Location, Location, Location
by David Blair, Managing Director, Acarate Consulting
With Hong Kong very publicly gunning for Singapore’s pre-eminence, treasury centre location has become a hot topic again. What are the key success factors? And who is likely to win this round in the RTC wars?
RTC (regional treasury centre) location has always been a lively debate within treasury circles. First, there is the basic decision – centralise or not? I have always thought this a rather crude distinction, and I argue that the decision must be taken at a more granular level. For example, it might make sense to centralise foreign exchange dealing for internal control and scale economy reasons. Likewise, funding from banks and markets – although things like umbrella facilities may reduce the need for some corporates. On the other hand, many corporates will prefer to keep collection management in country because they value customer proximity for that function.
This granularity also brings up the important distinction between RTCs and SSCs (shared service centres). Most would agree that RTCs handle funding (loans) and investment (deposits et al), which means centralising corporate interactions with money and debt markets. Most would also include foreign exchange dealing. Likewise the related derivatives. On the other hand, core SSC activities typically include high volume commercial (as opposed to treasury) transactions – receivables, payables, accounting, reporting, payroll, fixed assets, etc.
Things get more interesting at the borderline – in-house bank (IHB), multilateral payment netting (Netting), payment factory (PF). IHB in particular normally includes elements of intercompany funding as well as commercial payment processing. Often elements of RTC and SSC will be housed under the same roof. The objective here is not to recommend organisational design, but rather to make the distinction between relatively low volume treasury transactions in MM and FX, as opposed to relatively high volume commercial flows like AR and AP. For the purposes of this article, I will refer to RTCs as handling the low volume (and often high value) treasury transactions.