ARE YOU KIDDING ME?
Managing the Barrage of Treasury Compliance Gracefully
TEXPO 2017
Presented By:
Proprietary & Confidential: Strategic Treasurer © 2017
About the Presenter
Craig Jeffery formed Strategic Treasurer, LLC in 2004 to provide corporate, educational, and
government entities direct access to comprehensive and current assistance with their
treasury and financial process needs. His twenty-five years of financial and treasury
experience as a practitioner and as a consultant with various financial institutions have
uniquely qualified him to help organizations craft realistic goals and achieve significant
benefits quickly. Mr. Jeffery was previously a Senior Vice President and Practice Leader for
Wachovia Treasury & Financial Consulting from 2000 through 2004. Prior to joining
Wachovia, Mr. Jeffery worked with a major regional bank as Vice President and worked in
the Information Management, Investment, and Treasury Divisions at The Hartford. He is the
author of a book for Treasury, The Strategic Treasurer: A Partnership for Corporate Growth,
published July 2009 by John Wiley & Sons.
Today’s Co-Presenter:
Craig Jeffery, CCM, FLMI
Founder & Managing Partner
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Today’s Discussion
The financial crisis spawned a range of regulations that are still hitting treasury groups. Other situations
have triggered additional regulations including: companies changing their country of domicile; concerns
about money laundering and terrorism funding; tax avoidance etc. Treasury has to prepare for and
respond to these regulations with their organizational understanding, agreements and technology.
From: FBAR, Section 385, FATCA, EMIR, Money Market Reform to Dodd-Frank and BASEL III, changes are
impacting relationships, processes and profitability. How should I best to manage new and developing
regulations and compliance requirements?
1 BAM & FBAR
2 FATCA
3 Section 385
4 Compliance Framework
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Proprietary & Confidential: Strategic Treasurer © 2017
Treasury Impact
Regulations
FBAR
FATCA
SOX
Debt Covenants
Dodd-Frank
PCI Compliance
Money Market
Reform
• EMIR
• NACHA
•
•
•
•
•
•
•
Impact
•
•
•
•
•
Reporting
Controls
Relationships
Options
Technology
Systems
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Calibration
Calibration of Compliance
Bank
Major Dedicated
Group
Enterprise
One Hat
Individual Tracking
Non Bank
Financial
MNC
Domestic
Organizational
Support
Systems
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Proprietary & Confidential: Strategic Treasurer © 2017
FBAR & BAM
Standard of Good Corporate Conduct
Bank Account Management
Standard
of Good
Corporate
Conduct
Controllers
Treasury
Bank reconciliation for all accounts
on at least a monthly basis.
Visibility to every operational account on
a daily basis
Account Level Controls applied via
banking services and internal processes.
Transaction Level Controls applied via
banking services and internal processes.
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Proprietary & Confidential: Strategic Treasurer © 2017
Awareness and Information Gathering
Please rate your knowledge of the FBAR requirements
for reporting to employees who are signers on foreign
subsidiary bank accounts?
2016
Limited. I am aware of some of
the requirements, but I am
unsure about certain
requirements or interpretations.
How has your company handled gathering the
information on the highest balance in the foreign
subsidiary accounts for 2010-2015? (Check all that
apply)
2016
Legal entity reporting requirement
32%
27%
Treasury balance reports/statements
Knowledgeable. I have a good
understanding, but have some
questions.
54%
Communication with banks directly
General ledger
Expert. I am fully aware and
current in my understanding of
all FBAR requirements for
individuals.
72%
16%
20%
14%
Other
0% 10% 20% 30% 40% 50% 60%
12%
0% 10% 20% 30% 40% 50% 60% 70% 80%
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Proprietary & Confidential: Strategic Treasurer © 2017
Planning Data Collection & Reporting Process
What processes have you put in place for ongoing information
gathering and reporting? (Check all that apply)
2016
If you haven't collected the data yet, how will you
be handling the data gathering? (Check all that
apply)
2016
Using a Bank Account Management
System with balance feeds
Surveying legal entities
25%
Treasury balance reporting
24%
Using a TMS that reports the information
in the right format
64%
19%
Using a TMS to export the data and
reformat it using another tool/process
21%
Using a Treasury Aggregator to export the
data and reformat it using another…
Direct communication with bank
14%
General ledger
15%
2%
Manual process for gathering data,
automated reporting
25%
Automated process for gathering data,
manual reporting process
9%
Manual process for gathering data,
manual report process
Other
16%
44%
Other
0% 10% 20% 30% 40% 50% 60% 70%
3%
0%
10%
20%
30%
40%
50%
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Proprietary & Confidential: Strategic Treasurer © 2017
What is your policy?
For the purposes of reducing FBAR filing requirements, do you have a
policy regarding US vs. foreign signers / wire initiators / approvers /
releasers on foreign accounts?
2016
0%
10%
Yes. We try to keep non-US signers on foreign accounts to reduce
FBAR requirements.
20%
30%
50%
60%
70%
80%
23%
No. We have no policy.
Other
40%
70%
6%
2
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Proprietary & Confidential: Strategic Treasurer © 2017
What is FATCA?
What is FATCA?
•US is the only country that levies taxes on its citizens and residents on their world-wide income,
regardless of residency
•Requires Americans to pay US taxes on foreign income
•Estimates are that US Treasury loses as much as $100M/yr to offshore tax non-compliance
How do they accomplish this?
•Compels aid of withholding agents-companies. Must take documentation from payees with
foreign accounts or withhold 30%.
•Foreign payees must ID/disclose their US account holders or certify exception otherwise 30% will
be withheld
Why is it important?
•Penalty of non-compliance makes companies liable for 30% of every international payment
•IRS is staffing up regionally for FATCA audits
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Proprietary & Confidential: Strategic Treasurer © 2017
SGCC FATCA
Compliance is a coordinated process, not an event
Standard of Good Corporate Conduct – FATCA
Standard
of Good
Corporate
Conduct
Tax
Accounts Payable
Treasury
Ongoing
monitoring of
regulations and
charges and
central
coordinator (tax)
Process
established for all
relevant payment
types
(A/P) comply with
FATCA
Determination of all
payment types (IHB,
I/C Loans, other
treasury payments)
that are included in
regulation. Establish
and update process
for completion.
HR/Benefits
IR
Ensure process for
benefits payments.
Ensure transfer
agent has
appropriate
processes in place
for dividend
payments
Review Compliance Matrix to ensure accuracy of instruction and assumption on an annual
basis (with sufficient time for corrections if needed). Add requirement to have written
procedures.
Strategic Treasurer
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Proprietary & Confidential: Strategic Treasurer © 2017
How are you affected?
FFIs & NFFEs
Fund
Broker
Custodian
$
Withholding
Agent
IFA/Wealth Mgr
Bank
Trust
Insurance Co.
Foreign Financial Institutions (FFIs)
•
US Persons
Required Actions
Who is affected and how?
•
•
$
Must avoid “nonparticipating status to avoid withholding
Such FFIs cannot get refunds/credits of withheld amounts against their
own US Tax liabilities, unless required by treaty
Cannot get interest on refunded amounts
Non-Financial Foreign Entities (NFFEs) to avoid being withheld
upon ,must either
Withholdable payment
determination – Is a payment
withholdable; What documentation
is needed to avoid Chapter 4
withholding?
• Avoid “passive” status
• Report their “substantial US owners’ or certify absence of substantial US
owners
Withholding agents are required to withhold 30% of withholdable
payments to nonparticipating FFIs and non-certifying passive
NFFEs?
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Proprietary & Confidential: Strategic Treasurer © 2017
FATCA: US Tax Code
Chapter
4
A penalty
FATCA
Requirements
A tax
1099
Requirements
Documentation
processes &
systems
Reporting
processes &
systems
Withholding
processes &
systems
1042
Requirements
Payment
Identification
Chapter
3
Identify who
made the
payment
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Proprietary & Confidential: Strategic Treasurer © 2017
FATCA: Steps to take
Obtain necessary
documentation
Develop written
policy/procedures
Ensure Chapter 3
and 61 have been
diligently followed
Determine into
what categories
entities within the
corporation fall
Put in place
processes to
ensure FATCA
compliance
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Proprietary & Confidential: Strategic Treasurer © 2017
Section 385: History & Notable Changes
•
By way of the 1969 Tax Reform Act, Congress enacted
section 385 (Internal Revenue Code) to authorize Treasury
to issue regulations to determine whether an instrument
should be classified as debt or equity for federal tax
purposes. Recently, related-party debt has come under
increased scrutiny in the context of inversions and other
cross-border situations.
•
On April 4, 2016, the United States Treasury and the IRS
published proposed regulations under section 385 of the
Internal Revenue Code.
•
The Proposed Regulations would do 3 things:
I. Authorize the IRS to treat certain related-party
interests as part equity and part debt for federal
tax purposes (currently it is classified as “all or
nothing”).
II. Establish extensive documentation requirements
that must be satisfied for certain related-party
debt to be respected for federal tax purposes,
otherwise it will be classified as equity.
III. Treat certain related-party debt as equity for all
purposes of the Code when issued in connection
with certain distributions and acquisitions.
•
Excluded
parties
Pooling
$50M
Threshold
Rebuttal
Bifurcation
Documentation
Timeline
The Treasury Department and IRS have released final
ruling and clarifying statements for the proposed
regulations.
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Proprietary & Confidential: Strategic Treasurer © 2017
Proposed vs Final
Proposed
Final Ruling
Bifurcation Rule:
IRS has authority during an audit to
determine if an instrument was
treated as debt should actually be
considered as debt/equity.
Documentation Timeline:
Applicable to debt issued on or
after April 4, 2016.
Eliminated
*Still reserving right to use
Applicable to debt issued on or after
January 1, 2018.
Recharacterization effective date
4/4/2016.
https://home.kpmg.com/us/en/home/insights/2016/10/tnf-final-regulations-under-section-385.html
Proprietary & Confidential: Strategic Treasurer © 2017
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Holding out Hope: Delivered
•
Cash Pool: Exclusions: EXCLUDED
•
Foreign to Foreign: Exceptions (by type, complete) EXCLUDED
•
Equity Compensation Exceptions EXCLUDED
•
Industry Specific Exceptions EXCLUDED
•
Consolidated Group Exception where consolidation is restricted
(insurance)
•
•
Exceptions for regulated industries (capital and debt requirements)
Changes to the effective dates CHANGED
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Proprietary & Confidential: Strategic Treasurer © 2017
Notable Changes
Regulations will only apply to indebtedness issued by members of an expanded
group that are domestic corporations for federal income tax purposes, and reserve
on the application of the regulations to indebtedness issued by foreign corporations.
Will not apply to foreign to foreign transactions.
CHANGES:
•
Direct or Indirect ownership is determined by reference to attribution rules
•
RICs and REITs are generally excluded
•
S Corporations are excluded for being expanded group members
•
Proof of reasonable expectation issuer can repay debt obligations is required no later than 30 days post issue date.
 Extension to have them in place when the company files its tax return, including with any extensions.
•
Rebuttable presumption based on compliance with documentation requirements
• (if the expanded group is generally compliant with document requirements, then a rebuttable
presumption rather than per se recharacterization as stock).
https://www.law.cornell.edu/uscode/text/26/1504
https://www.davispolk.com/sites/default/files/2016.10.14_final_temporary
_section_385_regulations.pdf
Proprietary & Confidential: Strategic Treasurer © 2017
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Pooling
Master Agreement is acceptable.
Covers revolving credit agreements; cash
pooling arrangements; and other similar
arrangements that cover EGIs.
o Subject to the documentation
requirements
o Single credit analysis is acceptable
on an annual basis
o Notional and Physical Pooling are
generally subject to the same
documentation requirements.
Cash Pools & Short Term Loans
Exempted:
Broad exemption provided for cash
pools and other loans that are short
term in both form and substance (do not
propose a significant earnings stripping
risk).
Exemption will generally permit
companies to continue to treat as debt
short term instruments issued bong
related entities in the ordinary course of
business
http://src.bna.com/jm7
Proprietary & Confidential: Strategic Treasurer © 2017
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Documentation
1.
Binding Obligation to Pay.
Issuer entered into legally binding and
unconditional obligation to pay sum certain on
demand or at one or more fixed dates.
2. Creditor’s Right to Enforce Terms.
Holder of the investment has the rights of a
creditor to enforce the obligation.
1 or more fixed
dates
3. Reasonable Expectation of
Repayment.
There must be due diligence in demonstrating
ability to pay.
A/P: reasonable expectation to be paid with
120 days.
Rights of a
Creditor
4. Genuine Debtor-Creditor
Relationship.
There must be evidence of principal payments
being made on time and evidence of exercising
rights of creditor.
Evidence of
payments
Due diligence
https://www.irs.gov/irb/201617_IRB/ar07.html
Proprietary & Confidential: Strategic Treasurer © 2017
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What do I do now: FATCA?
A leading practice: begin documenting now.
1.
System. Assess your system’s capability to handle these requirements.
2.
Inventory. Track your intercompany debt inventory
3.
Template. Create documentation template
•
Create master agreement(s)
4.
Credit Process. Determine credit process and (debt capacity analysis)
5.
Document. Document each intercompany loan
6.
Checkpoint. Establish documentation checkpoint
•
Inventory
•
Credit Analysis
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Proprietary & Confidential: Strategic Treasurer © 2017
Alligator Closest to the Boat
You need a process to handle the alligator.
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Proprietary & Confidential: Strategic Treasurer © 2017
Compliance Framework Example
Treasury Compliance Framework
Policy | Manage, Monitor & Report
Compliance: Ident ify &
Calibrate
Compliance:
Perspective &
Strategy
Strategic Treasurer
Positioning
Compliance Perspective
Sensitivity & Resourcing
Perspective
Leader
Leader
Follower
Follower
Resources
Minimum:
Minimum: SGCC
SGCC
Corp/Treasury
Industry
Compliance Categories
Inventory
Category Determination
Inventory of
Compliance Exposures
Calibration of Compliance
Issues
Timing
Existing
Existing
Immediate
Immediate
Relevance
Industry
Industry Specific
Specific
Direct
Direct Impact
Impact
Policy
Create
Monitoring Methods
Accountability
Managing & Reporting
Monitoring Methods
Emerging
Emerging
Indirect
Indirect
Potential/TBD
Potential/TBD
Review/Update
General
General
Industry
Industry
Treasury
Treasury
Inventory
Inventory
Management
Management
Accountability
Assignments
Tracking (Status,
Preparedness)
Communication
Meetings
(Annual, Quarterly)
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Monitoring the Channels
Treasury & Tax
Conferences
Business Papers
WSJ, FinTimes
Business Media
Bloomberg TV
Treasury Media
Magazines
T&R, Treasury Today
Compliance
Webinars
ST Quarterly, etc.
Specialized
General Input
Specialized Group
Compliance Leader
Tracking System
Calibration Grid
Tracking
Calibration
Industry
Compliance &
Regulation
Monitoring
White-Papers
Custom
Engagement
Outsourced
Services
In-Service Reporting
Staff Meetings/
Dedicated
Meetings
Targeted
Retainer Programs
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Proprietary & Confidential: Strategic Treasurer © 2017
Takeaway Answers
• How should treasury think about compliance?
• What should my team look like? What should
they do?
• Where is my weakest link vis a vis my input
channels?
• How formal do we need to be in calibrating our
compliance issues?
• In order to properly:
• 1) identify 2) calibrate 3) monitor 4) address?
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Proprietary & Confidential: Strategic Treasurer © 2017
Contact Information
Strategic Treasurer was founded in 2004 by Craig Jeffery, a financial expert
and trusted advisor to executive treasury teams since the early 1980’s.
Partners and associates of Strategic Treasurer span the US, the UK, and
continental Europe.
Craig Jeffery, CCM, FLMI
Founder & Managing Partner
Email: [email protected]
Direct: +1 678.466-2222
Atlanta Office
Headquarters
525 Westpark Drive, Suite 130
Peachtree City, GA 30269
Website: strategictreasurer.com
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Proprietary & Confidential: Strategic Treasurer © 2017
EMIR
EMIR:
+ Report all derivative contracts entered into trade repository
+ Implement new risk management standards
+ includes trades that aren’t cleared by central counterparty
- entities that qualify must submit all OTC derivatives subject to mandatory
clearing obligation for review
+ Counterparties must file reports wherever they enter into derivatives
transactions, in the European Economic Area or elsewhere
"Obligations for non-financial
counterparties under EMIR". Financial
Conduct Authority. 10 January 2013.
Retrieved 30 March 2015.
Proprietary & Confidential: Strategic Treasurer © 2017
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Basel III: International Banking Regulatory Framework
Capital Adequacy
Liquidity
Standards
Tier 1 Capital Ratio
Leverage Ratio
LCR: Liquidity
Coverage Ratio
NSFR: Net Stable
Funding Ratio
A firm must have a Tier 1 capital ration of 6% or greater
The amounts of assets and commitments should not represent more
than 33 times the Regulatory Capital.
High quality liquid assets must always equal or exceed Total net
liquidity outflows over 30 days.
Available amount of stable funding must always equal or exceed
required amount of stable funding.
Systemic Risk
Management
More
Capital
Better
Capital
Additional
Transparency
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Proprietary & Confidential: Strategic Treasurer © 2017
Dodd Frank
1.The consolidation of regulatory agencies, elimination of the national thrift charter, and new
oversight council to evaluate systemic risk
2.Comprehensive regulation of financial markets, including increased transparency
of derivatives (bringing them onto exchanges)
3.Consumer protection reforms including a new consumer protection agency and uniform
standards for "plain vanilla" products as well as strengthened investor protection
4.Tools for financial crises, including a "resolution regime" complementing the existingFederal
Deposit Insurance Corporation (FDIC) authority to allow for orderly winding down of bankrupt
firms, and including a proposal that the Federal Reserve (the "Fed") receive authorization from
the Treasury for extensions of credit in "unusual or exigent circumstances";
5.Various measures aimed at increasing international standards and cooperation including
proposals related to improved accounting and tightened regulation of credit rating agencies.
•Sources:Initial speech: Obama B. (June 17, 2009). Remarks by the President on 21st Century Financial Regulatory Reform.
White House.
•Original 89-page proposal document at GPO: A New Foundation : rebuilding financial supervision and regulation.
•Obama’s Financial Reform Plan: The Condensed Version. Wall Street Journal.
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