Embracing Compliance: 5 Best Practices for Treasurers
-
Upload
kyriba-corporation -
Category
Economy & Finance
-
view
237 -
download
1
Transcript of Embracing Compliance: 5 Best Practices for Treasurers
Part IV:
Embracing Compliance - 5 Best Practices for Treasurers
July 27th, 2017
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2
Craig Jeffery Managing Partner Strategic Treasurer
Today’s speakers
Melody Hart Senior Consultant Strategic Treasurer
Bob Stark VP, Strategy Kyriba
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 3
1) Today’s relevant (to treasury) regulatory requirements
2) Leading practices in Regulatory Compliance
3) Framework for monitoring and managing compliance
Today’s discussion
Section 385 SOx (Fraud)
FBAR Hedge Accounting
SWIFT CSP Basel III
PSD2 (APIs) Sovereign Regulations
Top Upcoming Regulatory Requirements
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 5
Polling Question #1
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 6
Section 385: Implications
Debt and Stock Treated Differently
Documentation Requirements
Proposed Documentation Requirements
System Requirements
Processes/Staff Work • IHB
• Pooling
Potential Impact
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 7
Documentation Requirements: – Must be met in order for certain related
party debt instruments to be respected as debt.
– If not satisfied, the instrument would automatically be treated as stock, subject to a reasonable cause exception.
– Debt-equity factors traditionally considered by courts would be irrelevant.
– Taxpayers, however, could not affirmatively use the rule to reduce tax liability.
Section 385: Required Documentation
(https://www.fenwick.com/publications/pages/section-385-proposed-regulations.aspx)
Will affect companies both domestic and foreign in how they treat their debt and stock as well as their documentation process and requirements.
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 8
Section 385 – Prepare for Impact
A leading practice: begin documenting now.
1. System. Assess your system’s capability to handle these requirements.
2. Inventory. Track your intercompany debt inventory
3. Template. Create documentation template
• Create master agreement(s)
4. Credit Process. Determine credit process and (debt capacity analysis)
5. Document. Document each intercompany loan
6. Checkpoint. Establish documentation checkpoint
• Inventory
• Credit Analysis
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 9
The Context of FBAR BAM
The risk of failing to provide treasury controls (standard of good corporate conduct) represents a significantly higher level of exposure then the well-accepted controller view on bank reconciliation. The default position for treasury visibility and account
controls can not be derived from a simplistic ‘what is the cost-benefit’ query.
Standards of Good Corporate Conduct – Bank Account Management
Standard
Of Good
Corporate
Conduct
Controllers Treasury
Bank reconciliation for all accounts on at least a monthly basis.
Visibility to every operational account on a daily basis.
Account level controls applied via banking services and internal processes.
Transaction level controls applied via banking services and internal processes.
Every Bank Account Represents a Point of Exposure
Bank Account Management is a
major area of weakness for
many organizations.
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 10
FBAR is a critical component of a much larger process. Bank Account Management encompasses a broad set of operations.
FBAR & BAM: Looking Under the Surface
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 11
FBAR: Context of Requirements
FBAR Overview Steep Penalties for
Violations Who is required to file?
Signatory
Authority
Financial
Interest
Financial Accounts outside the US
Aggregate maximum value exceeds
$10,000
US Person
• A United States person must file an FBAR if that person has a financial interest in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.
• For violations deemed to be willful, the penalty is the greater of either $100,000 or 50% of the account
• $10,000 fine for violations
considered non-willful • Any criminal Intent
associated with the failure to file an FBAR will result in up to $250,000 in fines, 5 years in prison, or both.
Description: Required reporting by companies and individuals of all foreign accounts owned or on which they have signatory authority. Purpose: Anti-terrorism; anti-money laundering Key Elements of Importance: Individuals must file for 2010-2017 by April 15, 2018. Companies must provide employees the required information.
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 12
SWIFT CSP: What You Should Know
• SWIFT’s Customer Security Program (CSP) is designed specifically to support their customers in the fight against cyber attacks.
• The initiative requires action on part of users to comply with the security controls.
• The program requires organizations to “self-attest” against SWIFT’s mandatory security controls using the KYC registry application.
• Users must self-attest their status by December 2017.
• Self-attestation is required for every organization with a live 8-character BIC.
*diagram provided by SWIFT
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 13
SWIFT CSP: Control Framework
*diagram provided by SWIFT
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 14
Regulation in Europe, effective Jan 2018
Most interesting for corporate treasury: banks must open platforms (via API) for bank reporting and payments
– Affects all US banks doing business in Europe
– Several US banks are planning to make APIs available across entire global platforms
Payment Service Directive (PSD2)
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 15
PSD2 → APIs in Treasury Management
Payments Reporting
Trades and
Market Data
Cash Forecast & Payments Journal Entries
Expectation that APIs will replace FTP
‘host-to-host’ connections
APIs streamline other treasury integration; expect to see greater
leveraging of APIs
Treasury Management
System
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 16
SOx is well understood by treasury
Audit trails and attestation of controls has been in place for 15 years
Fraud & Cybercrime has forced re-evaluation of payment controls
CIOs asking for more
More refined separation of duties
Monitoring: workflow, audit trails, transactions
Real-time fraud detection
Sarbanes-Oxley
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 17
First payment to a new (or newly updated) bank account
Changes to a payment that was imported from an ERP
Split payments below the approval threshold
International payment to a country where there is no known Supplier
Payment not consistent with the amounts / dates of the payment
history
Domestic transfer whose beneficiary’s bank account is located in another
country
Sarbanes-Oxley: adding new fraud scenarios
Creates requirement for real-time monitoring and detection
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 18
Posted to General Ledger
Derivative Accounting
Derivative Transactions
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 19
Posted to General Ledger
Hedge Accounting
Derivative Transactions
Balance Sheet Account (e.g. OCI)
Profit & Loss Accounts
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 20
Document Assess Measure
Document • Why am I hedging? • What am I hedging? • How do I know it is effective?
Assess Prove hedge is going to be
“highly effective” (through effectiveness testing)
Measurement Calculate the effective and ineffective portions (because the values go to different places)
Hedge Accounting
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 21
Basel III: Goals & Results
Goals: To further stabilize banking.
• Banks must be able to
withstand a 30 day system-wide liquidity shock.
• To strengthen governance and transparency
Results: Raises the cost of funding in normal times
and ultimately will raise the pricing of
bank products.
• Regulatory changes have direct and
indirect effects on bank profitability.
• Basel III is a banking regulation that has an impact on corporations.
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 22
Basel III: Impact
Bank Impact Bank Potential Reaction Corporate impact
Increased Capital requirement, lowering returns
• Increased pricing to obtain higher return
• Increase higher-rated and shorter tenor loans
• Preference for drawn lines • Product/business changes
• Higher banking costs • Credit availability reduced • Increased pressure for ancillary
business • Limit unused liquidity • Loss of banking partner
Increased and higher quality liquidity buffers, increasing costs
• Preference for retail (small) vs. wholesale deposits
• Need for assets with high liquidity • Design of products that consume
less capital
• Lack of availability for short term deposits – shift to longer term deposits, requiring robust cash forecasting
• More fees in lieu of balances • Need for greater visibility and
access to trapped cash
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 23
Operational Cash – no significant changes
Cash typically left in the bank
Utilize earnings credit (when available), as implied returns higher than short term deposit options
Not seeing the “move cash around” to maximize earnings credit at all cash management banks that we saw in 2008/2009
Impact of Basel III on Corporate Treasury
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 24
Non-Operational Cash – very different landscape emerging
What we may expect
Earnings credit maximized (or close to) by using operational cash
Overnight deposits – either low rates or may not be available at all
Committed term deposits – may offer more yield in return for reduced certainty of on-demand withdrawal (e.g. > 30 days)
Domestic subsidiaries of non-US banks – follow same regulations but are finding ways to offer comparatively high rates
Impact of Basel III on Corporate Treasury
Leading Practices in Regulatory Compliance
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 26
Alligator Closest to the Boat
Calibration of Attention
You need a process to handle the alligator.
Timeframe: PROPOSED/ DEVELOPING
Timeframe: FUTURE
Timeframe: NEW
Timeframe: ESTABLISHED
1-3 years
Timeframe: ESTABLISHED
2-5 years +
DIRECT
IMPACT
INDIRECT
IMPACT
FBAR Individual
FATCA
EMIR
Loan Covenants
FBAR Corporate MM Reform
Dodd-Frank 2
Basel IV
Basel III
PII Regulations
PCI
NACHA NACHA
Dodd-Frank 1
Sarbanes-Oxley
Section 385
PSD2
IFRS16
ASC815
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 27
1) Adopt a formal framework for managing compliance
2) Ongoing monitoring and calibration of compliance responses as a group
3) Specific monitoring assignments with specific assignments to monitor
4) Leverage tools and software
5) Outsource headaches (especially in the first few years), managing larger items internally
5 Leading practices
Framework for Monitoring and Managing
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 29
Compliance Framework Example
Compliance Perspective Sensitivity & Resourcing
Compliance Categories Inventory
Calibration of Compliance Issues
Policy
Monitoring Methods Accountability
Managing & Reporting
Co
mp
lian
ce:
Per
spec
tive
&
Stra
tegy
Co
mp
lian
ce:
Iden
tify
&
Cal
ibra
te
Po
licy
| M
anag
e, M
on
ito
r &
Rep
ort
Positioning
Perspective
Industry
Resources Corp/Treasury
Relevance
Timing
Category Determination
Inventory of Compliance Exposures
Accountability Assignments
Monitoring Methods
Create
Tracking (Status, Preparedness)
Communication Meetings
(Annual, Quarterly)
Accountability Assignments
Leader Follower Minimum: SGCC
Existing Immediate Emerging Industry Specific Direct Impact Indirect Potential/TBD
General Industry Treasury Inventory Management
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 30
Monitoring only works if it gets done – Assign specific monitoring tasks to specific people and time frames
– Use SOX-like sign offs to evidence completion
Tools and software exist to make tracking easier – i.e. EBAM/FBAR
Determine when to outsource – If it is a headache, an administrative burden , and does not provide value add,
then outsource and free up Treasury time for more important tasks.
Monitoring and Tools
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 31
Polling Question #2
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 32
Most financial regulations do not affect corporate treasury, but when they do…impact is significant
Effective compliance is seeing the opportunity for the organization to benefit (e.g. improved bank account controls)
A framework and established compliance process means you are not fighting fires after they start
In Summary
Questions?
Craig Jeffery [email protected]
Melody Hart [email protected]
Bob Stark [email protected]
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 34
Additional resources
eBook: The CFO’s Toolkit - Minimize Risk and Ensure Compliance Download at http://kyri.ba/minimizeriskebook
© 2017 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 35
Thank you for attending!
twitter.com/StratTreasurer
http://bit.ly/LI_ST_web
youtube.com/StrategicTreasurer
strategictreasurer.com/blog
facebook.com/TMScorp
twitter.com/TMScorp
linkedin.com/company/TMS-corporation
youtube.com/TMScorp
slideshare.com/TMS
TMS.com/blog