What was already a challenging FX market environment in Asia due to complex and varying levels of regulations, as well as restricted currencies, has been exacerbated by the Covid-19 pandemic. Both banks and their clients need to adapt quickly from a workflow solution perspective since the prevailing market landscape has heightened the complexity of payment, liquidity and FX risk management.
To make this possible, leveraging on technology is key. The manual processes that have traditionally facilitated FX operations are expensive and prone to error. What Deutsche Bank is doing is integrating cash management, liquidity and FX platforms to offer integrated workflow tools to its clients. Its ability to integrate and connect all of them for end-to-end solutions are being enhanced with cutting-edge technology.
So, what are the key components for all of these where client needs or demands are concerned? When a client requires an automated solution that could effectively execute payments – and following that through FX execution and unwinding of FX hedge exposure – they need to look at countries which have FX regulations. The client also needs to provide banks with the underlying paperwork in order to execute the payments.
“In emerging markets with exchange control regulations, the biggest challenge that treasurers face is an end-to-end execution of cross-border flows that entail handling of the documentation, payment and spot FX execution on an automated basis while unwinding hedges on the back of successful payment execution,” says Chintan Shah, Deutsche Bank’s head of corporate cash management in Asia-Pacific. “This is the backbone in terms of how we have brought the bespoke components under a single integrated technology platform across cash management and FX platform for corporates.”
The platform can work in a plug-and-play format when looking at client use-cases in which all this integrates seamlessly in some form or other.
Use-cases can include clients who want to facilitate local currency collections without necessarily opening an account in the country. In such situations, Deutsche Bank helps clients to execute and collect locally without the bank account. This enables them to rationalize the number of bank accounts, convert onshore at a very competitive exchange rate on its platform, and unwind the hedges on the back of it. It also allows clients to scale across the region and help them to grow the business, as well as managing the FX risks and exposure at the rate very efficiently.
“Our clients have come up with various use-cases on the back of all the multiple channels and multiple execution platforms across cash, liquidity and FX to meet their requirements in a very automated fashion,” says Shah. “And when you complement that further with advisory from a risk management perspective, the discussion goes not just on workflow but one level deeper in terms of what the anticipated workflow will be for the year and how we help clients manage hedging.”
“We have a very integrated thought process and strategy with regards to our clients’ engagement,” adds Serene Chen, Deutsche Bank’s head of risk management solutions in Asia-Pacific. “That is why we built our solutions and our technology platforms in an integrated fashion to help our clients look at solutions across their treasury, their hedging across their payments, and address the operational nuances that come with that.”
Implementing the desired FX hedge programme can be challenging in Asia considering the diversity of currencies and regulations. There are two key challenges, according to Chen. One is the operational aspect, given the regulations require documentary support. “This creates incremental operational work for clients, which we try our best to automate through technology solutions,” she says.
The second is simply understanding what the legislation demands. “Regulations do evolve sometimes fairly quickly – just keeping up with the pace of what regulators have come up is sometimes challenging to clients,” notes Chen. Part of Deutsche Bank’s advisory work with clients thus entails working with them on how some of these regulatory changes impact their treasury operations.
But such diversity in currencies and regulations can also present an opportunity for clients to be more efficient from a treasury perspective because of the different currency curves that exist in the region – such as onshore curve and offshore curve. Some countries even have three currency curves so clients with genuine underlying requirements are able to look at different currency curves and execute on the curve that provides them with the most economic benefit.
“That is why it is a little bit more challenging operating in a market such as Asia,” says Chen. “But if you really understand the market environment and have a good partner bank to work with, it can actually be beneficial for your treasury.”
So how is Deutsche Bank leveraging on technology to enhance its FX risk management solution capability? The bank has developed a technology platform called GEM Connect that helps its clients to seamlessly execute FX hedging in an automated and transparent fashion.
GEM Connect is a component-based solution designed to address workflow challenges across collections, payments, funding and FX in those Asia-Pacific markets with capital restrictions. Developed by Deutsche Bank’s corporate bank and fixed income & currencies business units, GEM Connect links treasury processes together into automated workflows, simplifying complex processes for clients moving money to, from and across markets with capital restrictions.
“GEM Connect is integrating what we already have in terms of FX tools and products such as FX4Cash,” Shah points out. “What we really want to do is link all of the technology tools together to provide back-to-back solutions to our clients where they are able to link the hedge into the conversion, settlement, documentation and have all those processes executed seamlessly. It is not just connecting from one market to the other cross-border. It is also connecting across various platforms within Deutsche Bank – from cash platform to FX platform and to hedging platform.”
Using any combination of GEM Connect’s components, such as its rules-based FX execution tool and payment, and hedge matching solution, Deutsche Bank can provide a one-stop liquidity and FX management solution for its clients in emerging markets such as India, Indonesia, Korea, China, Malaysia, the Philippines, Taiwan and Thailand.
“What makes GEM Connect unique to emerging markets is in addressing the capital restrictions that exist and the challenges that Deutsche Bank’s clients face across collection, payments and FX,” adds Chen. “By eliminating manual processes and currency risk in intra-company cross-border transactions involving emerging markets, Deutsche Bank addresses the real issues confronting its corporate clients. It will be a significant tool for treasurers to better manage their liquidity both at group and subsidiary levels.
GEM Connect will also be rolled out in other emerging markets outside of the Asia-Pacific region.