Meeting the challenges of intraday liquidity risk … PowerPoint Timesaver © Deloitte & Touche LLP and affiliated entities. Industry Observations Liquidity and Cash Management 4 Finance

Meeting the challenges of intraday liquidity risk

management

8 October 2014

Speakers

Speakers:

David Gilmour, Principal, Deloitte

Nick Noble, Product Manager – Liquidity Risk Management, SmartStream

Alex Duperouzel, Managing Director, ComplianceAsia

3 PowerPoint Timesaver © Deloitte & Touche LLP and affiliated entities.

Industry Observations

Liquidity and Cash Management

4 Finance Transformation for Treasury © Deloitte & Touche LLP and affiliated entities.

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.


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


Data – do you have the ability to collect and useManaging Liquidity

Coordinate and track deposits

Forecast and determine cash position

Manage excess or deficit balance

Payments disbursements

Reporting – near real time


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?


Liquidity flow overview

Concentrate Concentrate

FundsFunds

Forecast Forecast

and and

Determine Determine

Cash Cash

PositionPosition

Manage Manage

Excess or Excess or

Deficit Deficit

BalancesBalances

Funds Funds

DisburseDisburse --

mentsments

TreasuryTreasury

Coordinate Coordinate

and Track and Track

DepositsDeposits

Process Improvement

(incorporate automation / re -

engineering)

Process Specific

Implementation

Technology Enablers

for Standardizing

Single Entry of Data

Technology Enablers

IT Networking

Interface Support

Financial and

Managerial Report

Redesign

Data Warehousing

Concentrate Concentrate

FundsFunds

Forecast Forecast

and and

Determine Determine

Cash Cash

PositionPosition

Manage Manage

Excess or Excess or

Deficit Deficit

BalancesBalances

Funds Funds

DisburseDisburse --

mentsments

TreasuryTreasury

Coordinate Coordinate

and Track and Track

DepositsDeposits

Process Improvement

(incorporate automation / re -

engineering)

Process Specific

Implementation

Technology Enablers

Single Entry of Data

Technology Enablers

IT Networking

Interface Support

Financial and

Managerial Report

Redesign

Data Warehousing


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


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


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.

Nick Noble

Product Manager – Liquidity Risk Management, SmartStream

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

Introduction

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]

Monitoring tools - Retrospective reporting on real-time data

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

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

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

Challenges in achieving intraday liquidity risk management

Time-stamps Coverage

Accumulation Timeliness

Intraday Liquidity

Management

Alex Duperouzel

Managing Director, ComplianceAsia

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.

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.

ComplianceAsia

Philippa Allen

CEO

[email protected]

T: HK +852 2868 9070

T: SG +65 6533 8834

Alex Duperouzel

Managing Director

[email protected]

T: HK +852 2868 9070

Nithi Genesan

Head of Singapore

[email protected]

T: SG +65 6533 8834

Documents

Meeting the challenges of intraday liquidity risk … PowerPoint Timesaver © Deloitte & Touche LLP and affiliated entities. Industry Observations Liquidity and Cash Management 4 Finance