by Marco Brähler, Head of Treasury Back Office, F. Hoffmann-La Roche Ltd
Over the past decade, Roche has developed a world-class global treasury organisation - a process that has been distinguished by close collaboration between treasury and IT to become a key service provider to the business. Since 2007 when Roche first featured its SAP implementation in TMI, treasury and IT have optimised many of its treasury processes, developed its in-house bank into a payments and collections factory, including the use of virtual accounts and implemented SWIFT for bank connectivity. These initiatives have been widely recognised both across the Roche organisation and externally. For example, Roche was awarded Treasury Today’s Adam Smith Award 2013 in the category for Best Working Capital Solution. In this article, Marco Brähler describes the next stage in Roche’s pioneering treasury and technology journey.
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Evolving business requirements
Roche was an early corporate adopter of SWIFT, and integrated it as part of our overall SAP-based treasury technology infrastructure to support our in-house bank, including a payments and collections factory. Initially, SWIFT was used for payments transmission (MT101) and bank statement retrieval (MT940) but in 2012, we made the decision to extend the use of SWIFT messaging and SAP TRM (treasury and risk management module) to automate confirmation and matching of transactions with our treasury counterparties. As our deal volumes were increasing, we realised we needed an alternative to the manual confirmation and matching process we had used in the past. Furthermore, we needed to comply with the Dodd-Frank and EMIR reporting and reconciliation requirements. While we were aware that there were third-party tools available to support automated confirmation and matching, we envisaged leveraging our existing treasury technology infrastructure as opposed to introducing new third-party applications.
Pioneering new functionality
The version of SAP already installed at Roche included a major new functional sub-module: the ‘correspondence monitor’ for SWIFT message generation and matching, which aided our final decision to expand the functionality of our existing treasury technology infrastructure. By implementing this solution, we would achieve straight-through processing (STP) between SAP and SWIFT for two-way exchange of confirmation messages, supporting automatic reconciliation with our counterparties and custodians.
Being one of the first to implement the new correspondence monitor, we had the opportunity to participate as a pilot customer in its development and suggest functionality and workflow features. This took time and resources, but ultimately resulted in a solution that met the needs of our business. Furthermore, by managing the project in-house rather than working with external partners, we benefited from maintaining expertise internally.
The first step was to automate confirmation of FX and money market transactions. Today we confirm 100% of these transactions via SWIFT, representing 97% of our overall transaction volume. With more automated, standardised processes, traders are able to reduce the size of FX deals to achieve better pricing, since higher deal volumes do not add operational pressure anymore. Consequently, although our transaction volumes have doubled over the past years, we have not needed to increase treasury staffing.
Based on the success of this project phase, we strived to extend the benefits of our solution to the securities transactions and ultimately cover 100% of our deals through automated confirmation and matching.
Consequently, we identified a number of key objectives:
- transmit confirmations of securities transaction and settlement instructions to counterparties automatically using standard SWIFT MT5xx messages;
- channel all information flows and status messages into SAP rather than using separate online tools from each of our custodians globally;
- automate securities position reconciliation in SAP.
Project deliverables
As our knowledge of the MT5XX message series increased, we have been able to extend the value of our SAP and SWIFT-based solution further. For example, we are currently finalising the implementation of additional message types to automate securities position reconciliation with custodians (MT535), facilitated a new tri-party repo programme (MT599, to be replaced by MT527 later this year) and gained much-needed control over security delivery within our existing employee equity compensation program (MT542 and MT546). These additional processes will be completed over the next few weeks.
Benefits and outcomes
These additional capabilities have expanded the range of instruments that we are able to use in treasury. Furthermore we have standardised and automated systematic controls over key processes, increasing our operational capacity and freeing up resources for more value-added tasks. Also automating the reconciliation of transactions with custodians and counterparties, and producing the relevant reporting, is a valuable step in achieving compliance with EMIR and Dodd Frank reporting.
Future plans
Looking ahead, we hope to automate confirmation matching for our frequent commercial paper and bond issuances, but the real resource killer is the reconciliation of FX transactions to meet internal and external regulatory compliance. Having a high number of FX counterparties each using a proprietary format and no standardised message capabilities like the MT535 for securities, this is currently a manual, time-consuming task for FX transactions.
By leveraging our existing tools, and relying on internal resources to undertake this project, we have enhanced the automation, workflow and controls over our confirmation matching and reconciliation process without the need for major investment. As an early adopter, the project was inevitably more challenging and time-consuming than an established solution, but the resulting solution is closely matched to our needs.
Today this investment pays back by having scalable, robust and controlled core processes in our treasury back office, being a solid foundation for future improvements. The main topics amongst others for our next innovation cycle are MX message types (ISO 20022), analytics and mobile technology.
