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Treasury Technology & the Counterparty Risk Challenge South Florida AFP 2011. Treasury Technology - Capability v 21 st Century Demand. Company & Speaker Background Counterparty Risk Management Process, process, process..... IT2 – IT-Who?. Company Bio – IT2. - PowerPoint PPT Presentation
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www.it2tms.com
Treasury Technology & the Counterparty Risk ChallengeSouth Florida AFP 2011
Treasury Technology - Capability v 21st Century Demand
• Company & Speaker Background
•Counterparty Risk Management
•Process, process, process.....
• IT2 – IT-Who?
• Global enterprise founded in 1982, with US HQ in New York• Consistent record of sustained strong growth and profitability• 250+ multinational & domestic corporate & FI clients• Client examples: A. Schulman, BMC Software, Campbell Soup
Company, Costco Wholesale Corp., Marriott, Tyco International, Volkswagen International Finance
• Over 90 professional employees world-wide, 100% dedicated to the design, development, delivery & support of the IT2 best practice treasury management system
Company Bio – IT2
• Aon Corporation – 14 years– Europe front office dealing– Bought together 3 cash departments into single
Treasury– TMS/TWS responsibility
• Treasury Software – 11 years– 3 vendors– System specialist, sales, client relationships– CT based
Speaker Background
www.it2tms.com
Counterparty Risk
Counterparty Risk Management
Counterparty uncertainty• Risk Indicators• Counterparty Limits• FAS 157
What are Today’s Main Issues and Challenges?
Post Global Financial Crisis
#1Counterparty Risk
What is my Exposure?
How do I assess the Risk?
#2Liquidity Planning & Funding
How much cash do I have today?
How much cash I expect to have or
need in the future?
A Little History
• Counterparty risk is nothing new – Herstatt, BCCI & Barings
• Financial domestic regulators have a duty to protect the financial system
• A personal experience
• So then, today’s challenges....
Risk Indicators - Why are new risk indicators needed?
...the biggest bankruptcy in U.S. History.
Standard & Poor’s
Ratings
Investment
Grade
AAAAA+AAAA-A+AA-
BBB+BBBBBB-
Non-Investm
ent Grade
BB+BBBB-B+BB-
CCC+CCCCCC-CCC
What Other Indicators Can be Used?
Risk PolicyBased on credit rating and other
factors...EQUITY
PRICECDS SPREAD
Risk Techniques – Current & Planned
62%
28%
5%13%
28% 25%24%
42%
68%
Which of the following credit risk analysis methods does your treasury department perform?
Already in place In the next three years Not planned
Fair Value Measurement
Are two derivatives with identical terms but with different counterparties worth the same?
Fair Value = Market Value + Credit Valuation Adjustment (CVA)
CVA =quantitative risk assessment of counterparty non performance
Best Practice – a widely used term but what should your Treasury consider?
That is your choice...considerations may include:
• Active financial instruments used to manage treasury operations
• Countries where risk sits today and tomorrow
• Existing policy and procedural control framework
• Internal and external audit buy-in and agreement
• C-level risk preferences
Some to Consider
Risk Indicators linked to Limits
Credit Valuation Adjustment
www.it2tms.com
Bank Account Administration
Bank Account Administration
• Bank Account Administration
• Electronic Bank Account Management (eBAM)
Common Bank Relationship Challenges
Can I be sure that I have visibility into
my global cash position? Do I fully
understand my counterparty
exposures and relationship
activity on a global basis?
Are cash related fraud or
operational risks big concerns?
How can a Bank Account Administratio
n system help?
• Single repository for bank all account information
• End to end automation and control of bank account open, closure & maintenance processes
Introduction to Electronic Bank Account Management (eBAM)
• eBAM will not solve everything but will avoid issues:– Long and painful process to open/close;– Lack of standardization between banks;– Low STP;– Risk of human error;– High costs.
How can I tackle this issue?
• In order to achieve a high degree of cash visibility first need to:– Achieve visibility into all open accounts– Implement a control process for opening and
closing accounts• In order to lower costs and mitigate risks :
– Implement controlled signatory and service management processes
– Implement standard processes across business and in turn across multiple bank relationships
– Leverage electronic communication between subsidiaries and banks
– Demand a flexible reporting framework
Process, process, process
• Enhanced focus on Treasury
• Policy & Procedure
• Real time, accurate information
• SOX Control
• IT Buy-in, Procurement involvement
Bank account administration
Central account register for all bank account information
Controlled workflow for opening, maintaining and closing bank accounts
Streamline communication with banks
1
2
3
IT2’s Central Account Register
Single repository for all bank
account information
Bank Details
Account Details
Signatory Details
Service Details Bank
ContactsAccount Documentatio
n
Account Balances & Transactions
Bank Fees
Trading & Competitiveness
Statistics
Controlled Workflows
Opening Requests Maintenance Requests
Closing Requests
Bank Account Administration in IT2
Bank Account Administration Visibility - Dashboard
Process
Conclusion
• What to do ?– Consider current Policy– Discuss with SOX Committee and Audit teams– Understand peer group approach– Seek advice from consultancy company
– Target needs– Technology or not
Bank Account Administration – Summary
Integrated eBAM solution
Enhanced enterprise cash visibility
Counterparty exposure visibility
Complete transparency
Full control & audit
Reduced operational risk
Streamlined workflow
BEST
PRACTICE
Sample of 250+ IT2 Customers
Volkswagen
Questions?