Real-time liquidity insight in the current climate

In light of the recent crisis, Neville Roberts, CEO of leading treasury software provider Planixs, and Desmond Lynch, founder of Cupula Consulting, caught up to discuss the importance of real-time intraday liquidity management, especially in the current climate, and what the future holds for banks and corporates when it comes to managing their cash, collateral and liquidity

5 May 2020

NR: Welcome Des, you and I have known each other for some time now, but for those that may not know you or your work, can you tell us a little bit about yourself and Cupula Consulting?

DL: Sure Neville, be happy to. I have worked in the Financial Services Industry for over 30 years and I’ve been fortunate enough to have held positions in all aspects of the trade life cycle – front, middle and back office, specialising in Cash and Intraday Liquidity Management (CILM). I set up Cupula Consulting as I felt that our industry would benefit from a firm focusing solely on cash and collateral management, helping firms realise the full potential of a well-run CILM function. We at Cupula Consulting also have a deep understanding of implementing Planixs’ real-time treasury platform Realiti, all the associated opportunities that this solution suite provides and how to best implement the solution from operating model changes to technical architecture design.

NR:Thanks Des. We are all in unchartered territory with the current Covid-19 pandemic, something that’s truly touched the lives of each and every one of us globally, what are your thoughts on how this has impacted our industry, particularly real-time liquidity insight?

DL: First of all if I may, I would like to comment on the amazing way that everyone – not just us in the UK but around the world – has pulled together to support one another. It is a humbling sight to see in the face of such adversity. One of the things that I have been most impressed by is the way that all of us in Financial Services have embraced technology in this, our new ways of working. Meetings are still taking place (virtually), decisions are still being made and transformation is still happening. If anything good has come out this awful situation that we’re in, it’s the fact that we, as an industry are not only functioning, but we are still delivering – providing the infrastructure for our wider community to get through these challenging times and to emerge even stronger. Real-time liquidity visibility is a corner stone of all this activity. For many banks it is impressive that positions still get funded so that obligations can be met as they fall due. However, there are many banks and more broadly non-bank financial institution including large corporates that do not yet have the infrastructure in place to manage in these circumstances, especially with the constraints of remote working. 2008 was all about balance sheet challenges whereas I think we will find out in time that 2020 was all about real-time liquidity visibility.

NR: I could not agree more Des…. you mentioned in your introduction that you help firms improve their operating models, in your opinion what are the “must haves” of a well-run CILM function?

DL: Good question Neville and one that I often get asked. I would like to split the answer into three sections. Firstly technology, without the correct kit, firms will not be able to reap the benefits of well-run CILM function. I thought that Planixs covered this well in your recent eBook, The Benefits of Real-Time Intraday Liquidity Management, if you’re working off regular batch processing updates your projections will at best be reactive. Too many firms, both financial and corporate, rely on outdated system architecture and spreadsheets to make funding decisions that could have a significant impact on the business functioning and how regulators view their CILM activity. Secondly data - it seems obvious but without the correct data, firms will be playing catch up to calculate the correct funding projections. Not enough care is placed on the details of the booking process. Trade entry is more than just direction, nominal and price…standard settlement instructions (SSIs) allocated to trades are just as important. Many a time I have seen all profit associated with a trade wiped out due to avoidable overdraft or late settlement costs. Thirdly and probably most importantly, it is how the different areas within a CILM function interact. The firms that have the optimal operating models have a flat structure where separate areas and their nuanced activities merge into one unit with lots (and I mean lots!) of interaction. There is an open line between not only front, middle and back offices but also reconciliations and Network Management. All have a clear “north star” as to what they need to do and its place within a high functioning team.

NR: Thank you Des. Moving onto the evolution of CILM, how has intraday liquidity changed over recent years?

DL: For me, my own personal “light bulb” moment was during the Financial Crisis of 2008. As we all know liquidity did not just reduce, the tap was literally turned off. All firms played a high stakes game of “who blinks first” when funds would not be released until you were sure that the other side of the trade would be received. Those firms that faired best were those whose margin calls were fully automated and who had a hot line to their nostros to confirm receipt of funds. Very quickly we moved away from a mindset of “as long as we end up flat, we’re ok” to one of “how can I flattened my intraday exposure curve?”. A wealth of new legislation has been introduced to protect both the financial system itself and market participants. With this has come an uplift in data integrity and speed with which it can be delivered. This, in turn, has acted as a catalyst for improved intraday capabilities. We now find ourselves for the first time with all the building blocks to assemble a real-time view of all our cash and security positions – for me this is very exciting.

NR: I also think that we are on the cusp of a watershed moment. But now moving on to our next question, what innovations are you most excited about Des?

DL: As mentioned I now think that we have all the building blocks at our disposal, but we need to be able to assemble them correctly. An area that I am truly excited about is collateral. Cash and securities are two sides of the same coin and they need to be viewed together in order to get the full liquidity management picture. I know that this is an area where Planixs has been developing new and innovative functionality in their product suite. Having a single view of cash and collateral will be a game changer for many organisations and those that do not reap the benefits of this single view run the risk of being left behind in the race for optimal use of cash and securities. Another area that I believe can really add value to the proposition from a financial institution is the ability to offer a real-time view to clients of their cash positions across all their nostros.

With the introduction of uniform message protocols under ISO 20022 and open banking, clients will be able to seamlessly view all their nostro positions in one place, irrespective of their service provider. Clients are now much more sophisticated and want frictionless interaction with their banks.

Long gone are the days of reactive reconciliation – identification of issues such as non-receipts after the event. Clients want – and rightly so – to be able to view everything, real-time and online.

NR: And finally Des, what does the future hold for liquidity management and Cupula?

DL: Thanks Neville. We’ve touched on current opportunities but the area that we’re most excited about is AI and treasury automation. Our industry is evolving at such a pace that the automation of treasury activity is no longer a dream but rather a near term reality. As you know we worked closely with your team at Planixs to develop the new sweeping functionality. With this functionality we will be able to implement machine learning that will have the capability of suggesting potential trades or funding solutions that will best suit a firm’s funding strategy, whilst minimising risk and automating regulatory reporting such as BCBS 248.

Our vision at Cupula is ambitious but simple, to service all cash, collateral and intraday liquidity needs globally. This can only be done by partnering with the leading real-time treasury software provider which we believe we have found in Planixs. The future has never been this exciting.

NR: Thanks Des for a fascinating insight into current market activity and future prospects.

If you would like to find out more about any of the subjects discussed above, please contact Planixs or Cupula Consulting direct and we’ll get back to you.

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