Meeting the challenges of intraday liquidity risk management. 8 October 2014

Transcription

1 Meeting the challenges of intraday liquidity risk management 8 October 2014

2 Speakers Speakers: David Gilmour, Principal, Deloitte Nick Noble, Product Manager Liquidity Risk Management, SmartStream Alex Duperouzel, Managing Director, ComplianceAsia

3 Industry Observations Liquidity and Cash Management 3 PowerPoint Timesaver Deloitte & Touche LLP and affiliated entities.

4 Industry observations What is the process and what is its value proposition? The myriad of treasury activities are ultimately aimed at achieving two objectives: to deliver the maximum possible available funds from internally generated cash, and to minimize the weighted average cost of capital for a given level of business risk. Even as companies trim the size of their treasury staff, the responsibilities that they assign to the area are growing. Traditionally the treasury focused on cash management, debt management, foreign exchange and bank services. The treasurer is still responsible for overseeing liquidity management, but he/she also provides risk management, employee benefits management and manages relations with both investors and financial institutions. Companies streamlined treasury staffs are often turning to consultants to bring expertise and project management resources to improve their cash management processes. Deloitte & Touche has successfully completed a multitude of treasury engagements including work for insurance companies, utilities, banks, insurers, fund management. The contracts resulted in reorganized, streamlined bank architecture, selection of treasury workstation software and receivables re-engineering. 4 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

5 Industry challenges and trends Data management, collection and reconciliations delaying use of cash across the institutions Regulations increased regulations adding complexity to the cash management process. IE Basel III Interest rate environment low interest yields focusing attention of better use of balances Technology complex system environments causing downstream issues in the process. Poor tracking of funds and delays in aggregating flows and reporting and ultimately usage of liquidity Mobilization of funds poor cash flow management Multiple use of accounts at different service providers 5 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

6 Data do you have the ability to collect and use Managing Liquidity Coordinate and track deposits Forecast and determine cash position Manage excess or deficit balance Payments disbursements Reporting near real time 6 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

7 Key questions to ask yourself Managing liquidity Determine centralized or decentralized system (are regional offices maintaining balances in local bank accounts, understand why the system is set up one way or the other. What are the major sources of cash and how does it flow through the pipeline? How many accounts are involved? How many sites are involved? What is the cost of float? Examine the timing of the receipts and processing. Technology What systems are used to support the coordination and tracking of liquidity? Are the systems integrated? Are the systems manual or automated? How does data get into the systems that are used? 7 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

8 Liquidity flow overview Technology Enablers for Standardizing Single Entry of Data Financial and Managerial Report Redesign Technology Enablers IT Networking Interface Support Data Warehousing Treasury Coordinate and Track Deposits Concentrate Funds Forecast and Determine Cash Position Manage Excess or Deficit Balances Funds Disburse - ments Process Improvement (incorporate automation / re - engineering) Process Specific Implementation 8 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

9 Technology enablers Electronic Payment Payment Solutions Taxware Commerce Servers Application Service Providers Network Access Vertical Market Service Providers Exchange Portals Security Technology Applications Service Providers Decision Analytic Tools Data Storage and Mining Technology Reconciliations Liquidity aggregation tools 9 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

10 Technology benefits Improve production performance and data quality, which increases profitability Data management tools help to improve the data accuracy and performance, increases cash flow through, reduce unused cash levels and optimize the use of company assets High visibility into forecasting and alert monitoring shows the immediate effects of changed positions, provide treasurers with maximum visibility of cash floats Consistent and current information Near real-time information through communication channels 10 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

11 Deloitte, one of Canada s leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 6,800 people in 51 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names Deloitte, Deloitte & Touche, Deloitte Touche Tohmatsu, or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein. Deloitte & Touche LLP and affiliated entities. 11 Finance Transformation for Treasury Deloitte & Touche LLP and affiliated entities.

12 Nick Noble Product Manager Liquidity Risk Management, SmartStream

13 Introduction Nick Noble - Product Manager for Cash and Liquidity Risk Management Objectives for today s session: Provide overview of regulation Discuss regional concerns and plans Share knowledge and progress made through collaborative client engagements Discuss best practice and opportunities

14 Intraday liquidity risk management - BCBS timeline September 2008 BCBS Supervisory Guidance Principles for Sound Liquidity Risk Management and Supervision 2010 BCBS Quantitative & Qualitative Framework Basel III: International framework for liquidity risk measurement, standards and monitoring July 2012 BCBS Consultative document Monitoring indicators for intraday liquidity management April 2013 BCBS Monitoring Tools Monitoring tools for intraday liquidity management Ongoing - Local jurisdiction implementation March 2014 HKMA Return of Intraday Liquidity Position of an Authorised Institution [MA(BS)22]

15 Monitoring tools - Retrospective reporting on real-time data

16 Monitoring tools - Three perspectives Category A: applicable to all reporting banks Category B: applicable to reporting banks that provide correspondent banking services Category C: applicable to reporting banks which are direct participants

17 Intraday stress testing Dynamic, what-if Intraday stress testing 1. Own financial stress: A bank suffers, or is perceived to be suffering from, a stress event. This results in counterparties deferring payments and/or withdrawing intraday credit lines. 2. Counterparty stress: A major financial institution counterparty suffers an intraday stress event which prevents it from making payments. Bank will be unable to rely on incoming payments from the stressed counterparty. 3. Customer stress: The customer bank of a correspondent bank suffers a stress event. A customer bank stress may result in other banks deferring payments to the customer, creating a further loss of intraday liquidity at the correspondent bank. 4. Market-wide credit or liquidity stress: A widespread fall in the market value and/or credit rating of a bank s unencumbered liquid assets may constrain its ability to raise intraday liquidity from the central bank. Bank for International Settlements (July 2012), Monitoring Liquidity Indicators for Intraday Liquidity Management

18 HKMA implementation All licensed banks incorporated in Hong Kong plus others designated by the Monetary Authority Reporting frequency from 1st Jan 2015 in line with LCR and LMR: Hong Kong office Monthly 14 days after end of period Hong Kong office and overseas branches (unconsolidated legal entity) - Phased in Hong Kong office, overseas branches and any associated entity (consolidated) - Phased in Activities to be reported: Payment and settlement using LVPSs Payment and settlement using ancillary systems Provision and use of correspondent banking services Activities denominated in the following currencies to be reported: Hong Kong dollar US dollar Renminbi Euro Other significant currencies 5% or more of total liabilities

19 Challenges in achieving intraday liquidity risk management Time-stamps Coverage Intraday Liquidity Management Accumulation Timeliness

20 Alex Duperouzel Managing Director, ComplianceAsia

21 ComplianceAsia Legislation and regulations are always changing. Keeping on top of new developments can be a challenge. When you operate in more than one jurisdiction, understanding all of the different obligations required of you can be even more difficult. ComplianceAsia can help your company understand new developments in regulatory compliance by offering specialized services.

22 ComplianceAsia We can assist by: Conducting mock regulatory inspections Performing compliance reviews Running risk mapping projects Updating policies and procedures Advising on the compliance issues surrounding new products and new businesses Providing anti-money laundering and due diligence services Conducting training sessions on important compliance topics Researching and reporting on a variety of regulatory issues across many jurisdictions Because of high demand, we have an entire team devoted to licensing projects. We can also provide ongoing support compliance services while we work on these projects with you.

23 ComplianceAsia Philippa Allen CEO T: HK T: SG Alex Duperouzel Managing Director T: HK Nithi Genesan Head of Singapore T: SG