Cash Management: Learning Free Lessons at Sibos 2012

In the run-up to Sibos 2012 held in Osaka from 29 October to 1 November, one wag tweeted that SWIFT stands for “Society for Wrangling International Free Trips.” SWIFT, of course, is the acronym of the Society for Worldwide Interbank Financial Telecommunication, the member-owned cooperative that operates the secure messaging platform used by more than 10,000 financial institutions and corporations in 212 countries.
But it is probable that a fair number of the 6,000 delegates to this year’s Sibos, the premier conference for transaction bankers hosted by SWIFT, did have their flights and hotel stay paid for by someone else.
That’s because Sibos (which stands for SWIFT International Banking Operations Seminar) is a rare opportunity for the world’s bankers to meet their peers – and for the myriad payment processors, technology providers, financial information providers and other vendors to trawl for customers. They are happy to underwrite free trips so their people can connect with potential clients at one go.
In recent years, CFOs and treasurers have also started participating as a two-day Corporate Forum became part of Sibos. Some attended on SWIFT’s tab (as speaker, panelist or moderator); others were presumably guests of their bank and other partners.
What they had to say and what they heard over four days of presentations, panels and free meals would have warmed the cockles of many a finance person’s heart, though some of the issues that surfaced could be concerning as well. As one treasurer was overheard as saying: “It’s good to know we’re not the only one that had huge problems outsourcing [to a well-known service vendor].”
You have how many accounts?
Do tell us about it. “We didn’t realise that some suppliers and vendors were not being paid,” this treasurer recalled. The outsourcing vendor claimed that the agreement did not include processing those vendors and suppliers; the client thought they were included. In the end, the company set up its own Shared Services Centre and fired the vendor.
Interestingly, though, now that finance knows the ins and outs of outsourcing, the company is thinking of going back to the BPO route.
You hear intriguing snippets like this on the buses to and from the convention centre, at the queue for the breakfast buffets, on the sidelines of the cocktail receptions, dinners and lunches put on by any number of vendors. Such as this other treasurer who was overheard complaining about the 1,700 bank accounts she had to deal with.
That’s why you need to connect to your banks via SWIFT, was her companion’s reply, who was presumably someone from SWIFT. Or maybe not. Perhaps the other person was a finance professional himself. Self-selection may be at work – the corporates in the conference may have been predisposed towards SWIFT to begin with, that’s why they were there in the first place. So the approaches they were looking at would have a strong SWIFT element to them.
Still, the issues that CFOs and treasurers in Osaka articulated were clearly real problems calling out for real solutions. In addition to the excessively large number of bank accounts, which can be a nightmare for visibility and control, the finance folks red-flagged regulatory and language issues, volatile currencies, risk in trade finance, and other barriers to cash and treasury management.
Visibility and control
Onstage as a discussant on the Liquidity and Risk Management panel, Wolfgang Ratheiser, Director of Financial Engineering at Johnson Controls, talked about what his company did to solve the problem of visibility and control in financial management. Simply put, it decided to work only with banks that are compliant with SWIFT standards. If it wanted to continue doing business with the US$41.9-billion-a-year-in-revenues NYSE-listed automotive company, which has operations in 49 countries, the bank must be on the SWIFT platform.
The edict must have been a shock to the global, regional and local banks in Asia, where Johnson Controls maintained some 700 bank accounts. Because of country-specific regulations, industry standards and practices, language and legacy systems, financial institutions in Asia had developed their own unique ways of messaging each other and their clients using proprietary systems and platforms.
In the end, Ratheiser reduced the number of banking relationships to four core banks and a few local banks in places where the core banks do not have coverage. All of them utilise SWIFT codes, allowing the company to see its cash positions in real or near real-time. Why not go with just one bank, which will liaise with the others and provide the company with a single, updated report? “Counterparty risk,” Ratheiser replied crisply. Where would the company be if the agent bank goes the way of, say, Lehman Brothers?
It’s better to be independent of any one single bank, Ratheiser said. What Johnson Controls did was to connect directly with SWIFT and then have the company’s treasury management system automatically extract the information about all its banking transactions – easily done because all the banks are also on SWIFT – and STP’d (that is, subjected to straight through processing). Johnson Controls now gets 100% global visibility on real- or near-real time.
No one-size-fits-all solution
There is something to be said about the agent bank model, argued his fellow panelist Toshihiro Manabe, General Manager at the Global Transaction Banking Department of Sumitomo Mitsui Banking Corp. Visibility is not the only issue. You may be able to see all your cash positions down to the last cent, but can you move funds across borders, park money in various investment classes for yield and security, and hedge against currency risk? The agent bank can do all that via cash pooling and other structures.
David Blair, treasurer until last year of China’s Huawei and before that of Finland’s Nokia, agreed that there is no one-size-fits-all solution. While he advocated the SWIFT approach at both Huawei and Nokia, he said that some companies may opt to go with an agent bank, which is what some mid-sized Japanese corporations expanding to China are doing, according to Manabe. Because they have fewer transactions and bank relationships, smaller organisations may also rely on online bank portals.
What treasurers in Asia will continue to contend with – and what their bosses at headquarters in the West do not always understand – is the plethora of regulations and tax regimes in Asia that can hinder the movement of funds. This is not really an issue in Hong Kong and Singapore, for example, or even in Japan. But CFOs and treasurers dealing with transactions having to do with China, India, Korea and Thailand do have their work cut out.
For Ratheiser, it is not enough to depend on banks and other partners to resolve the regulatory and tax issues. Indeed, banks may dispense advice, but they will always stress that the actual action – and responsibility for it – has to be done by the company’s legal and finance departments.
CFOs and treasurers need not accept what the regulators say, suggested Ratheiser. Rather than simply walk away, he has found that interacting with them – explaining what cash pooling is, for example, and how it is used in other countries – can clarify some rulings. It can be “fun,” he added, for treasurers to figure out the best and evolving ways to navigate the regulatory maze.
CGI and ISO 20022
Some measure of relief may be coming in the form of the Common Global Implementation (CGI) initiative around ISO 20022 payment and cash management messages, which is backed by SWIFT and other industry bodies, and also by banks, ERP vendors and corporates, among them Sumitomo and Johnson Controls.
ISO 20022 eliminates the cumbersome process of corporates formatting the same payment information in different ways depending on the instrument. But an ISO 20022 message contains hundreds of fields because it puts together all the information required by direct debit, credit transfer, ACH payment, draft, wire, check outsourcing and many other instruments. This creates unnecessary complexity as most payments typically call for just a few of these fields to be filled.
As a result, a payment can be rejected, especially if it is one generated automatically via an ERP system and also processed automatically at the other end. While many fields are designated as optional by the ISO standard, different banks may have different practices about which fields are required to contain data. CGI is addressing these issues by coming up with a consensus as to which fields designated as optional must be filled, what the valid codes are and the meaning of those valid codes. 
“The goal of CGI is to simplify implementation for corporate users and, thereby, to promote wider acceptance of ISO 20022 as the common XML standard used between corporates and banks,” says SWIFT. When CGI becomes the industry standard, “a corporate can use the same message structure for all their payments with all of their transaction banks reaching any payment system across the globe.”
Say yes to Sibos
Is it really necessary, though, for finance executives to know what’s going on in the innards of their banks? Perhaps not in the past, when corporates were kept out of the SWIFT system. But now that companies are allowed in (SWIFT says it now has 1,000 corporates with direct connections and targets 5,000 by 2015), it is useful, particularly for enterprises with multi-bank relationships, to learn about what is available and what is coming up the pike.  
For as Blair observed, banks tend to market to their limitations. CFOs and treasurers who rely only on one or two financial institutions may end up at a competitive disadvantage because they are unaware of new tools and techniques for more cost-effective and efficient cash and treasury management.
Sibos 2013 will be in Dubai, 2014 in Boston and 2015 in Singapore. The next time someone offers you a free trip to Sibos, it may be a good idea to say yes.
About the Author

Cesar Bacani is Editor-in-Chief of CFO Innovation. He moderated the panel on Transaction and Liquidity Management in Sibos 2012.



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