www.it2tms.com

Treasury Technology & the Counterparty Risk ChallengeSouth Florida AFP 2011

Treasury Technology - Capability v 21st Century Demand

• Company & Speaker Background

•Counterparty Risk Management

•Process, process, process.....

• IT2 – IT-Who?

• 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

Company Bio – IT2

• 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

Speaker Background

www.it2tms.com

Counterparty Risk

Counterparty Risk Management

Counterparty uncertainty• Risk Indicators• Counterparty Limits• FAS 157

What are Today’s Main Issues and Challenges?

Post Global Financial Crisis

#1Counterparty Risk

What is my Exposure?

How do I assess the Risk?

#2Liquidity Planning & Funding

How much cash do I have today?

How much cash I expect to have or

need in the future?

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....

Risk Indicators - Why are new risk indicators needed?

...the biggest bankruptcy in U.S. History.

Standard & Poor’s

Ratings

Investment

Grade

AAAAA+AAAA-A+AA-

BBB+BBBBBB-

Non-Investm

ent Grade

BB+BBBB-B+BB-

CCC+CCCCCC-CCC

What Other Indicators Can be Used?

Risk PolicyBased on credit rating and other

factors...EQUITY

PRICECDS SPREAD

Risk Techniques – Current & Planned

62%

28%

5%13%

28% 25%24%

42%

68%

Which of the following credit risk analysis methods does your treasury department perform?

Already in place In the next three years Not planned

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

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

Some to Consider

Risk Indicators linked to Limits

Credit Valuation Adjustment

www.it2tms.com

Bank Account Administration

Bank Account Administration

• Bank Account Administration

• Electronic Bank Account Management (eBAM)

Common Bank Relationship Challenges

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?

Are cash related fraud or

operational risks big concerns?

How can a Bank Account Administratio

n system help?

• Single repository for bank all account information

• End to end automation and control of bank account open, closure & maintenance processes

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.

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

Process, process, process

• Enhanced focus on Treasury

• Policy & Procedure

• Real time, accurate information

• SOX Control

• IT Buy-in, Procurement involvement

Bank account administration

Central account register for all bank account information

Controlled workflow for opening, maintaining and closing bank accounts

Streamline communication with banks

1

2

3

IT2’s Central Account Register

Single repository for all bank

account information

Bank Details

Account Details

Signatory Details

Service Details Bank

ContactsAccount Documentatio

n

Account Balances & Transactions

Bank Fees

Trading & Competitiveness

Statistics

Controlled Workflows

Opening Requests Maintenance Requests

Closing Requests

Bank Account Administration in IT2

Bank Account Administration Visibility - Dashboard

Process

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

Bank Account Administration – Summary

Integrated eBAM solution

Enhanced enterprise cash visibility

Counterparty exposure visibility

Complete transparency

Full control & audit

Reduced operational risk

Streamlined workflow

BEST

PRACTICE

Sample of 250+ IT2 Customers

Volkswagen

Questions?