RBS Global Transaction Services: Risk Mitigation in a Global Market – Wilco Dado

As globalisation increases, the treasury departments of multinationals are dealing with growing numbers of transactions and currencies. Wilco Dado, head of global payments at RBS Global Transaction Services, explains how finance directors must look to their main corporate bank for solutions for mitigating transactional foreign exchange risk.

There has been a significant global economic recovery, with output rising to pre-crisis levels. We are seeing renewed activity, with many individual companies looking for opportunities in a greatly impacted global environment. This has been especially important for Asia, the new centre of global trade, driven by intra-continental trade flows growing by almost 20% per year, as well as high growth rates in exports to the US and Europe. China in particular has been at the forefront of this trend.

As companies internationalise, risk mitigation becomes even more critical. It is also the case that more small and medium-sized enterprises are looking to carry out cross-currency payments. The individual transactions that these companies initiate, as a sender or receiver, are smaller than those of the multinationals and large corporates. For smaller companies, risk and risk mitigation becomes an important factor at lower levels. Foreign exchange risk management no longer applies only to the larger balances or long-term expectations of either markets or cash flow - it is increasingly important to single (small) payment traffic that is often not clearly visible when looking at the formal treasury position of the company.

This is not only the case for smaller companies, but also for larger companies that are beginning to realise significant flows are occurring in what they used to consider 'petty cash'.

Volume control

As a leading foreign exchange and transaction services bank, RBS can help corporates process both small and larger payments in non-base currencies without the need for a foreign currency account. Our offer needs to be competitive against wholesale bank foreign exchange quotes, and we believe that we can strike a perfect balance between efficiency gains and foreign exchange margins for smaller transactions all the way up to high-value payments. In order to maximise efficiency, we will primarily use straight-through processing, with manual interventions only when it improves overall effectiveness.

When it comes to foreign exchange, we combine high-value/low-volume wholesale practices with low-value/high-volume transaction banking practices. We process funds transfers that require currency conversion on a straight-through processing basis against real-time rates. Our foreign exchange solutions enable clients to use normal transaction banking solutions to cover cross-currency payments, but with typical wholesale banking methodology. Our solutions are delivered with integrated infrastructure at the source. In other words, our wholesale foreign exchange engine and our transaction banking processing platform are connected, so that enhancements to our foreign exchange solution or payment capabilities feed directly into our cross-currency payment offering.

Evaluation of a client's foreign exchange business is not just focused on a wholesale, e-solution or transaction banking element, but rather a review of the client's full interaction with the bank. This broad view of the client's exposure and requirements allows for an in-depth discussion around which solution is the most appropriate to use for which element, taking efficiency and pricing into account. Our fully integrated systems allow clients to receive highly cost-efficient foreign exchange solutions from within their normal transactional banking arrangement, while still having the option to access bespoke wholesale trades via their RBS contact. Another key component is straight-through processing. From an operational risk management perspective, this allows for far more efficient pricing and transaction execution.

Staying one step ahead

Banks need to focus on their core activities. Accounts, foreign exchange trading and payment processing need to operate independently, with connections made at a core level. From there, market-driven ideas can be executed far more efficiently, with the client at the forefront.

Historically, technological advances in financial institutions were driven in silos. Banks have now been forced to think from the corporate-treasurer perspective to develop integrated solutions that offer a holistic solution across cash management, trade and foreign exchange.

The online linkage of foreign exchange to the underlying transaction - whether on the cash or trade finance side - is becoming critical as corporates look for further transparency and efficiency across their processes.