GTR’s Shannon Manders chaired a session at Sibos on the increased impact of regulation on corporates, with the aim of providing better insight into the ever-changing regulatory landscape and the affects it has on treasury management.


We have spent a lot of time as an industry in discussions around a lot of regulatory changes. What is happening now is that those regulations have landed, and are driving operating models for banks. In turn, clients are looking at their treasury policies and the regulatory impact on these.

Meanwhile, there are some regulations that still have to land – and they will – which is driving some product innovation. But what effect is this all having on the relationship between bank and corporate? And what is the role banks can play to help their clients on this front?

These were just some of the topics tackled by the panellists at Sibos’ Corporate Forum, who included David Cruikshank, segment head: corporates, government and not-for-profits at BNY Mellon, Stefan Lepp, a member of the executive board at Clearstream Banking, Jayna Bundy, director, global treasury operations at Microsoft and Carole Berndt, global head of transaction services at RBS. What follows is an excerpt from that conversation.

Manders: Jayna, could you highlight to us what the biggest legislative and regulatory changes are on the horizon for corporates?

Bundy: Regulation has kept us very busy over the last couple of years, and it is really driving change in how we look at managing our cash and investment portfolios. Looking back at some of the regulations as I thought about this, there are quite a few that have impacted. I will call out a few and then talk a little more deeply about what we focused on.

If you think about even how we transact, looking back at February and the Single Euro Payments Area (SEPA) implementation, that was a pretty major regulatory change for corporates. Microsoft worked to build out ISO XML across our teams to make payments in the EU. Also, for the past few years, we have been very focused on Dodd-Frank and the impact of Over the Counter (OTC) clearing. We do have a derivatives portfolio and we expected that we probably would not fall under the blanket of non-financial end-user exemption.

That moves into the European Market Infrastructure Regulation (EMIR) and how we plan for that for our non-US portfolios. As we work forward now, we are seeing Basel III and the money market reform, and that really changes how we think about where we are holding our cash and whether it is in bank deposits, the investments that we make, and also the money-market funds that we choose.

We also cannot forget Know Your Customer (KYC), which is also a hot topic. Without going too deeply into this, I think OTC clearing is definitely key for us. Probably two years ago, we decided that we were going to be proactive in implementing an infrastructure to move forward with clearing, even if we could take the exemption. It was a great framework and decision that we made, because it also laid the groundwork for where we are going with EMIR. That, however, has really taken a significant time as we look at applying for Legal Entity Identifiers (LEIs) and the documentation that we need to have in place, as well as a lot of system implementation to make the whole thing work, and a collateral-management structure. That, then, is really where our focus has been. I guess we also think about the cost of clearing versus not clearing our trades.

Manders: David, does what Jayna have to say relate to the conversations that you are having with your clients at the moment?

Cruikshank: They are certainly related but I think they are probably coming from a couple of different perspectives. A lot of what Jayna referred to is directly impacting how they manage their treasury, without a doubt. What we are seeing in our conversations with clients today are regulatory changes that fall into certain baskets. One category could be how collateral is treated, and the regulations around changes in collateral requirements. Second might be changes around protecting the infrastructure.

Finally, there are regulatory changes around balance-sheet management. As we step back today and look at even a category of change around balance-sheet management, it certainly is Basel on one side of it. It is what I would call the enhanced Basel view on the US side, where we look at supplemental-leverage ratios and what needs to be achieved by banks. It is liquidity-coverage ratios, which impacts the ability of banks to take on more liquid deposits, or non-highly qualified liquid assets.

While we, as a bank, get our arms around what that does to impact our balance sheets and what we need to do differently, it drives a direct conversation with our corporate clients on both sides of our balance sheet. We look at the lending activity, which the last question referred to; it also looks at deposit-taking activity and how we can support our corporate clients, many of whom are heavier on the cash side versus having needs on the borrowing side. These, then, are questions that are driving a direct conversations today.

On the bank-balance-sheet regulatory side, there is probably more insight in the bank market today, because we are directly impacted by it. We have dates in front of us and hurdles that we have to achieve. In many cases, the conversations are just beginning with the corporate-treasury offices to figure out how this impacts the relationship, what it is going to change, what is going to be handled differently, what it is going to mean for the relationship overall, how we can help you with your liquid assets and funding needs going forward, and in a completely different paradigm.

Manders: Carole, in what ways are banks being forced to change the way that they are doing business as a result of all of this?

Berndt: If we look back five years or so, I think we would all have said that relationship drives revenue. Now, it is a little different: relationship needs to drive return. There was a time in our industry when driving revenue was a relatively easy thing to do, and what the regulatory changes have done is forced us to be more disciplined about that and understand the true cost of what we are delivering. In terms of banking products, there is a cost to manufacturing them, in the same way that there is a cost to manufacturing a pen, an iPhone or a chair. There is a resource cost and there is the expertise, but now we talk very much about the capital cost, and that capital cost has to be factored in to how we look at the return and, hence, the relationship.

There are lots of conversations about transactional-level return. To the point about lending and appetite for lending, it is very much about relationship return and ensuring that the capital that we put out, which now has a very distinct price to us, has an appropriate return to the bank and to the client in terms of its utilisation.

Manders: Jayna, what changes, if any, have you seen in your banking relationships?

Bundy: I think we have a lot more conversations about the importance of certain business streams. I still think that banks play a very important role, and I think the communication has to be open around setting expectations for what our needs are in the future and how they can help. We are a multinational company with multiple banks, and we have great partnerships. It is really key to define what it is that you need from one another. I think you should feel okay to have those conversations.

Manders: Do the bankers on the panel have advice for us on new ways that we should be working with you to get in front of this?

Berndt: I think it is just the basics of communication. I know that Microsoft is very proactive at engaging with the banks, and the banks with you. For those corporates not of the size of Microsoft, however, it really is about demanding more from your relationship banker than the product road-show. It is engaging in the seminars and in events like this, so that you can see what is coming down the track. Do not be afraid to ask for help or to bring your banking partner into your organisation in a transparent way, because you do not get trust without transparency. Without transparency and trust, you will never get to the point of successful transactions, so I think it is about open communication. Be demanding of your banking partners.

Manders: Jayna, if you had to give a piece of advice to any corporate treasurer in the audience today with regard to regulation, what would that be?

Bundy: There is a lot of information to digest. There are lots of ways to think about how it is going to affect your business. We have talked about cash and balance sheet. We have talked about trading, which is a lot of our focus. I think it is just reaching out, getting the information you need and relying on your banking partners to help you through it. Do not think you need to do it alone – ask for help on the interpretation of how it will impact you, because the banks know your portfolio.

They know how you manage your cash and whether you invest it. You should really be looking for them to step up and say: ‘This is how we think these regulatory changes are going to impact your business, and these are the things you need to be thinking about early on.’ That is the most helpful, that proactiveness around ‘What is the impact on me? Help me get through it’.