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Unknown
How do global companies tackle the tsunami of digitisation, payment methods and regulations? Welcome to CurrencyCast! My name is Agustin Mackinlay, I’m the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome Guillermo de la Fuente, Senior Finance Executive and Member of the Swiss Association of Corporate Treasurers. Guillermo, a warm
00;00;25;04 - 00;00;52;04
Unknown
welcome to you and thank you for joining us today in this episode of CurrencyCast. Thank you. Thank you very much, Agustin. Thank you very much, Kantox. It's a real pleasure for me to be back to my roots in Spain and very, very proud to be in a company which is a success story. You've been celebrating in the last week 200 employees.
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Unknown
That's a big milestone and congratulations. Thank you very much. Guillermo, can you start by introducing yourself to our audience? Yes. I studied at the University of Oviedo. I made Business and Finance. Then I made a MBA in the University of Houston and started working for multinational companies in Spain before moving to Switzerland, working for CERN, the European Laboratory for Physics, where I’ve been nine years working in finance.
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Unknown
So my experience is more than 35 years in Treasury, in Finance, Accounts Payable, Payments and working in different sectors. Like working for JP Morgan as a bank or working for trading companies, working for telecommunications and high tech companies. Now, in a previous conversation, these are not all of us that there is a tsunami of digitisation, your payment methods and regulations going on.
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Unknown
So that brings the question, Guillermo how are corporate traders expected to navigate those always shifting waters? Yeah, that's a very good point. And now we are in a critical phase where a lot of things are happening in the payment ecosystem, a lot of changes not only in regulation but also in technology digitisation as well. And and how can territories evolve in that environment.
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Unknown
Is is part of the the DNA that we have, the treasurers we always have to adapt. We've been adapting to the new technologies from 20 years ago already when internet they started being used in Treasury. And since then we didn't stop to able to change and to adapt to the ecosystem.
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Unknown
So now payments is in a big change. We have new regulations coming on, the PSD3 regulation in Europe is just there. The instant payments has been approved is going to be part of our lives, probably the new normal very soon. The ISO 20022 also is going to change completely the way we work in terms of standardisation, which was one of the first demands that we as treasurers started 20 or 30 years ago already.
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Unknown
And all these things are happening now, at the same time. So it's kind of a tsunami, as you say. And we have to adapt to it. The associations that I'm part of, not only the Swiss Treasurers Association, but also the European Treasury Association is working very actively on. That's right. On making sure that the ship arrives to the port
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Unknown
in the right time without any casualties. So we are working on trying to shape that, the regulation. And making sure that the changes that we are facing, that will bring a lot of benefits for treasurers. I'm going to have another question the role of corporate treasurers associations now, you name the concept of an ecosystem.
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Unknown
I really like that term because it really captures what's going on, I think, in the digital economy, in the world as a whole, Right? There are those ecosystems where people are both competing and and collaborating with each other. So again name, if you will, some of these innovations. I know you're very active in terms of payments fraud and digital identity.
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Unknown
Yes. Yes. These two topics are my specialty and I’m very focused on. And it wouldl take as a lot of time to talk about it. But I will try to be as swift as possible and trying to make sure that we get right to the point. Yeah. Well, the point is in terms of fraud, we are seeing a lot of fraud coming from the new payment methods. In the past, there were people trying to make false checks, forging checks.
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Unknown
That was the kind of fraud that we were facing, or the banks were facing, when the payments were made physically in paper or by checks. Now, everything changed with the new technologies. And these fraudsters are very, very clever. Well, first of all, they are not just a fraudster, they are guns, they are business that they are acting in the fraud area.
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Unknown
So we are facing what we call sometimes the Third World War, because these people are working very actively using the latest technology. So in that sense, we need to get at the same level that they are. And how can we fight against fraud? It's a very complex question. And that's the reason why I mentioned the ecosystem, because it is not just the mission of a treasurer, is the mission of the bank as well,
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Unknown
the mission of the politicians, the regulators, the law enforcement and also the private and the public sectors. So there are lots of stakeholders involved. A lot of other stakeholders, the only way we can fight against them. I mean, I don’t know for sure if we're gonna win or not, but if we want to fight against that, we have to have the same weapons and the same tools that they are using.
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Unknown
And the only way to be effective in the fight against payment fraud is working together and working all the stakeholders are very jointly. Right. And you just mentioned, of course, the role of the Corporate Treasurers Association. Yes. We know that our friend François Masquelier is pretty active and he's been writing recently about that. Well yeah, I want to point something that we are very proud of and is the one solution that we as Corporate Treasurers Association, we manage or we’ve been able to convince the regulators to include in the latest payment regulation.
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Unknown
And I was going to be also in the new payment regulation as well, which is the confirmation or the check of the IBAN and the name of the beneficiary. This is very important and this is something where most of the fraud that we are facing, treasurers, is happening. So we are very proud that thanks to the very active work from the association, we managed to influence the legislator and the regulator. And now this measure for fighting payment fraud is already included in the regulation and is going to be implemented by banks and PSPs in 2025.
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Unknown
So we are very proud of all the work that has been done has I finally got a reward and finally been implemented in the law. Right. Talking about digital identity as well, I told you these are very big themes to speak. And I want to be very brief on that. I believe that corporates very simply needs an identity like a person. In most of the countries the person, the individuals, have an ID right, a passport. I think we, the corporates we need the same. Now in this world where you don't know who are facing in the other line because you are not facing physically your customer, your supplier or your shareholder.
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Unknown
Now you are acting digitally. Soyou don't know who is in the other line. You don't know if you are really talking to your real client or you are talking to your real supplier or somebody. And so you need really something. That's right. Which needs to make sure and ensure that the counterparty you are facing is the right one.
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Unknown
And this is where we think the digital identity in particular we the European Association is working with the GLEIF, which is the association that the organisation created by the Financial Stability Board which handles the LEI numbers and vLEI and all this kind of digital identity. So iit's fair to say that you take a positive view of the role of corporate treasury associations.
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Unknown
Right. And are you concerned as François Masquelier is about the lack of participation on the part of young treasurers who don't like to physically gather in one space? Well, this something remains to be seen. Maybe it's a temporary effect. We don't know yet, but is true. Again, as I say at the beginning, we have to adapt, we have to adapt ourselves.
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Unknown
Things are changing so fast. The new generations, they have a different expectations that we have. François, myself, we have been in Treasury for many, many years. The young people have a different way to interact also professionally. So I think the associations also have to adapt to the new environment and I don't know exactly if there is a lack of interest.
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Unknown
Maybe there are other ways to participate. People, the new generations, they believe more in virtual meetings and you know, it's a completely different situation. And my personal opinion, I think is what I can share with you is, you know, we liveed during COVID times, in our houses, in our apartments without being in contact with others.
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Unknown
And I don't think that was a very positive experience. Absolutely. Being, again, together, meeting people face to face, shaking hands, hugging people. I think this is what makes the human beings different. So it's a pity we create a virtual world for everybody. Right? Right. I agree. Now, Guillermo, let's go back a little bit to the issue of payments fraud.
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Unknown
I see. Correct me if I'm wrong, but a really, really interesting duality of sorts going on. On the one hand, we have high profile cases all of deep fakes or fraud payments. One that comes to mind involved is the CFO of a Hong Kong based company forced to pay $25 million a deepfake story. But on the other hand, and that is really interesting, right?
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Unknown
The CFOs are bullish or optimistic on the role also of Artificial Iintelligence to combat fraud. To cite one participant: “There is an unending mathematical arms race between on the one hand the fraudster and on the other hand companies, the authorities.” What is your view? Yeah, that's another very good point.
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Unknown
And that's the difference between, you know the fraudsters, the criminals, the people that are in one side of the law and the people that are in the other side of the law. The people that are in the bad side of the law, they can do whatever they want. They don't have rules. They they can kill people.
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Unknown
They can traffic with human beings. They can do everything or they tryi to do everything. But on the other hand, the people that are in the right side of the law, they have to comply with many regulations. So you cannot go and hijack the criminal that has stolen your money. You have to go to the police.
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Unknown
You have to make a report. The police who’s in one country has to communicate with the police in the other country. So we don't have the same the same tools, let's put it that way. Tthey have the advantage that they can do whatever they want and they can do it faster. They can use the artificial intelligence.
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Unknown
They’re using a lot of technologies and they can do all these things very quickly without complying any other way. The people that are in their right side of the law, we have a lot of constraints and that's something that is worldwide recognised and this is something that unfortunately we cannot change. So that's the reason they always have an advantage in front of us.
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Unknown
The artificial intelligence, it's a very well, it's a case that it brings a lot of, it's in the news, a lot of people talking about. But don't need to be so sophisticated. We still have this CFO fraud. Right. Which is really silly but it works. It works very well. So tricking people, tricking the human people is still very easy.
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Unknown
You don't need to use that. The latest technology with very sophisticated technologies to trick people. There are still a lot of cases which can be easily reduced, as I said before, just checking the IBAN and the name of the beneficiary will stop all the CFO fraud and will stop all the supplier impersonation fraud. All right.
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Unknown
So these are things I think we need to focus on, on where the largest proportion of fraud is going on. And this is what we are doing in the European Treasury Association and also in the different groups that are fighting against financial crime that I'm being part of as a member of the association. And this is, I think what we really need to focus on now in the short term, making step by step, using, of course, the rules and regulations that we have to comply with.
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Unknown
Right. That's a really good point. Guillermo, let’s tackle the issue of currency management. Your work in Geneva, sitting close to my heart as I lived nearby during ten years. Well, of course, Switzerland is such an interesting place from the point of view of currency management, companies have to tackle with the issue of the strong Swiss franc.
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Unknown
We've seen issues with some of those watchmakers. Recently the company Swatch, according to Bloomberg, had to suffer a 550 million Swiss franc drag on revenue on account of the strong Swiss franc. So broadly, how the companies cope with that. Yeah, if I knew that I wouldn't, I wouldn't be here. But it is a very complex question, and especially in Switzerland, it's even much difficult to tackle because as you know, putting an FX hedging program in place can at the end you are buying time, right?
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Unknown
So you can buy time, you can cover one or two years or three years if you I don't know many corporates that are going for than three years. But you can cover or make sure that you protect their margin for, let's say, one, two or three years max. Then you need to go back to reality and face. And that's the problem in Switzerland.
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Unknown
We have been a stronger Swiss franc for many years. I remember in 2000, between 2005- 2007, 170 was the standard or the normal price for €1, which is francs. Now we are even lower than one. So you see 70% decrease. So it's a huge impact. And now it has been for a long, long time.
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Unknown
So some companies can face that putting in place a robust FX hedging program. But after three or four years, you need to adapt your prices to the reality. So you need to increase prices and then you erode your margins or you decrease your sales. The problem is that because most of the Swiss companies don't sell in Swiss francs, so they cannot naturally hedge.
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Unknown
That's right. The big multinational, as you mentioned in the watching industry, they pharmaceutical, they have the facilities in Switzerland. They have a lot of employees in Switzerland. Most of the multinational that are part of our association, they have their headquarters in Switzerland for the whole world or for Europe and they are facing the cost in Swiss francs. But their revenues are not in Swiss francs they are in other currencies.
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Unknown
So they cannot naturally hedge that. And as I say, they can put an FX hedging program in place, but that will be only for a very short period of time to cover. So that's the reason. And unfortunately, I have to say, many corporates in Switzerland are moving out, are moving out of Switzerland. My company is doing that as well.
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Unknown
So you see in terms of Treasury, we see a lot of movements on that sense because now the company, some companies have big margins and they can afford that. But the companies that have margins are more tight than the luxury or or the pharmaceutical, they are facing big growth. Right now there's a another aspect to the strong Swiss franc, and it has to do with with interest rates right now, very low.
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Unknown
There are about 1.25% now for short term interest rates in Swiss franc. That means that on the one hand, there's going to be a problem because, of course, the Swiss franc trades at a deep forward premium against other currencies, especially emerging market currencies. And that means that there is a high cost of hedging. But on the other hand, this could be relatively good news in the sense that, as I said, it means a low cost of capital.
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Unknown
Recently we discussed the case of On Holdings, the small shoe maker taking advantage of the low cost of capital to want to produce really meaningful innovation. So there are two aspects as well, right, to to the strong Swiss franc, correct. That’s completely true, and I'm coming back to my point before that. The problem is most of the corporates in Switzerland, multinational, they are selling in other currencies.
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Unknown
So okay you can borrow it's in franc Swiss cheaper, but at the end you have to finance something as an outside Switzerland and then you need to make or convert those Swiss francs in another country. The currency mismatch would always be there. And you will pay the price. We've been doing that, maybe you can find some windows, opportunities where you can make the financing cheaper.
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Unknown
But at the end, using fowards on a changing currencies to cover the financing in Swiss francs is not a big advantage. Of course, for companies like the Swiss trains, the CFF, which is the the national carrier of all trains and in Switzerland for them is very good because they get interest francs because they selling in Switzerland and they finance their trains in the global market in Swiss francs.
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Unknown
So for them it's a very good opportunity. But for the people that are exposed to a currency for the cost and a currency for the revenues is much more competitive than that. And as I said before at the beginning, it's very difficult to find a perfect solution. You can, of course, put in place robust FX hedging programs which help you to fight against those mismatches.
00;24;17;26 - 00;24;50;23
Unknown
But you need to have a solid team, a good partner in the financing area, in the bank or in the FX sales as well, that help you to manage all that. And this is the main problem that we are facing in Switzerland. Of course, right now, Switzerland is also interesting from a currency management point of view, from the perspective of the governance of foreign exchange risk management.
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Unknown
We know that, for example, Nestlé is a pioneer in treasury centralisation, which is a subject again that is dear to us. We recently created or launched the in-house FX solution. It's an automated solution for the management of all currencies between headquarters and subsidiaries. So what is your view on, broadly speaking, on Treasury centralisation and the governance of currency management?
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Unknown
Yes, another very good question. And again, managing currencies is becoming more and more complex, and that's the reason you need sophisticated system and you need latest technology. You need the support of our experts on the area and that's the reason we go into centralisation. Because it's difficult to have the expertise all around the world in a different place.
00;26;01;09 - 00;26;41;25
Unknown
So it's better to concentrate in a single place where you can have all the staff, all the well-trained, all the experienced people together and also get access to the right tools and the right financial support as well. Also, the reason we are talking about centralisation is very obvious, is the technology that we have today. As I'd say, 20 years ago you didn't have the possibility to see your bank accounts in real time.
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Unknown
You have to have, I don’t know, maybe 20 or or 30 different tokens to connect to your banks. And the technology today allows you to centralise. Which obviously make sense and make you to gain economies of scale, and also, as I said before, share the experience of the people and also the experience of the financial support that you do need in every FX.
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Unknown
And that's correct. So today, again, thanks to the digital economy, thanks to the technology, it's normal to have everything centralised. Something that wasn't possible sometime ago. For the young generation, maybe it seems a little bit idiot saying that but about 20 or 15 years ago we didn't have smartphones and we didn't have e-banking solution.
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Unknown
So they don't know those kind of things. They know that, for instance, the euro is a single euro, a single currency. I was working with all the currencies in Europe at the same time. So imagine the complexity and also the amount of time that you need to spend. And now you see with that, we are not talking about technology now.
00;28;15;11 - 00;28;51;25
Unknown
We are just talking about the political solution. A political solution like the euro make everything easier for the people working and living in Europe and also makes things easier for us centralization and streamlining the operations in FX. That's right. All right now Guillermo de la Fuente, Senior Finance Executive and member of the Board of the Corporate Association of Swiss Treasurers, thank you very much for joining us in this episode of CurrencyCast! We covered a lot of ground.
00;28;51;25 - 00;29;25;04
Unknown
We started out with the tsunami of digitisation, the payment methods and regulations, we went on to discuss, broadly speaking, fraud in the payment space and the role of generative artificial intelligence. On the one hand, making it easy for fraudsters to thrive and on the other hand, allowing participants that are on the right side of the law, as Guillermo said, to counter those initiatives.
00;29;25;07 - 00;30;02;07
Unknown
And we discussed also the currency management angle from the perspective of a Treasurer that has a long experience in Switzerland. Guillermo is there something that you would like to add? Yeah, I think we we've been very ambitious in this interview. We tried to talk about many different topics it's not easy, to make things or explain things so complex in a very short period of time.
00;30;02;07 - 00;30;26;28
Unknown
But I think it's important to make some points on these and I think we, from the Corporate Treasurers Association, we keep doing that and is part of our activity. And that's the reason I'm very optimistic on the future of the association of treasurers. Perfect. So again, Guillermo
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Unknown
Thanks a lot again and see you next time. Thank you.