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Corporate counterparty risk concerns pre-date bank failures - Industry roundup: 28 April

Corporate counterparty risk concerns pre-date recent bank failures

Even before the banking turmoil sparked by Silicon Valley Bank’s failure, 80% of corporate treasury organisations responding to ICD’s 2023 Client Survey said they were concerned about bank and other counterparty concentration risks.

Current or planned investments in bank time deposits from the Americas were down 31% from last year, indicating a move away from single counterparty risk. Most survey respondents (93%) from all regions said they planned on increasing or maintaining investments in money market funds this year, up 12% from 2022. New clients investing through ICD Portal increased 283% in the first quarter of 2023, compared to the same period last year, and the average daily balance of those client investments grew 27 times. 

Following the FDIC’s takeover of SVB, usage of ICD’s exposure analytics tool, which provides transparency into counterparties, countries, sectors and more, spiked 15 times its normal level

“The vast majority of corporate treasury teams are risk averse and invest in money market funds to diversify their cash portfolios, maintain daily liquidity and earn a competitive yield,” said Tory Hazard, Chief Executive Officer at ICD. “Our clients are quite sophisticated and use all the tools available to them through ICD Portal to achieve their investment objectives.”

Elsewhere in the survey, almost three-quarters (74%) of treasury organisations expect to maintain or increase cash balances in the first half of 2023. Regarding the flavour of MMFs that treasurers are investing in, 90% of Americas respondents indicated they are investing in US government MMFs, while 86% of UK/Europe respondents indicated they are investing in short-term low volatility net asset value (LVNAV) MMFs.

Turning to technology, 55% of treasury organisations are currently engaged in or are planning a tech project. Almost one-quarter (23%) of treasury teams say they are implementing a treasury management system this year.

The annual survey from ICD, an independent portal provider of short-term investments, closed in February with 116 treasury organisations responding from the Americas, UK and Europe.


US banks overwhelmingly want to improve corporate banking services

US banks are struggling to effectively meet the needs of their commercial clients, according to the whitepaper ‘It’s time to reinvent account analysis’ from SunTec Business Solutions, Arizent Research and American Banker. 

A vast majority (97%) of banks are looking at addressing market pressures to improve corporate banking services across pricing for corporate banking services, monetising API connections, and offering BaaS solutions, to name a few, according to the survey conducted between December 2022 and January 2023.

Six-in-10 banks see account analysis as merely a billing statement, severely underestimating its possibilities. While 60% of banks cite real-time account balance information as an essential service to corporate customers, only 41% fully meet client needs. This finding underlines the challenge that corporate banking customers face and those that banks are addressing.

The survey also found that nearly half (49%) of banks see error-free billing as an essential service, but only 41% deliver fully on it. Accurate cash flow forecasting was deemed necessary by 49%, while 46% mentioned transparency being important to them. Nearly half (46%) don’t necessarily even see their current account analysis process as antiquated.

The main ways that banks are managing evolving market demands captured by the survey includes adjusting pricing for corporate banking services to be more competitive (47%), offering green-ECR/carbon offset/ESG features to account analysis (46%), and enhancing account analysis statement presentation (45%).

One option that the whitepaper suggests could help banks substantially improve their corporate offerings may be flying under the radar. Nearly half (45%) of banks agree that their account analysis function frustrates corporate users. Those in operations roles - who regularly encounter commercial users - are substantially more likely (68%) to see account analysis as frustrating to clients than those in sales (33%) or product (29%) roles. 

Nevertheless, the account analysis function has not been an exceptionally high priority for banks’ modernisation efforts. More than one-in-three banks say modernisation of account analysis lags behind their other processes.

The report also calls out the key benefits of having a connected and efficient account analysis process. This could enable controlling revenue leakage at onboarding and renewal, ensure an efficient partner ecosystem management, offer access to single account with virtual sub-ledgers and hybrid interest accounts.

“Account analysis cannot be overlooked as just a pedestrian billing or reporting solution,” commented Kumar, Founder & CEO, SunTec. “It holds significant strategic importance and value for the banking industry, especially as corporate treasury teams seek better ways to manage cash across multiple banks and jurisdictions. Through this report, we highlight the possibilities available for banking simply by modernising account analysis.”


US Treasury announces 2023 de-risking strategy

The US Department of the Treasury issued the 2023 De-risking Strategy, as mandated by Congress in the Anti-Money Laundering Act of 2020. The first of its kind, the strategy examines the phenomenon of financial institutions de-risking and its causes, and it identifies those greatest impacted. It also offers recommended policy options to combat it.

De-risking occurs when financial institutions terminate or restrict business relationships indiscriminately with broad categories of customers rather than analysing and managing the risk of those customers. De-risking undermines several key US government policy objectives by driving financial activity out of the regulated financial system, hampering remittances, preventing the population’s low- and middle-income segments from efficiently accessing the financial system, and preventing the unencumbered transfer of humanitarian aid and disaster relief.

This strategy reflects the Biden-Harris Administration’s priority to shape a safer, more transparent, and more accessible financial system while at the same time maintaining a robust framework to protect the US financial system from illicit actors and bolstering national security.

Striking the vital balance between these two objectives is critical to making the US Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) framework effective. In particular, the Administration prioritises addressing de-risking, as it not only hurts certain communities but can pose a national security risk by driving financial activity outside of regulated channels

“Broad access to well-regulated financial services is in the interest of the United States,” stated Deputy Secretary Wally Adeyemo. “This strategy represents the next step in Treasury’s longstanding commitment to combatting de-risking and highlights the importance of financial institutions assessing and managing risk. The policy recommendations in this strategy constitute the strongest measures Treasury has proposed on de-risking to date, reflecting the importance of this issue for the Biden-Harris Administration.”

To inform this report, the US Treasury engaged in extensive consultation with the public and private sector - including banks, small and medium-size money service businesses (MSBs), diaspora communities that depend on these businesses for remittances, and certain kinds of small businesses and humanitarian organisations - to understand the root cause and negative impacts of de-risking.

The strategy found that profitability is the primary factor in financial institutions’ de-risking decisions. The strategy also highlights that profitability is influenced by various factors, such as a financial institution’s available resources and the cost of implementing AML/CFT compliance measures and systems commensurate with the risk posed by customers. Other factors the strategy identifies include reputational risk, financial institution risk appetite, a perceived lack of clarity regarding regulatory expectations, and regulatory burdens.

The strategy provides concrete recommendations on promoting consistent regulatory expectations, providing better incentives to US banks to avoid de-risking, and advancing public and private engagement and cooperation at home and abroad. In the coming weeks and months, Treasury will reach out to partners in the public and private sector to coordinate the best path forward to implement the recommendations in the strategy.


Green light to new rules for tracing crypto transfers in the EU

The European Parliament has endorsed the first EU rules to trace crypto-asset transfers, prevent money laundering, as well as common rules on supervision and customer protection.

On Thursday, MEPs approved, with 529 votes in favour to 29 against and 14 abstentions, the first piece of EU legislation for tracing transfers of crypto-assets like bitcoins and electronic money tokens. The text - provisionally agreed by European Parliament and Council negotiators in June 2022 - aims to ensure that crypto transfers, as is the case with any other financial operation, can always be traced and suspicious transactions blocked. The so-called “travel rule”, already used in traditional finance, will cover transfers of crypto assets in the future. Information on the source of the asset and its beneficiary will have to “travel” with the transaction and be stored on both sides of the transfer.

The law would also cover transactions above €1000 from so-called self-hosted wallets (a crypto-asset wallet address of a private user) when they interact with hosted wallets managed by crypto-assets service providers. The rules do not apply to person-to-person transfers conducted without a provider or among providers acting on their own behalf.

Plenary also gave its final green light, with 517 votes in favour to 38 against and 18 abstentions, to new common rules on the supervision, consumer protection and environmental safeguards of crypto-assets, including crypto-currencies (MiCA). The draft law agreed informally with the Council in June 2022 includes safeguards against market manipulation and financial crime.

MiCA will cover crypto-assets that are not regulated by existing financial services legislation. Key provisions for those issuing and trading crypto-assets (including asset-reference tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions. Consumers would be better informed about the risks, costs and charges linked to their operations. In addition, the new legal framework will support market integrity and financial stability by regulating public offers of crypto-assets.

Finally, the agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing and other criminal activities. To counter money-laundering risks the European Securities and Markets Authority (ESMA) should set up a public register for non-compliant crypto assets service providers that operate in the European Union without authorisation. Significant service providers will have to disclose their energy consumption to reduce the high carbon footprint of crypto-currencies.

“This puts the EU at the forefront of the token economy with 10 000 different crypto assets,” commented Stefan Berger (EPP, DE), lead MEP for the MiCA regulation. “Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust. Consumers will have all the information they need and all underlying risks around crypto-assets will have to be monitored. We secured that the environmental impact disclosure will be taken into account by investors in crypto assets. This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”


PaperTrl and U.S. Bank look to simplify accounts payable processes for construction firms 

PaperTrl has embedded U.S. Bank virtual card payment capabilities into its accounts payable (AP) management and automation platform used by construction companies. The integration with U.S. Bank aims to allow PaperTrl customers to automate AP operations from procurement to payment. This includes vendor management, purchasing, receiving, invoice processing, and payments via U.S. Bank virtual commercial cards. The partnership will help AP departments manage all B2B payments from a single platform, eliminate manual processing and help reduce fraud.

“Our virtual card solution will allow PaperTrl to deliver its customers a more seamless payment experience while also helping control spend,” said Bradley Matthews, Head of Digital Payments Innovation and Partners at U.S. Bank. “U.S. Bank has deep experience embedding our payment capabilities to help fintechs deliver new capabilities and efficiencies to businesses.


TransferMate secures an e-money licence from the Central Bank of Ireland

TransferMate, a provider of B2B payments infrastructure as a service, has been granted authorisation as an Electronic Money Institution (EMI) by the Central Bank of Ireland. Acquiring EMI authorisation allows TransferMate to offer their customers and partners an extended service. It means customers can now store multiple currencies with TransferMate indefinitely, more easily settle outward remittances in real-time, while also aiding foreign exchange money movement and liquidity management needs.

TransferMate is the first company to obtain an e-money license in 2023 and is now one of only 22 to hold such in Ireland. As part of the authorisation process, the Central Bank of Ireland requires EMIs to be well-governed, with appropriate cultures, have effective risk management, safeguarding and control arrangements in place, and have sustainable business models with sufficient financial resources, including when under ‘plausible but severe stress’.

The e-money licence is now a significant part of TransferMate’s global payments infrastructure, built on the foundation of 92 payment licenses, which covers over 200 countries and territories and more than 140 currencies. 


PPRO and NPCI International target simplified access to India’s UPI for cross-border transactions

PPRO, a digital payments infrastructure provider, has signed a strategic agreement with NPCI International Payments Limited (NIPL) to offer global partners access to Unified Payments Interface (UPI), India’s fastest-growing, real-time payment system, for cross-border transactions. 

The agreement, supported by a new framework co-developed with NIPL, paves the way for the first merchants to go live in the coming months. By connecting directly to UPI via PPRO’s digital payments infrastructure, international payment service providers (PSPs) enable merchants to tap into India’s huge online consumer base easily and securely, without the need for setting up a legal entity in India, settlement to an India-based bank or for uploading invoices to clear funds.

Launched in 2016, UPI is India’s most popular instant payment system, already processing 60% of all domestic payments. It has over 325 million active users, and supports 390 banks and 100 third-party apps within a single mobile application. In March 2023 alone, UPI processed over 8.7 billion transactions, the highest since its launch.

“UPI has revolutionised the digital payments landscape in India and is respected globally for its role in simplifying and democratising payments,” said Ritesh Shukla, CEO at NIPL.

The announcement follows the signing of a memorandum of understanding by both parties in 2021, when NIPL first mandated PPRO to enable global PSPs and merchants to expand into India’s e-commerce market by offering UPI.

Simon Black, CEO at PPRO, added: “International payment service providers and their merchants can now easily tap into an e-commerce market that is expected to reach an estimated US$111bn next year, and predicted to almost double to US$200bn by 2026. By integrating UPI into PPRO’s digital payments infrastructure through a single connection, we have removed all the operational complexity for our partners to sell cross-border into India at scale.”

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