EuroFinance 2013: Regulations, relationships and rationalisation

October 2013

Over 1,900 attendees from more than 60 countries gathered together for EuroFinance’s International Cash and Treasury Management conference in Barcelona last week. Three ‘Rs’ were part of almost every panel discussion and case study presentation: regulations, relationships and rationalisation. In addition, technology and innovation remained cornerstone topics of the conference.

Incoming regulations are still top of mind for most treasurers, as evidenced at the EuroFinance conference held in Barcelona from 16-18 October. Attracting more than 1,900 delegates, including approximately 720 corporate treasurers, the conference streams reflected the need of corporate treasurers to know more and get ahead of the game. Two noteworthy session titles included ‘Wrestling with regulators’, led by Damian Glendinning, Treasurer at Lenovo, and ‘A game you can’t afford to miss: staying one step ahead of the banks’, which was ING’s interactive game to gain a greater understanding of how Basel III will force banks to alter their business models and the tough decisions that lie ahead.

Despite only having a handful of sessions addressing the Single Euro Payments Area (SEPA), this was one of the most popular points of discussion inside and outside the main conference session, with the migration end date less than 20 weeks away. PwC and Citi hosted a breakfast briefing, while BNP Paribas presented a SEPA case study over lunch.

Most agree, however, the time to talk is over and greater action needs to be taken. As reported in a previous insight, the ‘Treasury Verdict’ voting plenary results showed that only 14% of respondents are compliant today; in addition, only 8% of those polled are currently completely prepared to use SEPA Direct Debits (SDDs). But the situation remains even direr for the small and medium-sized enterprise (SME) sector.

SEPA fatigue is pervasive throughout the corporate and banking community – there is a great need to move from ‘what now’ to ‘what next’. As one banker said: “We are all tired of talking about SEPA problems – now we must move on to the solutions.”

Relationships

 

With great uncertainty still remaining around how the regulatory changes will play out, corporates are increasingly turning to their banks for trusted and detailed advice. This is driving a much deeper relationship between corporates and their banking partners. In a plenary on the final day, entitled ‘Banks: altogether now or bust’, Jennifer Boussuge, Head of Global Transaction Services – EMEA, Bank of America Merrill Lynch (BofAML), touched on this point. “I don’t believe that the regulatory environment is going to change anytime soon. If anything, I think the uncertainty, volatility and rapid pace of change is going to continue – it is the new normal. Therefore, we all need to understand how we can function in this new environment.

“Some of the key considerations that we need to look at is the risk/reward trade-off and the balance between the two. We have to look at the increasing cost of credit for banks and what that means for corporate clients. Corporates need to ensure that they have shored up their bank relationships and are having open conversations, to be able to understand first of all how the regulation impacts their financial institutions and then the knock-on effect for them.” Boussuge stressed that communication will be critical to this valued partnership, in order for banks to keep pace with the corporate’s needs.

Speaking on the same panel, Rajesh Mehta, EMEA Head of Treasury and Trade Solutions, Citi, agreed, saying that already the “dialogue is becoming much more strategic” as a result of trying to work through the regulatory issues together.

Rationalisation

 

On the flip side, however, to maintain such an intimate relationship takes time and effort – and much mutual trust. This is driving corporates to re-evaluate their core banking relationships and, wherever possible, reduce the number of banks they work with. In the ‘Treasury Verdict’ voting plenary, 39% of corporates in the room said that they had reduced the number of banks they work with.

One example of a bank rationalisation case was provided by Tom Jack, Assistant Treasurer, Mondelez International, a Kraft Foods spin-off with revenue of $35 billion, who explained the treasury’s three-year banking simplification project in his session entitled ‘Feel the fear and do it anyway: from workflow to liquidity management’. The aims of the project was to “simplify, harmonise and establish a stable foundation to move forwards from”. The company went from 29 clearing banks down to one (Citi) for the whole European region. It also went from 0% straight through processing (STP) for payments to 95% STP.

However, most corporates would not be so quick to move to just one bank – effectively putting “all our eggs in one basket,” admitted Jack. He explained that this was the reason treasury went down a bank agnostic route by using SWIFT and a single file format ISO 20022 XML. “We wanted to ensure that we had an easy mechanism in place to change banks, should we need to.”

Technology and innovation

 

New technology and innovation were very much part of the EuroFinance agenda in Barcleona, and many banks took the opportunity to run closed sessions for their clients on specific developments.

For example, Swedbank ran a lunchtime briefing for its customers on digital payments – looking at how tomorrow’s consumers will act and how businesses need to adapt to these changes. Jesper Ahrgren, Business Development Manager in the Digital Engagement Department, gave some interesting analysis as to how the digital wallet is beginning to dominate. He explained that this was best thought of as a container for payment instruments interacting with other apps, which was where the customer perceived real added value and would in turn led to increased acceptance of the technology. Some of the domestic developments in the Swedish market are providing interesting trends that we may all be following before too long.