Network Management - Kingmakers of Intraday Cash and Liquidity Management
Posted on 20th March 2020 at 14:57
In this, the second of our articles on the building blocks of real-time intraday cash and liquidity management, we're going to concentrate on Network Management. An area that if engaged correctly, will transform your intraday cash and liquidity management capabilities. This 3 minute read, will hopefully prompt some healthy debate on an area that so often operates under the radar.....
Network management teams have historically been the infrastructure providers for cash and security settlement activity. Often housed within the back office, their role has primarily been a reactive one, actioning requests from front office staff and the transactional banking teams, to open nostro and custodial accounts. These are then in turn, plumbed into the the system architecture that enables settlements to be reflected in the books and records of the firm. The ignition point for account opening requests has in some part, been based upon "reciprocity", where banks have signed, seemingly symbiotic agreements that should see both parties profiting from the relationship. However, with compressed margins and an increasingly competitive market, many firms have had to revisit their network management arrangements and interrogate volumes and rate cards, to ensure that historic alliances are still viable and that they deliver on the their primary purpose which is settlement facilitation.
These reviews have produced some astonishing points that have previously gone unnoticed due to the fact that fees for services are often lost in funds transfer pricing and are being rolled up into an overall cost for "doing business". It is not unheard of for a medium size bank to have many hundreds of nostro/custodial accounts that have accumulated over the years with many having no or little traffic to warrant their existence.
But it isn't all bad news. Many firms are using this opportunity to completely revamp their network management function by empowering their teams to create measurable "success criteria" for old and new relationships. These relationships are no longer based on woolly reciprocal arrangements where the follow through on original tie-ups and their intended benefits may not have materialised.
Network management teams are now beginning to offer a healthy challenge to current and potential future arrangements with nostro/custodial providers. These queries go far beyond the "bread and butter" requirements of cut off times and overdraft/deposit rates. These questions have become even more critical with the need to be able to monitor activity real - time or as close to it as possible. You will often hear teams now asking about certain messages that confirm particular types of activity, the frequency with which they're sent and associated tariffs.
This is just the beginning - once intraday limits and jurisdiction coverage are taken into account, firms now have the ability to critically assess the advantages of these arrangements.
This ultimately leads to a much leaner, fit for purpose network of nostro and custodial providers. A greatly simplified network reduces errors, servicing needs and eventually costs.
This post would not be complete without a reference to peer 2 peer (P2PS) settlement, a movement that is gathering significant momentum. With the introduction of new technology, the march towards P2PS is fast becoming a truly viable, market wide option for settlements. But the principle of engagement interrogation still holds true - "will this client be able to communicate settlements to me in the format that I need and real-time?" We may see network management teams bolster client on-boarding teams referred to in our previous post. We at Cupula Consulting are very excited about the future and how all players and activities will interact with each other.
What do you think? Please leave a comment, we would love to hear your views and if you have any further questions please feel free to contact us on the link below.
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