximum total outstanding and short term borrowings; A statement of unencumbered assets available to support borrowing and a statement of the effect of any proposed new borrowing; and A forecast of the impact of the proposed strategy on financial covenants. Investment strategy The Annual Treasury Management Strategy will detail the Trust s strategy for investing surplus funds and include, on an aggregated basis: A forecast of funds required to repay maturing debt or for other cash flow requirements; A forecast of surplus funds available to meet contingencies; An investment strategy, including proposed instruments and maturities, designed to maximise returns and also ensure sufficient liquidity to meet forecast requirements; and A forecast of the impact of the proposed strategy on financial covenants. 6.2 Annual Treasury Report The Chief Financial Officer will submit an Annual Treasury Report to the Parent Board in the first quarter of the financial year The Annual Treasury Report will cover the whole of the financial year s activities of the treasury operation and include final annual measures of performances. The overriding objective of the Annual Treasury Report is to provide a full picture of treasury activities, plans, policies and results The Annual Treasury Report will incorporate the following specific information: Page 22 of 31

23 A statement of the proportion of debt that is hedged including a maturity ladder detailing all fixed interest rate borrowing and interest periods within variable rate borrowing; An overall summary of treasury operations for the year including loan amounts drawn, investments made, interest rate hedging put in place; An analysis of actual cash flow compared with budgeted levels and commentary on variations (both positive and negative); A statement analysing compliance with permitted borrowings and prevailing regulations, including: o Total borrowings outstanding; o Total short term borrowings; o Financial covenant compliance; o Confirmation that total permitted borrowing has not been exceeded; and o Matters where the TMPs have not been complied with (if any). A summary of all investments in Group subsidiaries providing details on: the purpose of the investment; the amount invested; the rate of interest payable; the anticipated length of the investment; and the basis of interest (variable, fixed, index-linked etc.). 6.3 Quarterly Treasury Report The Chief Financial Officer will deliver a Treasury Report to the Parent Board on a quarterly basis detailing the following: A debt summary and financial covenant compliance report; An analysis of current investments by instrument, counterparty, maturity and interest rollover date; An explanation of cash flow variations (both positive and negative) compared to the previous Quarterly Treasury Report; An updated forecast of the medium term cash position (18-24 months) including a projection of short term cash requirements (3 months); Commentary on the applicability of the current Annual Treasury Management Strategy and any recommended adjustments thereto; Estimates of interest rate trends and any recommended adjustments to the current interest rate risk management policy contained in the Annual Treasury Management Strategy and any revenue effect; Any matters where the TMPs or Annual Treasury Management Strategy have not been complied with; and Exceptions reports. Page 23 of 31

24 6.4 Policy Review As part of the annual review of treasury the Chief Financial Officer will also review this Treasury and Investment Policy to ensure it is fit for purpose whilst advising of any required amendments. Page 24 of 31

25 7. TMP 7 - BUDGETING, ACCOUNTING AND AUDIT ARRANGEMENTS 7.1 General Statement The Chief Financial Officer will prepare, and the Parent Board will approve and if necessary from time to time amend, an annual budget for treasury management, which will bring together all of the costs involved in running the treasury management function, together with any associated income. The matters to be included in the budget will, at a minimum, be those required by statute or regulation, together with such information as will demonstrate compliance with TMP1 Risk Management, TMP2 Value for Money and Performance Measurement, and TMP4 Approved Instruments, Methods and Techniques. The Chief Financial Officer will exercise effective controls over this budget, and will report upon and recommend any changes required in accordance with TMP6 Reporting Requirements The Trust will account for its treasury management activities, for decisions made and transactions executed, in accordance with appropriate accounting practices and standards, and with statutory and regulatory requirements in force for the time being The Trust will ensure that its auditors, and those charged with regulatory reviews, have access to all information and papers supporting the activities of the treasury management function, as are necessary for the proper fulfilment of their roles, and that such information and papers demonstrate compliance with external and internal policies and approved practices. Page 25 of 31

26 8. TMP 8 - CASH AND CASH FLOW MANAGEMENT 8.1 General Statement Unless statutory or regulatory requirements demand otherwise, all monies in the hands of the Trust will be under the control of the Chief Financial Officer, and will be segregated for cash flow and investment management purposes Cash flow projections will be prepared on a regular and timely basis and the Chief Financial Officer will ensure that these are adequate for the purposes of monitoring compliance with TMP1 Risk Management. 8.2 Banking A number of accounts are open with the Trust's main bankers (Barclays Bank PLC). A full list of such accounts is maintained in the Trust's bank mandate, which is reviewed on an annual basis by the Chief Financial Officer No bank account can be opened without the Parent Board's approval. The Parent Board will be given reasons why the account is needed and details of additional costings Every five years, the banking service will be evaluated under Value for Money criteria and consideration will be given as to whether a retendering exercise will then be carried out. The Chief Financial Officer will be responsible for the tendering process A minimum of three banks will be invited to tender. The main issues that will be considered in making the decision are: Cost, Quality and range of services, Options for long-term borrowing, and The credit rating of the provider A report will be presented to the Parent Board, which will be requested to approve the appointment All payments must be approved in accordance with the bank signing mandate A register of specimen signatories will be kept. The bank(s) will be advised promptly on any change in authorised signatories. Page 26 of 31

27 9. TMP 9 - MONEY LAUNDERING 9.1 General Statement The Trust is alert to the possibility that it may become the subject of an attempt to involve it in a transaction involving the laundering of money. Accordingly, it will maintain procedures for verifying and recording the identity of counterparties and reporting suspicions, and will ensure that staff involved in this, are properly trained It is the duty of all members of staff entering into an arrangement with a customer, supplier or potential customer or supplier to ensure that the customer, supplier or potential customer or supplier is bona fide and that the arrangement is legitimate and is not being entered into for money laundering purposes. As a general rule, members of staff will be expected to "know the customer or supplier" and if in any doubt to seek independent verification of both the identity of the customer, supplier or potential customer or supplier and that the arrangement is reasonable. The Trust will maintain its records for five years; Records will contain sufficient information that the following information can be ascertained: o The identify of all parties to a transaction; o The name and address of the customer or supplier; o The name and address of any other party to a transaction; o Details of the transaction; o The form of instruction or authority; and o Details of any payments made by or to the Trust. All cash received greater than 1,000 in a single transaction will be reported to the Chief Financial Officer; There is an obligation on all staff to report suspicions of money laundering to the Chief Financial Officer. Once a member of staff has reported a suspicion of money laundering, they have fully satisfied their statutory obligations; On receiving a report of a suspicion of money laundering the Chief Financial Officer will initially seek to validate that suspicion. In this, they will have access to such records as they feel necessary; The Chief Financial Officer will record in the Money Laundering Record, the details of any suspicion of money laundering brought to their attention, the actions taken to validate that suspicion and the results of that validation; and Page 27 of 31

28 If the Chief Financial Officer concludes that the suspicion is valid they will report the matter fully, in writing to the National Crime Agency (NCA) using a standard online Suspicious Activity Report Form (SARF), see All members of staff will be made aware of these procedures and the reasons for them. Any amendments to the Regulations concerning money laundering will be brought to the attention of all staff immediately Any entries made in the Money Laundering Record will be brought to the attention of the Trust s Parent Board at the following Parent Board meeting, under the agenda item Any Other Business The Money Laundering Record will be kept by the Chief Financial Officer and will be available for inspection by any Board member of the Trust. Page 28 of 31

29 10. TMP 10 - STAFF TRAINING AND QUALIFICATIONS 10.1 General Statement The Trust recognises the importance of ensuring that all staff involved in the treasury management function have the skills required to undertake the duties and responsibilities allocated to them. It will therefore seek to appoint individuals who are both capable and experienced and will provide training for staff to enable them to acquire and maintain an appropriate level of expertise, knowledge, and skills Officers involved in treasury operations will receive adequate training to provide them with the necessary skills and knowledge to keep them up to date with best treasury management practice. Training includes studying for recognised qualifications, external courses and conferences and internal courses and seminars. Each year the Chief Financial Officer will agree with each treasury officer a programme of training for the year and make provision for those costs The Board will also receive regular training and development sessions to ensure that members have the necessary skills to understand and approve treasury reports. This will be by means of in house training sessions undertaken by both employees and external specialists. Where considered appropriate new Board members may also attend external training courses Those charged with governance recognise their individual responsibilities to ensure that they have the necessary skills to complete their role effectively. Page 29 of 31

30 11. TMP 11 - USE OF EXTERNAL SERVICE PROVIDERS 11.1 General Statement The Trust recognises the potential value of employing external providers of treasury management services, in order to acquire access to specialist skills and resources. When it employs such service providers, it will ensure it does so for reasons which will have been submitted to a full evaluation of the costs and benefits. It will also ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented, and subjected to regular review In accordance with the Trusts Standing Orders and in line with the Regulator's guidelines the Trust will consider the use of external advisers in the following circumstances: Ongoing treasury support with strategy and policy; Provision of regular market information; The raising of additional finance; Negotiation and re-negotiation of loan covenants and margins; and Recruitment of new team members Before external consultants are engaged Board approval will be sought with clear terms of reference established Once the use of external advisers has been agreed all Board reports prepared by the external consultants will need to be reviewed by an officer of the Trust and where deemed appropriate presented by the external consultant. Page 30 of 31

31 12. TMP 12 - CORPORATE GOVERNANCE 12.1 General Statement Treasury and Investment Policy The Trust is committed to the pursuit of proper corporate governance throughout its business and services, and to establishing the principles and procedures by which this can be achieved. Accordingly, the treasury management function and its activities will be undertaken with openness and transparency, honesty, integrity and accountability The Trust has adopted and implemented the key recommendations of the Code. This, together with other arrangements detailed in the Treasury Management Procedures are considered vital to the achievement of proper corporate governance in treasury management, and the Chief Financial Officer will monitor and, if and when necessary, report upon the effectiveness of these arrangements. POLICY REVIEW HISTORY To be completed during each review Previous versions (version number approved by approval date title if different) V1 Shadow Board 19/06/2007 V2 Board 29/10/2009 V3 Board 18/03/2014 Treasury Management Policy V4 Performance & Resources Committee 01/09/2015 Treasury and Investment Policy Date of last EIA: N/A Review lead by: David Clermont, Chief Financial Officer Main points or amendments made and reasons In summary the changes: Simplify the decision process when making investments but require no less strength in counterparties credit worthiness, Increase the maximum investment balance in an institution to 3m, Reflect the new group structure and the requirements arising from the loan refinancing, Clarify the reporting requirements. Next review due: No later than the end of June 2017 Page 31 of 31