A fresh look at post-Brexit treasury

A fresh look at post-Brexit treasury
Podcast featuring:
- Daniela (‘Dany’) Eder, Head of Payments and Cash Management for Barclays Europe
- Robin Terry, Vice Chairman for Payments and Cash Management Products, Barclays Corporate Banking

Dany: Hello, and welcome to our latest podcast in our series Exploring What is Possible for Treasurers in the New Europe. My name is Dany Eder, Head of Payments and Cash Management for Barclays Europe, and I'm delighted to be joined by Robin Terry today – our Vice Chairman for Payments and Cash Management Products. Together, we’ll be discussing how we can support corporates with positioning for growth in this new Europe. Welcome, Robin.

Robin: Thanks, Dany.

Dany: Robin, what are some of the key areas for the treasurer to consider when looking at Brexit?

Robin: Good question, Dany. I mean, I think there's been a number of key areas which treasurers have had in their minds in the run up to Brexit. I mean, this is nothing new for a treasurer as they’re always reviewing and risk-assessing their cash management arrangements.

However, alongside Brexit, the Covid-19 emergency has heightened this once again, much as it did back in the financial crisis days of 2008. And I think, firstly, liquidity has been absolutely key, and corporates will have looked at their internal cash reserves, and to their banks for additional funding through somewhat difficult times. In addition, clearly the government loan schemes that are announced and the way banks have helped to deploy these, have also been seen as fairly critical.

So, I think the constant review of banking partners is always a key consideration, and those banks that have supported them through difficult times by extending their balance sheet, will be remembered by corporate treasurers for sure.

And in relation to Brexit, selecting the right banking partner that can really seamlessly transact across the region, and has the right legal structure to do so, is a very important consideration, I think, that links into this relationship piece.

That banking partner, I think, really must have access to all the right clearing systems – so, it was particularly important for us to ensure this at Barclays. We really continued access to both high and low-value Euro schemes from multiple locations, and that was seen as an early priority for us. And additionally, when the European

Payment Council agreed last year that the UK could remain a member of SEPA, that gave us an additional geography on top of our continental European locations, from where we had full reach.

I think moving on, ensuring Euro liquidity management structures worked post Brexit was also important, and that's both from an in-country perspective and cross-border, to allow for liquidity optimisation from multiple country and customer bank account locations. Also taking into account things like treasury and shared service centre, or payment factory structures.

Finally, the loss of passporting has had issues for both banks as well as some corporates and how they are structured, and how they operate on a legal entity basis. And reviews for that have been another important consideration in Brexit planning because in some cases, it's been required to have a change of legal entity for an operation to continue to be able to operate in that post-Brexit environment. So they're kind of some of the high-level things which I think treasurers have been considering.

Dany: Thank you Robin, that is a very long list of individual key topics to consider. Looking at the individual products associated with those key areas that you just mentioned, share with us some of the trends that you’ve been seeing across these key areas and their focus.

Robin: Sure, absolutely, Dany. So let me return, I think, first, to the subject of liquidity. And I think in tough times, this is number one for a corporate treasurer. So clearly, better visibility and how to optimise the use of corporate cash, is always on the agenda for a treasurer.

And we found through experience, that too often, funds just sit in a huge number of bank accounts in different countries, and balances are not optimised to really make the best use of that liquidity. And I think the increased use of electronic balance reporting tools, you know, where they are linked to automated liquidity structures, is always a good place to start with, or indeed, to continually review as treasurers look at those structures.

I mentioned too many bank accounts a moment ago, and I think this is really a very important issue for most companies, and something we see coming out in many RFPs. As you can imagine, the rise in interest of virtual account structures has therefore been increasing, and is one area, really, where treasurers can look to reduce the number of what I'll call ‘real’ bank accounts and substitute a virtual account structure underneath it.

So, virtual accounts have been used for a long time to really aid reconciliation where you could open up many, many accounts for every payer. But more and more, they've been used to reduce the burden and cost of running real bank accounts.

Often, they create an in-house bank structure, and by using that in-house bank structure, it will allow for payments on behalf of, receivables on behalf of, POBO and ROBO payment schemes, to be implemented under that structure. Indeed, you know, really, the way in which virtual accounts exist, with all the funds on one real bank account but literally broken out on the underlying virtual accounts, also gives an automatic and immediate concentration of liquidity, and that's a real benefit.

However, clearly there are inter-company loan considerations if that structure contains multiple legal entities on a POBO or ROBO basis.

Dany: Yes, I totally agree, and it’s good to know that we at Barclays are in the midst of planning a new virtual accounting solution for our European treasurers to manage these types of structures. And I’m looking forward to that going live, and I believe we’re hoping to launch that in the second half of 2021.

Back to the trends, is there anything else that you’ve been seeing?

Robin: Alongside Brexit, and also, importantly, during the COVID-19 crisis, attention has also been focused on reviewing and improving supply chains as well as their financing. This has been really fast-moving, and optimisation of working capital through the cycle can really be seen as a real benefit and something that treasurers have been working really hard on. Because obviously, there's some real liquidity benefits that come out of that optimised and improved working capital.

Dany: We touched on what we were doing at Barclays, and the exciting news around virtual accounting. Share with us, though, a little bit more on past, present and future. What have we been doing at Barclays to prepare for Brexit?

Robin: Well a lot, Dany, to be sure. Barclays has been looking at Europe, I guess, for some years now, and it's a strategic growth area for the bank. And my role at Barclays is to ensure we have a full and really sophisticated cash management proposition in place in Europe. And great progress has been made in this respect over the last few years, especially as we get ready for Brexit.

Firstly, Barclays reorganised its legal entity structure to replace the upcoming loss of UK financial services passporting, by creating Barclays Europe. That institution has its hub in Dublin, and our network in Europe are now branches of our Irish entity. So that was the first legal entity change that we did. We also migrated our Euro high-value clearing to be out of our Frankfurt office, and alongside our Brexit preparations, we were keen to deploy a number of new corporate and cash management offices in some key European locations.

This gave us in-country account holding capabilities, payment access, and the ability to link in those liquidity structures we talked about earlier across that range of countries.

So as I mentioned earlier, Barclays has a strategic goal to be a key European cash management player servicing our global clients, and particularly so from our biggest franchise in the UK.

So, Barclays have been preparing for a number of years, and obviously, with the transition period coming to an end in December, we are well placed to have those discussions and to help our customers to navigate the real post-Brexit period.

Dany: Thank you Robin. This clearly shows the importance of Europe and how Barclays has continued the journey, establishing that European bank. In addition, by the end of this year, we are also planning to have completed the roll-out of our single banking platform, providing consistency and streamlining processes for our European treasurers, so this is really great news too.

Now, there have been a lot of topics that we’ve touched on, both in terms of choosing banking partners and infrastructures, the individual product usage trends, and preparing for Brexit and how we prepared for Brexit. Putting that all in summary, what would be your final words of advice to the treasurers who are preparing for post-Brexit?

Robin: Yeah, good question, Dany. I mean, I think there's already been a huge amount of preparation for Brexit over many years, both from banks like Barclays and our corporate clients. We've been talking to many of them for many years, and they've often joined our seminars and webinars to get the very latest.

However, I think my advice would be that the world is a very dynamic place these days, and whilst a final Brexit deal has not been agreed as of this date.

It's only right that our Treasury community should remain alert to the news headlines, continue to review and talk in detail with their banking partners, and review the proposition they provide, always having an eye on the continual improvement of cash management services and the structures that they put in place across the European landscape; particularly as we get closer and closer to that end-of-year transition period end in December.

And I think it is that continually looking at the structures, reviewing the banking partners, always being alive to what's potentially coming next around the corner, and as we've seen with Covid-19, this came a little bit out of the blue for most people. And, you know, the way in which banks and corporate treasuries have responded has been remarkable, to keep their businesses flowing and, you know, the world trade moving on. Remember, the world doesn't turn unless money goes through bank accounts, and payables and receivables happen.

So, a very important area to look at, so keep your eye on what's going on in the market and always be thinking about how you can continually improve your structures. That would be my advice.

Dany: That was really useful, Robin. Thanks for taking the time to join us today.

Robin: No problem, Dany. Thanks very much for inviting me.

Dany : That concludes our podcast for today, thank you for listening. You can learn more about how we can support corporates across Europe by going online at Barclayscorporate.com/Europe.