Bob Lyddon’s comments re the rise and influence of international banking clubs were recently published in Euromoney and Treasury Today:
Euromoney, February 2015 – “Banking clubs extend global reach”:
“Due to the nature of the local economy, a corporate is normally best advised to trade as a resident entity in Chile and Brazil, and the commercial restrictions are reflected in the banking offering that can be made available.”
“Non-resident accounts are not permitted in Chile, although a resident can hold accounts in foreign currencies. In Brazil, foreign currency accounts are not available and it is onerous to operate a non-resident bank account in local currency.”
“While there is a trend towards centralization and the shared services model adopted by major corporations, it is noticeable that many medium-to-large companies remain quite decentralized.”
“For a treasurer trying to set up banking remotely in a new country, the option of selecting a local bank in each country has declined due to the foreign beneficial ownership issue.”
“Additionally, the option of using a network bank may not be open to the treasurer if that bank has retrenched.”
“Since 2000, IBOS has had a same-day value overnight cash pooling service [in EUR] that moves the entire available balance in the slave bank and transfers it to the master bank.”
“It is a commonly held misconception that banking clubs cannot offer cash pooling – we have more than 200 customers using this service.”
Read the full Euromoney article here.
Treasury Today, February 2015 – “Banking clubs: obsolete?”:
“To the extent that there appears to be quite a common earnings requirement that each link in the network earns $25,000 per annum, which can be difficult to reach when the network bank’s service offering may be quite limited in certain locations.”
“This can give rise to a situation where one part of a network bank is proposing its own network to its largest clients and a different division is proposing IBOS to the medium-large customers.”
“Each step along the way differs. Reference accounts have the advantage of quicker set-up and single point of customer service, but then you have the drawbacks of a very limited local service range, no local relationship manager/customer service and no access to local credit products such as card, direct debit origination and loans.
“It can work well for certain types of very centralised customer but is not a panacea. It is also expensive to establish and is usually constructed on a one-way basis: a global bank engages a partner, who invests heavily on their side in the expectation of large volumes.”
“IBOS works to a service template, with sets of capabilities states as requirements to back up each of the value points. Out aim is to enable member banks to help their customers in other countries; the service has to perform on some real basics,without which you never get as far as delivering intraday and previous day reporting, MT101 services and cash pooling. Looked at from the point of view of the introducing bank, they need a system that will respond when they have a client who needs an account and services.”
“On the other hand, member banks may have viewed IBOS as a stopgap along the way to having their own comprehensive network whereas, thanks to retrenchment in the industry, IBOS offers coverage of areas for which member banks will not have coverage themselves within the foreseeable future.”
“Indeed, they may sell off an interest and then it is very convenient if the bank from which they have divested remains in IBOS, so that existing customer business can be managed via the network instead of via their own network. That in turn can mean that the business is managed from the same team with minimum disruption.”
“The line of business that has become far less important is non-resident accounts for local collections – that requirement can often be satisfied with just one euro account in the SEPA area rather than one in each country. However, there are still the non-euro countries: the UK, the Scandinavian countries and several in Central and Eastern Europe.”
“The need to do these checks in each location is one of the reasons behind network banks wanting to earn $25,000 per location. The IBOS approach has been to try to maintain a consistent process even if specific documentary requirements for each bank initially diverged. Our observation is that the requirements are starting to converge again thanks to FATF 2012 recommendations.”
“The IBOS approach is to have designated contacts at each bank, a consistent method of initiating a referral and finding out whether it is ‘go’ or ‘no go’, full visibility of what the documentary requirements will be for a particular bank and a consistent method of working through the process, backed by escalation procedures. But we cannot have just one account opening document for the whole network.”
“For a treasurer to try to set up banking remotely in a new country, the fall-back of selecting a local bank themselves in each country has declined due to the ‘foreign beneficial ownership’ issue. Then the option of using a network bank may not be there if that network bank has retrenched or if the customer falls below the threshold. So KYC is in a way an opportunity for IBOS as, within what is a network of trusted third parties, each bank can trust the authenticity of the documents sent by an IBOS partner.”
“IBOS has offered a same-day value overnight cash pooling service since 2000 (in euros) that moves the entire available balance in the ‘slave’ bank and transfers it to the ‘master’ bank. We have more than 200 customers using this service.”
Read the full Treasury Today article here.