Banks, derivatives and pensions

1 August 2009

In recent months we have heard senior politicians from all three parties say better, not more regulation (of banks etc) is needed – so why are we all worrying about the form of regulation and more regulation rather than better regulation? Because those saying it aren’t the decision makers in Government!

We have responded to Lord Turner’s review and our conclusions lean towards better not more. There seems to be some ambivalence about whether the size of a bank matters. Our research indicates that the very largest companies find dealing with very large banks convenient but not essential. So we conclude that the regulators should consider how they deal with the banks that are too big to fail and too big to bail out. The railway industry is going through a similar debate and trying to establish the best structure to avoid the private sector picking up the upside whilst the government picks up the downside.

The ACT has firm plans for at least two events for non-executive directors (NEDs) in the autumn – we already know that the larger companies are well served from a treasury perspective by dedicated (ACT member) treasury professionals. In our view the NEDs can help us extend treasury knowledge into the mid-tier companies. One of the key questions for an NED of a mid-tier company must be;

How does my company handle treasury and financial risk management?

How many NEDs have asked this question?

Should mid-tier companies be making more use of ‘interim treasurers’ to set up treasury management systems and prepare a company for a refinancing? Anecdotal evidence indicates that mid-tier companies would in general benefit from this approach. And, as a further thought, could mid-tier companies benefit from having a practising corporate treasurer from a larger company sit as a non-exec member of their finance/treasury committee. This could be a significant benefit to the individual treasurer too, through broadening their experience.

But it is not only mid-tier companies where we need to extend treasury knowledge. We have seen our first enrolments for the Certificate in International Treasury Management - Public Finance (CertITM-PF) our joint qualification with the Chartered Institute of Public Finance and Accountancy (CIPFA). ACT and CIPFA have partnered to develop this qualification as we believe it is vital that staff managing funds in the public services are trained in all aspects of treasury management.

Borrowing conditions

Recently we publicised a survey on borrowing conditions that is being led by the EACT. Please go to www.freeonlinesurveys.com/rendersurvey to complete this brief survey.

Reform of OTC derivatives

The regulatory authorities in the US and the EU are moving forward with ideas to reduce the risk from OTC derivative positions that might threaten financial stability in the event of the collapse of a market participant. There is a danger that the ability of companies to use normal OTC could inadvertently be severely curtailed by moves to standardise contracts and more trading on exchanges in place of bilateral deals. The ACT has produced a background briefing on the issues available at http://www.treasurers.org/OTCderivatives. If you have any comments to feed back to the authorities, please contact technical@treasurers.org. HM Treasury has specifically asked for treasurers’ views to help the UK government in making its case within the EU, so this is an opportunity for the corporate users to be heard.

ACT Middle East Treasury Awards – closing date for nominations is approaching
As I have mentioned previously the ACT will be recognising the accomplishments made by treasury and finance professionals in the region through two treasury awards:

Corporate Treasury Deal of the Year
Treasury Team of the Year

To find out more about the awards and to make your nomination visit www.treasurers.org/actmiddleeast/awards
Award winners will be announced at the ACT Middle East Gala Dinner taking place on 28 October.

Pensions

The Board for Actuarial Standards (part of the FRC – yes I had to check too) has issued a consultation paper: Pensions June 2009. This is aimed at ensuring users of pensions information - so trustees, pension scheme beneficiaries and scheme sponsors, i.e. you guys, are well informed about the basis of your pension schemes valuation. This paper sets out generally sensible proposals most of which should be best practice today. You are invited to submit your feedback directly to the BAS. However, I cannot resist highlighting two statements in the paper – the first is obvious (I hope)