Here are some of the biggest stories of interest to treasurers from the past few weeks…
A sovereign green bond from the EU has raised €12bn for a host of sustainable investments, just a few weeks after a debut green gilt from the UK attracted £10bn. As regular readers would have noted from last month’s ‘In case you missed it’, total demand for the UK gilt – issued on 21 September – exceeded £100bn. On 12 October, the EU bond was oversubscribed 11 times over to the tune of more than €135bn, after sparking the interest of a wide variety of investors.
Marking the world’s largest-ever green bond issuance, the EU offering represents the opening salvo of the bloc’s NextGenerationEU green finance programme, which aims to attract around €250bn of investments by the end of 2026. One of the initiative’s primary aims is to harness green bonds to fund the region’s recovery from the pandemic. The October bond is set to mature on 4 February 2037.
In a statement, EU commissioner in charge of budget and administration Johannes Hahn said: “[This] issuance is a strong start for the NextGenerationEU green bond programme. Set to turn the EU into the world's biggest green bond issuer, it is a powerful signal of the EU’s commitment to sustainability. Our future is green and it is extremely important that we seize the opportunity to clearly show to investors that their funds will be used to finance a sustainable European recovery.”
Funding from NextGenerationEU green bond issuances will be dedicated to green and sustainable expenditure under the programme’s centrepiece Recovery and Resilience Facility. So far, approved investments include a research platform for energy transition in Belgium and the construction of land-based wind power plants in Lithuania. A minimum of 37% of each Recovery and Resilience plan must be devoted to supporting the green transition.
Software designed to make cash forecasting more efficient is high on corporate treasurers’ wish lists, The 2021 McKinsey Global Payments Report has found. In a series of roundtables with CFOs and treasurers, McKinsey uncovered “significant pain points” around currency risk, invoice processing, payment reconciliation and cash forecasting – with the latter process in particular considered by large and small organisations to have the least efficient financial workflow. Indeed, the report notes, treasurers sometimes spend more than a week gathering and compiling forecasting data from multiple different formats, causing workload strain.
Quoted in the report as representative of the profession’s sentiments, one treasurer says: “What most interests me is the possibility to manage my working capital operations without manual loading of data… and to have the possibility, not only to have a reporting instrument, but also a predictive tool for operations.” Another states: “We are building a new digital platform, consolidating lots of data into an integrated system, to help us unlock the potential daily processes, [plus] improve transparency and access to real-time information.”
McKinsey’s data shows that treasurers in large corporates have five primary needs from their desktop technologies:
1. Timely visibility into all global transactions;
2. Elimination of time-consuming, error-prone manual payment-generation workflows;
3. Reduced exposure to non-standardised bank documentation and other compliance issues causing significant delays or confusion;
4. Protection against fraud; and
5. The ability to keep pace with industry changes to formats and technologies, particularly in payment processes.
In addition, large enterprises are prioritising a) seamless integration with enterprise resource planning systems, and b) the facility for making swift decisions – for example, on access to financing and short-term investments – based on underlying cash positions.
A ransomware pandemic unleashed by the extraordinary circumstances of the COVID-19 crisis is surging around the world, warns a new report from Allianz Global Corporate & Specialty (AGCS). The insurer notes that global cyber intrusion activity jumped a whopping 125% in the first half of 2021 compared to the same period last year, with ransomware – malware that encrypts company data systems and demands payments for restoration – leading the charge. FBI figures show that there was a 62% rise in US ransomware attacks in H1 2021, following a 20% increase across the whole of last year.
In the report’s analysis, a growing reliance on digitalisation and remote working amid the COVID-19 era – along with related IT budget constraints – are just some of the reasons why IT vulnerabilities have flourished, offering numerous points of access for criminals to exploit. The insurer also cites the wider adoption of cryptocurrencies, which enable anonymous payments, as a key driver of ransomware incidents. In parallel, cybercriminals have become more sophisticated through a set of alarming developments, such as:
1. The growth of ‘ransomware as a service’ Run like commercial businesses, hacker groups such as REvil and Darkside sell or rent out their hacking tools to cybercriminals and provide them with a range of support services. As a result, threat actors are better equipped to operate.
2. Double and triple extortion In double extortion, criminals combine the initial encryption of data systems with a secondary demand, such as the threat to release sensitive or personal data. They can then go into triple extortion, backing up the first two layers with DDoS attacks or data theft – potentially expanding their attack to a firm’s customers or business partners.
3. Supply chain attacks These incidents take two main forms: i) those that target IT service providers and use them to spread malware, as in the recent Kaseya or SolarWinds attacks; or ii) those that target physical supply chains or critical infrastructure. In the latter case, for example, a ransomware attack on US corporate Colonial Pipeline stemmed from the compromise of a single password.
AGCS Risk Consulting global cyber experts leader Rishi Baviskar said: “In around 80% of ransomware incidents, losses could have been avoided if the organisations had followed best practices. Regular patching, multi-factor authentication, as well as information security and awareness training and incident response planning are essential to avoiding ransomware attacks and also constitute good cyber hygiene.” He added: “If companies adhere to best practice recommendations there is a good chance that they will not become ransomware victims. Numerous security gaps can be closed, often with simple measures.”
Allianz has published a cyber-hygiene checklist here.
Stablecoins that approach a systemically important scale could play a key role in short-term securities markets such as commercial paper (CP), according to Fitch – while potentially bringing new risks to those markets. However, the rating agency notes, their influence will hinge largely on how relevant regulations evolve.
In an 18 October opinion, Fitch pointed out that the reserves that coin operators hold in order to at least partially back their currencies could impact upon short-term markets – particularly as those coins scale up. For example, as at end of June, Tether held 49% of its reserves in certificates of deposit and CP. Meanwhile, Diem – a global stablecoin backed by Facebook, but not yet released – has already proposed to hold at least 80% of its reserves in short-term, high-quality government securities and the remainder in cash, with overnight sweeps into daily liquid government MMFs.
Fitch noted: “The rapid growth in stablecoins means these securities holdings are already relatively large: although Tether’s annualised market value growth slowed to 45% in 2Q21, it has risen by 230% since the start of 2021 to 15 October to reach $68.6bn.” On the basis of current growth rates and reserve allocations, it said, “stablecoins could become a significant investor group in the US CP market. For example, in a hypothetical scenario where stablecoin market value continues to grow at near-current rates, and reserve holding allocations remain stable, their CP holdings could exceed those of MMFs within two or three years.”
In terms of potential downsides, the agency warned: “Stablecoins could be disruptive for CP markets – for example, owing to run risks. Stablecoin-related turbulence could both affect the CP market itself and transmit shocks to other market participants. Risks could be aggravated if the infrastructure and partners used by stablecoin operators to engage with traditional markets lack a record in the smooth handling of transactions during periods of market stress or volatility.” It added: “The regulatory approach towards stablecoins will affect how the sector develops, although the timeline and details of regulation in key markets – most notably the US and EU – remain unclear.”
Banking group Standard Chartered has sealed a partnership with global fintech firm FinLync, under which the former’s application planning interface (API) services will be available via the latter’s software portals. In a statement, the deal reflects Standard Chartered’s commitment to developing API facilities that provide corporate treasurers with 24/7 access to critical information. The bank hopes that the arrangement will help to support its corporate clients in making the shift to real-time treasury and significantly increasing working capital efficiency.
FinLync co-founder and CEO Philip Klein said: “In order to get value from bank APIs, companies must connect them to their end solution – usually an ERP. Building these connections from scratch is a lengthy and costly process that can take months or years for just a single API. FinLync turns this previously complex connectivity challenge into a simple plug-and-play process.”
Standard Chartered global head of cash management Philip Panaino added: “Beyond the building of APIs, we recognise the need to take the next step in ensuring that corporates can access these solutions in a fast, secure and easy-to-use manner.”
