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Treasury Technology & the Counterparty Risk Challenge South Florida AFP 2011

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.

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Treasury Technology & the Counterparty Risk Challenge South Florida AFP 2011

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  1. Treasury Technology & the Counterparty Risk ChallengeSouth Florida AFP 2011

  2. Treasury Technology - Capability v 21st Century Demand • Company & Speaker Background • Counterparty Risk Management • Process, process, process..... • IT2 – IT-Who?

  3. Company Bio – IT2 • 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

  4. Speaker Background • 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

  5. Counterparty Risk

  6. Counterparty Risk Management Counterparty uncertainty • Risk Indicators • Counterparty Limits • FAS 157

  7. What are Today’s Main Issues and Challenges?

  8. 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....

  9. Risk Indicators - Why are new risk indicators needed? • ...the biggest bankruptcy in U.S. History.

  10. What Other Indicators Can be Used? Risk Policy Based on credit rating and other factors... EQUITY PRICE CDS SPREAD

  11. Risk Techniques – Current & Planned

  12. 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

  13. 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

  14. Some to Consider

  15. Risk Indicators linked to Limits

  16. Credit Valuation Adjustment

  17. Bank Account Administration

  18. Bank Account Administration • Bank Account Administration • Electronic Bank Account Management (eBAM)

  19. Common Bank Relationship Challenges • Single repository for bank all account information • End to end automation and control of bank account open, closure & maintenance processes 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? How can a Bank Account Administration system help? Are cash related fraud or operational risks big concerns?

  20. 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.

  21. 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

  22. Process, process, process • Enhanced focus on Treasury • Policy & Procedure • Real time, accurate information • SOX Control • IT Buy-in, Procurement involvement

  23. Bank account administration 1 2 3

  24. IT2’s Central Account Register Account Balances & Transactions Bank Fees Trading & Competitiveness Statistics

  25. Controlled Workflows

  26. Bank Account Administration in IT2

  27. Bank Account Administration Visibility - Dashboard

  28. Process

  29. 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

  30. Bank Account Administration – Summary BEST PRACTICE

  31. Sample of 250+ IT2 Customers Volkswagen

  32. Questions?

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