AFP_Treasury4_Session - Chp 1 and 2 (1)

8/11/2019 AFP_Treasury4_Session - Chp 1 and 2 (1)

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AFP Treasury Learning System


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Module One: Introduction to Treasury

Management

Module Two: The Treasury Management

Environment

Module Three: Working Capital Management

Module Four: Risk Management

Module Five: Financial Management

AFP Treasury Learning System

v4.0 2013 Association for Financial Professionals. All rights reserved. Session 1: Introductions - 2


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Your name

Company name and/or job

responsibilities

Why you are taking this course

What your strategies are for preparingfor the CTP exam

Participant Introductions

v4.0 2013 Association for Financial Professionals. All rights reserved. Session 1: Introductions - 3


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Introduction to Treasury Management

Session 1, Module One:Introduction to Treasury Management


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Chapter 1:

The Role of

Treasury Management

Session 1, Module One:Introduction to Treasury Management

v4.0 2013 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Overview - 5


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Outl ine:

Introduction The Role and Organization of Treasury

Management

Finance and Treasury Organization Corporate Governance

Summary

Chapter 1: The Role of TreasuryManagement

v4.0 2013 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 6


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Introduction


Short- term

Critical daily liquiditymanagement

Cash resourcesavailability

For operations

Long-term

Critical financefunctions

Funds and informationavailability

For initiatives tosupport financialobjectives

Treasury professionals:


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Discussion Question

Answer: c (p.1-8)

What is another major objective of treasury management?

Maintain liquidity

Access to short-term

financing Manage investments

Access to medium- andlong-term financing

Manage financial risk

Financial functions andinformation

Manage external vendors

a) Prioritize investments forprofit

b) Perform financial planningand analysis

c) Optimize cash resourcesd) Set organizational

strategy



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Cash Conversion Cycle


BORROW

INVEST


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Prepare cash position worksheet

Monitor cash balances

Collect, concentrate and disburse Invest and borrow short-term

Research and reconcile exceptions

Coordinate with A/R, A/P, tax, accounting

Daily Cash Management



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Bank Relationship ManagementTreasuryresponsibility:

Open, maintainand close bankaccounts

Manage ongoing

relationships



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Internal and External Collaboration


Internal

Collaboration


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Internal and External Collaboration


External

Collaboration


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Financial Function Organization


BOARD OF DIRECTORS

CEOINTERNAL AUDITOR EXTERNAL AUDITORS

CFO

INVESTOR RELATIONS TREASURER CONTROLLER TAX AND REPORTING

CASH MANAGEMENT ACCOUNTING

RISK MANAGEMENT FP&A

INVESTMENT MANAGEMENT MANAGEMENT INFORMATION SYSTEMS

VENDOR (BANK) RELATIONS MANAGEMENT CREDIT & A/R

EXTERNAL FINANCING A/P


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Discussion QuestionFor publicly traded companies on a US stockexchange, who does SOX make personallyresponsible for financial statement accuracy?

a) Treasurer

b) Chief financial officer (CFO)

c) Controller

d) All of the above

Answer: b (p.1-14)



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Discussion Question

Answer: b (p.1-14)

What is another primary treasurer responsibility?

External financing

Managing relationships with

banks etc. Daily liquidity and cash

management

Short- and long-terminvesting

Treasury policies andprocedures

Domestic and internationalpayments

a) Credit and A/Rb) Overall financial risk

including FX riskc) Tax management and

reportingd) Investor relations



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Discussion QuestionWhen and why is treasury set up as a costcenter versus as a profit center?

a) Cost center is less commonb) In a profit center treasury is seen as a supportfunction

c) Cost center is common in globalfinance, trade or risk management

d) Profit center income is from tradingand derivatives

Answer: d (p.1-17)



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Central ized

Advantages

Control Economies of

scale

Low operating costs

Disadvantages Less autonomy

Decentral ized

Advantages

Familiar with localbusiness, banking,language, customs

Disadvantages

Compliance burden Periodic reports

Home office audits

Centralized vs. Decentralized Treasury



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Discussion Question

Answer: a (p. 1-19)

What is another reason for the popularity of SSCs?

Internal serviceprovider/vendor

Less duplication

Standardized processes

Quality and timeliness

Strategic flexibility

a) Shared funding andmanagement

b) Familiarity with locallaws, customs

c) Only one site for entireglobal firm

d) Never treatedas a vendor



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Guidelines for long-term value

Challenges: Separation of ownership and control

Not-for-profits: board oversight for public

Agency problem

Management measurement, checks and balances:

Board of directors Shareholder meetings

Independent external auditors

Regulatory agencies

Corporate Governance



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General authority for operations

Policies, major initiatives and contracts

Role of Board of Directors in Treasury


Open, close and modify bank accounts

Establish credit facilities

Oversee investments

Issue debt and equity securities

Devise, implement and execute risk management

Trea

sury


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Financial professionals at NYSE-listed firms mustknow standards

CEOs must certify compliance

Role of Independent Directors


No material relationship

Meet without management present

Cooling-off period

Majority of board

Nominating, compensation, and audit committeesIndependen

tDirectors


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Summary


CorporateGovernance

Financial

Management

Treasury

Management

Cash

Management


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The Treasury Management Environment

Session 1, Module Two:The Treasury Management Environment


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Chapter 2:

Regulatory and Legal

Environment

Session 1, Module Two:The Treasury Management Environment

v4.0 2013 Association for Financial Professionals. All rights reserved. Session 1: Module 2, Overview - 25


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Outl ine:

General Regulatory Environment

Primary Regulators and Standard Setters of Global

Financial Markets

US Legal and Regulatory Environment

Bankruptcy (Insolvency)

Chapter 2: Regulatory and LegalEnvironment



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General Types of FI Regulations

Monitor and manage overall safety and soundness of banking system

Set and implement monetary policy

Determine guidelines for chartering banks and other depository FIs

Allocate credit toward sectors of economy and protect consumers

Protect investors purchasing securities through FIs



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Discussion QuestionWhich approach to monitor and managebanking system safety and soundness has amoral hazard?

a) Minimum capital levels for banks in country (ratio ofcapital to at-risk assets and tiered capital)

b) Impairment of capital rules

c) Deposit insurance

d) Regular monitoring and surveillance

Answer: c. Depositors may not investigate abanks creditworthiness; banks may undertakemore risk. (p.2-5)



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Discussion Question

Answer: c (p.2-9+)

Another primary global financial market regulator/standardsetter? Financial Stability Board

Bank for International

Settlements European Payments

Council and SEPA

European Securities &Markets Authority

International Associationof Deposit Insurers

International Organizationof Securities Commissions

Financial Action Task Force

International Association of

Insurance Supervisors

a) International Organizationfor Standardization

b) Institute for InternalAuditors

c) Central banksd) United Nations



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Central Banks


Central Banks

Currency Issuance

Supervision

and Regulation

Government

Services

Depository

Institution

Services

Fed

ECB

Peoples

Bank of

China

Bank of

England

Monetary

Policy


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Goals

Maintain financial stability

Promote transparency Implement international financial standards

Conduct peer reviews

Financial Stability Board (FSB)



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Bank for International Settlements

BIS BIS CommitteesBCBS (Bank

Superv is ion)

Basel III (2011

thro ugh 2018)

World War I

finance issues(1930)

Central bank

cooperation

Basel meetings

Financial and

economic

research

Services to

central banks

Agent/trustee

GHOS: governing

body

CGFS: policy and

systemic threat

response

CPSS: payment

and securities

settlementsystems

Herstatt risk

(1974)

Reduce systemic

risk

Basel I (1988):

Credit risk

Basel II (2004):

Operational risk

-- Minimum

capital

-- Supervisory

review

-- Disclosure

Stress testing

Market liquidity

risk

Capital adequacy

Absorb shocks

Risk

management andgovernance

Transparency

Bank-level and

system-wide



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Payments coordination and decision makingEPC

Support SEPA

Cooperative common positions for payment services

For electronic euro paymentsSEPA schemes and frameworks

Integrate existing credit transfer/direct debit

SEPA for cards

Incentivize electronic payments

Minimum standards and pricingSEPA concepts

Credit and debit payment schemes

Payment card framework

European Payments Council and SEPA



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Discussion QuestionWhich is a partial responsibility of theEuropean Securities and Markets Authority andis analogous to Dodd-Frank?

a) EBA and EIOPA

b) Single rule book

c) European Systemic Risk Board

d) European Market InfrastructureRegulation

Answer: d. For OTC derivatives (p.2-16)



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Primary Regulators and Standard Settersof Global Financial Markets


IADI IOSCO FATF IAIS

Deposit

insurance

systems

70 deposit

insurers from 69

jurisdictions

International

standard setter

for securities

markets

Members

regulate more

than 95% of

worlds securitiesmarkets

30+ countries

National and

international

policies to

combat money

laundering and

terrorist

financing

Placement

Layering

Integration

Insurance

supervisors

190 jurisdictions

in nearly 140

countries

Efficient, fair,

safe and stableinsurance

markets


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Glass-Steagall Act of 1933 untilGramm-Leach-Bliley Act of 1999

Dodd-Frank Act of 2010

Regulatory agencies:

US Legal and Regulatory Environment


Dual banking

federal

supervision:

OCC FDIC

FSOC

Monitor specific depository

FIs or financial services:

CFPB

OFAC FinCEN (US FIU)

NCUA

State banking boards and

commissions

DOJ

Regulators

focused on

specific sectors:

SEC CFTC

FINRA


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Discussion QuestionWhich agencies are required to regulate OTCderivatives to reduce excessive risk taking?

a) FDIC and DOJ

b) FSOC and FINRA

c) CFPB and Secret Service

d) CFTC and SEC

Answer: d (p.2-20)



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Discussion QuestionWhich is true?

a) FinCEN enforces counter-money launderinglegislation and provides intelligence forinvestigations and prevention strategies.

b) The FDIC provides deposit insurance and acts as atrustee for failed banks but does not supervisedepository institutions.

c) Dodd-Frank phased out the dualnature of the US banking system.

Answer: a (p.2-21)



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Securities and Exchange Commission Registers public

offerings of debt andequity

Sets financialdisclosure standardsfor corporations thatsell securities to thepublic

Requires companies

with publicly ownedsecurities to filequarterly and annualfinancial statements

Regulates mutualfunds and investmentadvisors

Monitors insidertrading



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Federal Reserve and Glass-SteagallFederal Reserve Act 1913

Foundation for currentbanking system

All banks with nationalcharter from OCC tobecome Reserve

banks National check

collection andsettlement system

Glass-Steagall Act

1933

Mostly repealedexcept depositinsurance

Historically: Commercial banks

cant underwrite Securities firms cant

take deposits Interest rate ceilings



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Anti-tying in Bank Holding Company Act 1970

Prohibits tying in financialservices

Extension of credit notconditional to obtaining otherbank services

Exceptions for traditional bankproduct



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Gramm-Leach-Bliley Act (1999) Permits the creation of financial

holding companies (FHCs)

Establishes the Fed as theprimary regulator of FHCs

Allows easier entry by foreignbanks

Key consumer protections Protects nonpublic personal

information


Eliminated

many Glass-

Steagal l A ct

prov is ions

(e.g ., bank ing,

insu rance and

securi t iesbarriers)


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Dodd-Frank Act (2010) Derivatives transparency and

accountability:

Closes regulatory gaps Requires central clearing and

exchange trading

Requires market transparency

Adds financial safeguards

Sets higher standards ofconduct


Response to

near failure o fUS banking

sy stem in 2009

recession


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Payment Systems & Instruments Legislation

EFTA (1978) Customer rights,

responsibilities andliability limits for non-wire EFTs

DIDMCA (1980) Deposit-taking Fed

reserves

Discount window

Reduce/price float

E-SIGN (2000)

Digital signatures

legal status

Check 21 (2003)

Substitute of imagein clearing process

Payment systemefficiency



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BSA (1970), MLCA (1986)

Must report suspicious financial transactions

FI defined broadly

Crime to structure transactions to avoidreporting

KYC, parties to large-value transfers, referrals

Bank Secrecy/Money Laundering Control



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Non-bank FI obligations

Foreign banks in US subject to US jurisdiction

US banks: no foreign shell bankcorrespondent accounts

US credit card operators cannot authorizeforeign banks to issue or accept US credit

cards without steps to prevent terrorist use Requires due diligence

USA PATRIOT Act (2001)



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Improve disclosure and financial reporting

SEC rule changes: Code of ethics for senior management and waivers

Audit committee financial expert? Financial reporting internal controls

Audit committees preapprove audit/non-audit services

Accounting/preferable alternatives briefing

Regulation G: Reconcile pro-forma information to financials

Form 8-K earnings releases

Material OBSA in MD&A

Sarbanes-Oxley Act (SOX) (2002)



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Discussion QuestionThe Red Flags Rule applies to FIs and creditorswith what types of consumer accounts?

a) Accounts that hold funds for OBSA

b) Accounts that permit multiple payments ortransactions

c) Foreign bank accounts held by US taxpayers

d) Accounts for corporate signers with a

consolidated FBAR filed by their organization

Answer: b (p.2-31)



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Federal Reserve Regulations


Regulation D

Implements Federal Reserve Act of 1913

Uniform reserve requirements on all depository

institutions with reserve levels by deposit type

Regulation E

Implements EFTA (1978) Rights, responsibilities of consumer EFT parties

Consumer protections: ATM, ACH, credit cards

Regulation J

Implements check collection and settlement

provision of Federal Reserve Act (1913) Procedures, duties and responsibilities

Regulation Q No paying interest on corporate DDAs

Repealed by Dodd-Frank Act


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Federal Reserve Regulations


Regulation YImplements Bank Holding Companies and Change

in Bank Control Acts, e.g., anti-tying

Regulation Z

Protects vs. sudden credit card rate hikes

Prohibits issuing credit card to < age 21 Consent for over-limit fees

Limits high fees

Two-cycle billing ban

No allocating payments to maximize interest

Regulation BB Implements Community Reinvestment Act

Regulation CC

Rules to speed check collection and return

Endorsement standards for deposit, clearing

Same return procedures on checks and PTDs


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Regulation FD: If MNPI to certain entities, thendisclose to public

SEC Rule 2a7, MMMFs and NAV Reserve Primary Fund broke the buck

Liquidity and asset quality requirements

Shorter average time to maturity

Internet accessible asset reporting

Proposed floating NAV

Investments and Securities Regulations



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The Uniform Commercial Code (UCC)Article 3NegotiableInstruments Avoids inadvertent

accord andsatisfaction Payee must return

within 90 days

Unauthorized

signatures: Properly payable

checks

Liability for checkissuance situations

Article 4BankDeposits, Collections Deposit and collection

parties Customer-bank

relationship

Companys duty to

examine bankstatements

Imperative to reconcileaccounts accurately,timely



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The Uniform Commercial Code (UCC)Article 4AFundsTransfers Security procedures

available to customer PINs

Callbacks

Encryption

Message authentication

Consequential damages:

No liability beyond actualloss

Payment orders: liable forinterest losses orincidental expenses

Article 5Letters ofCredit (L/Cs) Defines L/C, documentary

draft or documentarydemand for payment

Defines issuer, applicant,beneficiary, advising andconfirming banks

Article 9SecuredTransactions UCC-1 Financing

Statement listing collateral



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Discussion QuestionIn the US, which state is the recipient ofunclaimed or abandoned rebates or gift cards?

a) State where transaction occurred

b) State that is residence of organization holding theproperty

c) State that is residence of customerbeing escheated

d) State where the unclaimed asset islisted on the books

Answer: c (p.2-38)



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Unitary taxes

Foreign tax credits

Capital tax Asset tax

Turnover tax

Withholding tax Sales and use taxes

Value-added tax

Tax Considerations



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Bankruptcy (Insolvency) Unable to meet

scheduled debtpayments now or in

near future

Management andboard

Creditor forced

Critical issues: Temporary cash flow

or permanent trend?

Restructuring andimpact on value

Worth more ifliquidated?

Formal or informal? Who will be in

charge?

Bankruptcy type?



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US Bankruptcy Legislation Chapter 11

reorganization Unanimous consent

procedure

Cram-down procedure Chapter 7 liquidation

Safeguards againstowner withdrawal ofassets

Equitable distribution ofassets among creditors

Insolvent debtors candischarge allobligations and startover

Formal bankruptcy Freefall Pre-arranged Pre-packaged

Informal bankruptcy



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Discussion QuestionComplete the following Chapter 7 bankruptcy priority of claims.1. Specific property pledged (e.g., lien)

2. Trustees costs

3. Pre-trustee involuntary liquidation expenses

4. Wages earned three months prior to filing5. Unpaid benefit contributions owed six months prior

6. Unsecured claims for customer deposits

7. Taxes due

8. Unfunded pension plan liabilities up to 30%

of book value of common/preferred equity9. General unsecured creditors

10. Preferred stockholders (paid up to par value)

11. Common stockholders (receive remainingfunds) (p.2-44)



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End of Session 1Assignment:

Complete the online pre-test.

Complete the following tasks for

Module One, Chapter 1 and Module Two,Chapters 2 through 5: Review each chapter.

Complete the test-your-understanding questions at the endof each chapter.

Review the module flashcards. Complete the online calculations.

Complete the online module-specific tests.

Complete the Exam Practice (Describe and Differentiate)questions (located at the end of each modu le textb ook ).

AFP_Treasury4_Session - Chp 1 and 2 (1)

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