The terms alone involved in managing a company’s bank accounts remind us of a spilled can of alphabet soup or the exclamations of a super hero comic book. Keeping track of bank accounts and the employees with authority over transactions seems like it would be a simple task when compared to the very complex nature of so many other treasury operations. However, bank account management has proven to be anything but simple primarily because many treasurers try to handle it in a piecemeal, tactical way instead of a holistic, strategic way. Some treasurers get caught up in the need to comply with varying requirements for KYC/AML/CFT imposed by their banks in various regions and miss the need for solid internal controls. Others get distracted by the requirements of FBAR or other regulations and miss the need to effectively communicate changes in accounts and mandate holders to their banks. Still others get trapped by poorly designed technology in the battle between security and privacy. We hear many different definitions of bank account management that fall short of the mark. We will define Bank Account Management as the holistic effort to maintain effective controls around our inventory of bank accounts and mandate holders within the company; track account relationships, minimize risk, synchronize with banks, and comply with all appropriate regulatory concerns.
Successful BAM strategy
If we are going to have a successful BAM strategy, we must tackle all of these areas simultaneously:
- Solid Internal Controls – Every bank account used by the company is a risk vector and cost. Every employee with authority over one or more accounts is a risk vector. Until we have absolute control over the onboarding, offboarding and detailed tracking of our inventory of bank accounts and authority holders, we should not continue on to any other BAM related issues. Many, if not most companies, are unable to provide auditors with an accurate inventory of their bank accounts and even fewer can provide accurate information around which employees have authority over those accounts. Solving the internal controls problem can only be achieved with technology, and it needs to go beyond Excel. A purpose-built database is needed which maintains accurate records of every bank account at every bank along with all of the metadata of each account. It needs to tie each account into the detailed legal structure of the company and the funding structure of the cash-management engine. Every employee that has an authority of any type over one or more accounts (mandate holder) needs to be recorded and the details of each authority they possess must be tracked. This takes a relational database that is centralized, secure, and available across the enterprise. This database forms the backbone of the treasury management infrastructure and provides a centralized system of record that all other systems use.
- Detailed Business Processes – Even with a perfect database to store account management information in, we still aren’t done. With a detailed database to keep accurate records of all accounts, mandate holders and other metadata, we must ensure that additions or changes to that information are done in a controlled fashion. For this, we need to establish business processes that will ensure that all changes made have been authorized and approved before they are executed. Solid controls enforce the company’s rules to ensure that we are always certain that our inventory of accounts is accurate along with detailed records of who can move money. Business process management defines the steps that must take place in order to effect a change in the bank account management database.
- Synchronization with Banks – We can build the perfect BAM database and wrap it in solid business processes and we have still only solved half of the problem. At the end of the day, the only records of which accounts are open and which are closed, or which mandate holders are valid and which aren’t, are the records at our banks! If we have more than one bank, then a centralized, internal BAM database like we described above is a must. To solve this problem, we must enter the world of eBAM. Solving the problem of keeping the bank’s information up to date has led to a variety of solutions. A number of banks have developed portals which allow corporate customers to update their information through a web interface. This is a great solution, but only if you have few banking relationships. SWIFT has developed and released an entire set of standardized messages which allow an internal database to synchronize with multiple banks. SWIFT eBAM provides a well-rounded solution, but has faced challenges to its widespread adoption for many years and it remains to be seen if it will be the final solution. This gap between corporate records and bank records remains one of the greatest challenges to fraud prevention and control in all of treasury. It will take innovative solutions to overcome. This problem may well be solved by the distributed nature of emerging blockchain database schemas.
- KYC, AML, CFT, FBAR and other regulatory challenges – In response to various challenges in our world, governments have established a wide variety of regulations designed to combat these challenges. In many cases these regulations are strong in their intention, but weak in execution often leaving it up to banks or corporates themselves to determine what compliance is. Still, if we boil down most of these regulations, they come down to two questions: Who owns each bank account? And, who are the people that have the ability to move money in those accounts? When we get to corporate accounts and non-owner employees which have authority over the company’s accounts, we run into the larger debate between security and privacy and find the entire system unworkable. Certainly it is going to take regulatory change and clarification to solve our current stalemate in this arena, and that is going to come at the speed of government.
In the meantime, we can realize the similarities between these regulations and work towards a well-controlled infrastructure which allows us to maintain accurate records on every account and detailed information on each employee with authority over the accounts while still maintaining their privacy. The first step takes place in our own treasury department. Emerging technologies like Blockchain are likely to be the path to finally solving the holistic problems of bank account management and work is underway to make this a reality. In a Blockchain solution, the company and its banks all agree on which accounts are open and which are closed. The identity of each person that has authority over the company’s accounts is both fully known to the company, banks and regulators while simultaneously being completely private. Changes to either bank accounts or mandate holders are known by everyone in real time, greatly reducing the threat of fraud or criminal activity. Blockchain promises to change much of how banking works in our world. We are only now beginning to peel back the layers of how it can solve our bank account management and regulatory headaches.
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