Treasury & Cash Management Guide 2007

Treasury & Cash Management TCM GUIDE 2007 CONTENTS TREASURY & CASH 8 MANAGEMENT ID MANAGEMENT Businesses and GUIDE 2007 their banking partners are devising innovative techniques to ensure only elcome to Global Finance’s annual Treasury & Cash authorized personnel can Management Guide, in which we explore the latest trends make payments. Wand issues in the world of global cash management. With record corporate earnings, companies are wanting to get the most from their cash. To some extent they have already been able to achieve 14 greater visibility into their cash flows by centralizing treasury operations GLOBAL LIQUIDITY and deploying sophisticated treasury management systems and liquid- Corporates have long ity management techniques such as multi-currency pooling. Now firms dreamt of being able to see are pondering the question, Can liquidity be managed globally? Do liquidity in real time on a treasurers know at any given moment where they have excess liquidity global basis. This dream is globally that can be deployed to help finance acquisitions or invest for becoming a reality as banks higher returns? While there are significant challenges in achieving this and systems suppliers level of visibility, high-end treasury management systems, Internet- provide the real-time based reporting, harmonization and standardization across Europe and reporting and systems relaxation of foreign exchange controls in some countries are helping integration necessary to companies move closer to having a global view of their liquidity. make it happen. Meanwhile, the number of options for companies to trade FX online is increasing as companies move smaller trades online in an effort to 16 achieve greater price transparency, with larger trades still being con- ONLINE FX ducted via the phone. Companies can choose from a plethora of multi- Key players in the online bank and single-bank portals for trading FX, but online trading is not foreign exchange markets just about price discovery. It is also about improving back-end are hoping that new processes. Some concerns remain, though, about the ability of online entrants and the integration FX platforms to handle workflow into clients’ systems. of interdealer and dealer-to- On a slightly different note, the increased incidence of identity fraud client platforms will end the is presenting new challenges for companies globally. Regulations such stagnation that is hindering as Sarbanes-Oxley are also placing pressure on companies to ensure workflow development. incidences such as Enron don’t recur. With that come myriad challenges for companies, weighed down by different proprietary identity- management solutions, which can number in the hundreds depending 18 on the number of banking relationships they maintain. A few pioneer- WHO’S WHO ing corporates are leading the way, forcing banks to abandon their pro- The most important, prietary solutions and embrace a single identity-management solution influential, creative and that can be used across multiple banks. powerful people in international treasury and Anita Hawser cash management. Europe Editor [email protected] 4 CORPORATE ID MANAGEMENT IDENTITY SOLUTION As corporate treasury systems become increasingly automated, businesses and their banking partners are devising innovative techniques to ensure only authorized personnel can make payments. By Anita Hawser ans-Maarten van den Nouland jokes that he is not determine who authorized the payment and whether that earning a reputation among cash management person has authorization to make payments for that amount. Hbanks as being demanding. As director, interna- Gary Greenwald, global head of capabilities and infor- tional treasury services, Europe, for US pharmaceuticals mation products at Citi Global Transaction Services, says company Merck, van den Nouland is leading a major the potential for security breaches in corporate payment overhaul of Merck’s cash management processes. The transfers has been exacerbated by the increasing automa- multi-year project includes, among other tion of payment transfer files from compa- things, enhancing the security of nies’ accounts-payable systems to a bank’s processes related to payments initiated by systems. “As payment files are pushed out the company’s enterprise resource plan- automatically to the banks to execute, the ning (ERP) systems. risk of someone in a company’s IT depart- Van den Nouland says the current situa- ment, for example, going in and changing tion for securing payment transfers is less the beneficiary of the payment increases,” than ideal. Every account that is opened he says. requires all information regarding the per- A survey of IT and security professionals son to be resubmitted, and there is no cen- by DigitalPersona and the Business Perfor- tral repository to quickly revoke signatory mance Management Forum highlights the rights if needed. Van den Nouland adds Wendel: In approximately potential for information security breaches that every bank has devised its own security 25% of cases, account by company employees. Sixty percent of signatories are wrong tokens to gain access to proprietary bank- respondents in its survey said that they or ing platforms. For shared service centers someone in their company had shared a and centralized treasuries, this means a myriad of forms, network password with a colleague. Seventeen percent processes and, potentially, security tokens to manage. had either given out or received someone else’s security “Some companies don’t know how many bank accounts token or smart card. they have,” says Karen Wendel, CEO of IdenTrust, a global Although banks have implemented proprietary identity- network of banks that issues digital certificates certifying management solutions, van den Nouland says only three someone’s identity, “and in approximately 25% of cases banks were willing to try to meet Merck’s demands for a account signatories are wrong.” Adding to corporates’ con- single interoperable digital identity-management solution cerns with the current system, van den Nouland says, at pre- to be implemented by the beginning of 2008. sent, payment files are signed at a company identification The banks appear to have been caught napping, which level, not at the individual level. In other words, the bank is surprising given that as early as 1999, when the hype knows a payment transfer is being initiated from Merck’s around B2B e-commerce peaked, 11 leading global account in the United States, for example, but the bank can- banks, including Citi, Bank of America, ABN AMRO and 8 CORPORATE ID MANAGEMENT Deutsche Bank, formed Identrus (now called IdenTrust), Enron and Sarbanes-Oxley, which according to Wendel the only global network of its kind whereby banks repre- prompted companies to implement more robust identity- senting 50 countries agreed on a set of uniform system management solutions. rules, contracts and business practices for facilitating trust Authentication at the individual as opposed to the cor- and risk management in B2B e-commerce transactions. porate level has become essential, particularly given that a IdenTrust uses bank-issued digital certificates to certify number of major multinationals are now using the bank- that people are who they say they are. The certificates owned and -operated SWIFT network to transmit bulk pay- bind an identity to a pair of electronic keys, otherwise ment files to multiple banks. Last year at SWIFT’s annual known as Public Key Infrastructure (PKI), which uses a pub- user conference in Sydney, Australia, Citi, BNP Paribas and lic and private key to encrypt and sign digital information. IdenTrust successfully demonstrated a “double” digital PKI-encrypted digital certificates are con- signature proof of concept, which used sidered to be one of the strongest means SWIFT’s PKI security protocol (it provides of authenticating someone’s identity. “It is authentication at the corporate level) and the most secure, robust mechanism you an IdenTrust digital certificate identifying a can find, as the identity of a person is specific corporate employee, to authenti- vouched for,” Wendel explains. cate a payment transfer between two dif- Yet when IdenTrust was starting out, PKI ferent banks. “was very expensive, complicated and dif- Greenwald says the proof of concept also ficult to implement,” Wendel explains, demonstrated that a single digital identity “and it was less focused on compelling issued by one bank could be recognized by business applications.” Greenwald says another bank. “Companies are looking for banks also tended to build proprietary PKI Greenwald: Automation is identity-management solutions that operate and identity-management solutions, and increasing the potential for across their physical and financial supply up until recently “interoperability” was not security breaches chains without having to enter into bilateral high on corporates’ wish lists. agreements each time they cross the fire- PKI has gone through different adoption cycles, says wall,” Greenwald explains. Pilots are also currently under Wendel, with its popularity plummeting to an all-time low way whereby IdenTrust digital ID credentials and legally at the turn of the millennium. It was replaced by pin and binding digital signatures will be embedded in bank password, which authenticated a user to a website or elec- account mandate and account signatory applications. tronic banking application. One of its shortcomings, how- Merck, with the support of its two leading cash man- ever, was that it did not

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