Financial Operations Magazine Fall 2014

Q3 FALL 2014 • Canada’s Independent Magazine

Financial S Payables | Receivables | Collections | Data | P-Cards | ECM | Technology

Technology

Special Report A look at analytics and risk management technologies

ALSO INSIDE:

Canadian MSBA 2nd Annual Fall Conference Show Guide

In The Cloud:

The Future is Bright

Managing Currency Risk and International Payments

Compliance:

International VAT and the EU PM40050803

Contents

FALL 2014

Volume 1 Number 3

22

10 4 Industry Update

22 COMPLIANCE

Take control of your VAT compliance

6 News

30 Business Intelligence

29 Events

Effective strategies for managing currency risk and international payments

Features 10 Technology Special Report

30

From risk analytics to streamlining the close, the available technology is evolving

32 In the Cloud

32

Why the future is bright for the hybrid cloud

Also Publishers of

Publisher and Editor-in-Chief Steve Lloyd steve@financialoperations.ca Editor Karen Treml karen@financialoperations.ca Creative Direction / Production Jennifer O’Neill jennifer@financialoperations.ca Photographer Gary Tannyan

Advertising Sales Mark Henry mark@financialoperations.ca Chantal Goudreau chantal@financialoperations.ca For subscription, circulation and change of address information, contact subscriptions@financialoperations.ca Subscriptions available for $40.00 year or $60.00 two years. 2014 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Financial Operations should be directed to the publisher.

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Financial Operations | Fall 2014 | www.financialoperations.ca

3

Industry Update

Mobility and Millennials Changing Role of CIOs

A

recent IDC survey commissioned

by Samsung Electronics Canada found that technology trends such as Bring Your Own Device (BYOD), which reflect the growing use of personal tablets and smartphones in the workplace, is driving change for the chief information officer (CIO) and businesses across Canada. Of the CIOs surveyed, 58 per cent said the number of mobile workers at their company has increased and that 68 per cent of these workers use tablets in addition to mobile phones.

BYOD is quickly becoming the new norm for companies across Canada with 52.5 per cent of CIOs open to employees bringing their own devices to work. When asked why

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CIOs have a bring their own device policy, 50.8 per cent responded saying it was to appeal to young workers which will make up 75 per cent of the workforce by 2028. While security still remains a core component, CIOs are being driven by workplace trends to help future-proof their organization.

“Part of the CIO’s role is to anticipate trends in technology and understand how they influence corporate policy while maintaining security and aligning with the strategic vision of the company,” says Warren Shiau, director, buyer behaviour research practice, IDC Canada. “The CIO role is shifting from a concentrated focus on managing and protecting centralized

Financial Operations | FALL 2014 | www.financialoperations.ca

back office IT resources to driving employee productivity and empowerment.”

The survey also reflects a shift in attitude

by CIOs who have traditionally acted independently to implement IT regulations.

The survey reveals that fifty-five per cent of CIOs are actually adjusting their IT policies based on employee feedback and beginning to recognize the value of these insights in helping to create a more empowered workforce.

When asked about their biggest IT priorities for 2014, CIOs responded by saying that improving staff productivity (60 per cent) and IT security (70 per cent) were at the top of that list.

NEWS Conformance Technologies launches data incident management program

Canadian companies are at high risk for data breaches

Conformance Technologies, a provider of operating systems, education systems, and expertise used in managing business compliance requirements, has launched its ‘Data Incident Management Program’. The program is a comprehensive suite of services that provides expert assistance in the event of a data incident, giving merchants ‘ease’ of mind while at the same time enhancing business performance by saving time and money. Program components include data incident forensics, POS equipment or software replacement, $10,000 in legal services and legal notifications, consumer notifications, and public relations management services.

With a multitude of recent high profile data breaches occurring at retailers like Target and Neiman-Marcus, plus malware targeting small merchants resulting in thousands of breach events, businesses from mom-and-pop shops to big-box retailers now realize that they are at high risk of a data incident.

Left unmanaged, these incidents can be catastrophic in terms of reputational damage and mitigation costs. Conformance Technologies’ Data Incident Management Program helps merchants of all sizes react quickly, proactively and professionally, eliminating as much business harm and out-of-pocket expense as possible.

Besides helping protect merchants, the program creates significant revenue-generating opportunities for resellers and aggregators who manage groups or portfolios of businesses and consumers, including merchant acquiring and Independent Sales Organization (ISO) entities. Typically portfolio operators charge a small monthly fee for the program, rather than a per incident fee.

“Our company goal is to provide a perfect mix of conformity and performance,” says Darrel Anderson, president of Conformance Technologies. “We do this by creating products and services that allow both portfolio operators and their end-user customers the ability to easily manage and measure a variety of compliance and operational tasks,” adds Anderson. “Our new Data Incident Management Program is an integrated service offering that easily manages all aspects of a data incident, reducing costs for all parties involved while ensuring a professional resolution to issues,” continues Anderson.

More than one-third of Canada’s IT professionals have had a significant data breach in 2013 that could put their clients or their organizations at risk, a recent study shows.

According to a Statistics Canada report, 56 per cent of the respondents said they believed threats sometimes fall through the cracks.

Findings reveal that six per cent of the private Canadian enterprises experienced an internet security breach in 2013. About one-quarter of those reporting a breach (about 260 companies) said client or proprietary information had been corrupted, stolen or accessed without authorization.

In Canada, there is no federal law that requires private companies to disclose breaches to the government or those affected. That may change with Bill S-4, the Digital Privacy Act, now before Parliament.

The act proposes making it mandatory for federally regulated businesses, as well as federal government agencies, to report significant breaches to the federal privacy commissioner and to customers and clients whose private information was leaked.

A report conducted by the Ponemon Institute reveals that 36 per cent of the Canadian companies had experienced one or more cyber-attacks in 2013, which infiltrated networks or enterprise systems.

Also, 89 per cent of the Canadian respondents said they know another security professional whose company had sensitive or confidential data stolen as a result of an inside threat, while 23 per cent of the Canadian cyber security teams never speak with their executive team. Of those who did, nearly half did so only annually or semi-annually, while only 2 per cent talked weekly with executives about security.

Canadians credit and debit cards, for instance, use computer chips and passwords that are more secure than the magnetic stripes still used commonly in the US. That means criminals are more likely to target transactions where card information is entered without a physical contact.

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For breaking news and in depth news features, visit our website at www.financialoperations.ca

Financial Operations | FALL 2014 | www.financialoperations.ca

IT spending forecast to increase worldwide Recent volatility will gradually give way to a more positive outlook for IT spending in the second half of 2014, says the International Data Corporation (IDC) ‘Worldwide Black Book’. With the U.S. and other mature economies mostly heading in the right direction and a significant commercial PC refresh cycle already underway, improvements in business confidence are set to drive a moderate infrastructure upgrade cycle over the next 12 to 18 months, while investments in software and services will continue to accelerate.

Worldwide IT spending is now forecast to increase by 4.5 per cent in 2014 at constant currency, or 4.1 per cent in U.S. dollars. A significant proportion of this growth is still being driven by

smartphones – IT spending excluding mobile phones will increase by just 3.1 per cent this year in constant currency (2.8 per cent in U.S. dollars). Aside from smartphones, the strongest growth will come from software, including rapidly expanding markets such as data analytics, data management, and collaborative applications including enterprise social networks. The 3rd platform pillars of Big Data, Social, Mobile, and Cloud will continue to drive virtually all of the growth in IT spending, while spending on 2nd platform technologies will remain effectively flat.

Meanwhile, although some emerging markets remain constrained by macroeconomic and geopolitical wild cards, there is now significant pent-up

demand for IT investment that will drive stronger growth next year in markets including India, Brazil, and Russia.

Pent-up demand has already driven a significant rebound in both consumer and enterprise IT spending in China this year, as confidence stabilizes. While mature economies are still driving the upside in 2014, emerging markets will once again dominate in 2015.

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NEWS Test tool offers secure element testing across all markets Industry association, GlobalPlatform, has qualified FIME’s ‘global’ test tool, validating its ability to evaluate the functionality of secure elements (SEs) to support payment, telecom, and identity applications. The tool is available for SE providers, mobile network operators (MNOs), and handset manufacturers, to purchase for pre-certification development testing, and as part of FIME’s laboratory testing service portfolio.

To expand the tool’s capabilities, new GlobalPlatform test libraries have been added, including the Common Implementation Configuration, Secure Element Access Control, and Secure Element Configuration.

Additionally, the tool is qualified to confirm SE compliance to specifications outlined by the payment systems, with further libraries to be confirmed in the coming months.

This news follows the tool’s qualification by EMVCo in 2013 to verify that an SE has the required security and functionality to enable an end user to select their preferred payment application in a contactless environment. This functionality is outlined in EMVCo Application User Interface (AAUI) Proximity Payment System Environment (PPSE) Specification and represented a key milestone in bringing contactless mobile payments to market.

“These new GlobalPlatform qualifications are another step in the development of our Global tool’s offering, and enables us to offer a single point of contact for any aspect of SE compliance,” comments Stephanie El Rhomri, NFC & payments vendor business line manager at FIME. “With qualifications from EMVCo, GlobalPlatform, and a range of international payment systems, industry players can analyze how an application behaves on an SE in relation to a number of standards, all at once.”

Kevin Gillick, executive director of GlobalPlatform, adds: “Testing is the cornerstone in the development of a strong, compliance-led ecosystem for secure mobile services. Hardware developers and service providers need the ability to confirm that applications can be deployed and managed in line with the relevant specifications, and that they will communicate appropriately once loaded to SEs. GlobalPlatform works closely with testing providers to further the widespread deployment of SEs and is delighted that FIME, which has been instrumental in the compliance programme, has achieved these qualifications.”

Highest user adoption

CIBC recognized for leadership in online banking by Global Finance Magazine CIBC is being recognized by Global Finance Magazine as ‘Best Consumer Internet Bank – Canada’ and ‘Best Integrated Consumer Bank Site - North America’.

The recognition from Global Finance is based on criteria including strength of strategy for attracting and servicing clients, success in driving usage of online banking, and overall functionality.

“Delivering a great client experience online or through mobile devices is essential to a client’s relationship with their bank, and we are proud to be recognized for leading in these important areas,” says Aayaz Pira, vice-president, digital channels, CIBC. “Our clients want the flexibility to bank when, where, and how they want, which is why we continue to innovate in areas such online and mobile banking.”

In recent months, CIBC has been recognized with numerous awards for excellence in the client experience.

In addition to today’s announcement, CIBC was recently recognized by Forrester for the best mobile banking offer among the Big 5 banks in Canada, and by Pegasystems Inc. for use of their technology in the development of a new sales and product origination platform.

CIBC’s clients have been the first in Canada to benefit from a number of innovations in retail banking in recent years. CIBC launched the first mobile banking app in Canada in 2010, a first of its kind mobile payments app in 2012, and most recently was first among the big five to allow clients to deposit cheques using their smartphone.

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Financial Operations | FALL 2014 | www.financialoperations.ca

iWay Software

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Sionic Mobile partners with MyEcheck Technology providers Sionic Mobile and MyEcheck have partnered to provide electronic cheque, fraud control, and account services for Sionic Mobile’s ION Rewards mobile loyalty/mobile payments application. By partnering with MyEcheck, Sionic Mobile can now offer ION Rewards users yet another convenient payment option, eCheck, leveraging the industry’s most advanced security and fraud control technologies, while creating a more streamlined, user-friendly consumer experience.

Earlier this year, Sionic announced the addition of the Google Instant Buy feature into its ION Rewards Android version app, giving millions of Google wallet users the ability to pay for purchases with their mobile device in two clicks. Most recently in June, Sionic Mobile was among the first to also make this option available to its IOS ION Rewards users, giving yet another millions of iPhone users the ability to pay with Google Wallet, completing, mobile

purchases in just two taps. In addition, ION Rewards users have the option to link a debit card, credit card or stored value cards, making ION Rewards one of the most versatile mobile payments app (with a loyalty component) on the market.

Users are instantly rewarded for each mobile purchase completed with IONs that spend like cash at more than 30,000 retail locations – with no restrictions on how and when the rewards can be redeemed.

For example, an ION Rewards user can purchase office supplies at Staples, earning IONS, later that day purchase items from Sephora, once again earning IONs, and then later that evening, order a pizza from Papa Johns using the earned IONs to pay for the purchase. It is one of the only mobile payments/mobile loyalty programs that gives the consumers the ability to control how and when they use their earned IONs, gives consumers a wide range of payment options, and can be used across multiple retailers, restaurants, boutiques, fuel

locations and most big-box retailers.

The addition of the MyEcheck module gives consumers yet another payment option, the ability to link a checking account, and also benefits merchants by cutting out costly interchange fees.

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Mitchell EVP sales at Reval Reval, a Software-as-a-Service (SaaS) provider of treasury and risk management (TRM) solutions, has hired enterprise sales veteran John Mitchell to help lead the company to its next level of growth. Mitchell joins Reval as executive vice-president of global sales.

“John has a proven track record with deep experience in financial technology and global markets, which solidifies the value he brings to both Reval and the markets we serve,” says Reval CEO and co-founder Jiro Okochi. “We are excited that he is onboard Reval’s executive management team as we head into this next phase of the company’s growth.”

Reval’s year-over-year growth in 2013 of over 20% has made it a category leader for SaaS Treasury and Risk Management solutions. According to research firm Apps Run the World (ARW), Reval ranked the largest and fastest growing SaaS provider by revenue in the Top 10 TRM application vendors. In addition, Reval ranked 80 on ARW’s recent Cloud Top 500 list.

“The market is clearly ripe for the innovation that Reval delivers to the industry,” says Mitchell. “Not only is Reval recognized as a leader in its industry, but it also ranks high among the cloud-based providers in the broader market. There is no better time to join Reval, and I look forward to helping treasury organizations everywhere transform the way they manage treasury and risk.”

Mitchell brings more than 25 years of global sales experience across large, public enterprises, growth companies, and nascent start-ups. His leadership experience includes establishing sales teams and growing revenue for companies in the U.S., UK, and Asia-Pacific region.

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Financial Operations | Fall 2014 | www.financialoperations.ca

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Technology report

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Financial Operations | FALL 2014 | www.financialoperations.ca

Technology Report

Beyond Compliance: Driving Growth with Risk Analytics While the purpose of the new rules is to improve quality, accuracy, and risk decision-making, the situation creates an extraordinary opportunity for financial institutions to drive growth

By Azer Hann

P

icture a network of warehouses, each packed with a wide variety of food. Your task is to create a feast fit for royalty. To fulfill your obligation, you must be able to quickly source each ingredient from warehouses in the network, maintain its freshness as you bring it to your kitchen, ensure proper handling, and prepare exquisite dishes that transcend the sum of its parts.

And a surly celebrity chef, ever watchful, is on hand to grill you on food safety standards, ingredient choice, presentation, taste, and disposal.

Canada’s major banks are currently facing an even more Herculean task. To meet major new regulations for governing and managing financial data, they must whip immense quantities of data from multiple programs across all their lines of business into one cohesive system. The system must then be able to maintain the integrity, relevance, and availability of data over the long term.

All Domestic Systemically Important Banks (DSIBs) must soon be compliant with regulations from Canada’s Office of the Superintendent of Financial Institutions (OSFI) and, at the international level, the Basel Committee on Banking Supervision (BCBS). (BCBS 239 defines principles for risk data aggregation and reporting.) The regulations come into effect for Canadian DSIBs at the end of 2016.

To be ready to answer regulators’

questions about data performance and management and to achieve the desired level of compliance, the DSIBs will have to spend upwards of hundreds of millions of dollars.

As treasurers are well aware, this comes at a time when other regulations are squeezing the capital they have available to invest.

No pressure.

The opportunity While the purpose of the new rules is to improve the quality of data, the accuracy of reporting, and the rigour of risk decisionmaking of major banks, the situation creates an extraordinary opportunity for all financial institutions (FIs) to launch their organizations even further ahead. It’s the perfect time to transform their direction and strategy so they can take full advantage of the value in data. The message is – don’t do it just for compliance sake, do it to discover new business opportunities, reduce costs, mitigate risk, and grow the business.

The challenge Besides having to round up massive amounts of existing data from all across the organization, more data is continually being produced. In fact, it’s growing exponentially in volume and demand. For instance, Deloitte found in 2012 that banks in Canada had created more data in the past five years than in the previous sixty. Data comes from inside and outside a company, and includes information on and from

Financial Operations | Fall 2014 | www.financialoperations.ca

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Technology report customers, competitors, analysts, markets in general – even social networks. It’s part of every working element across every FI’s entire operating structure. And just like a meal is inextricably connected to its ingredients, an organization’s performance is inextricably connected to how well its data performs.

that permeates their operations today.

The solution The answer is to create a central data authority (CDA) headed by a senior executive, usually a chief data officer (CDO).

A CDA complete with a responsible senior

“Siloed data collected in numerous applications and contained in hundreds of separate systems causes costly duplication at best and poor business and risk-management decisions at worst…”

Right now the performance of Canadian DSIBs and other FIs most probably falls well short of their potential as a result of the way data is managed. Siloed data collected in numerous applications and contained in hundreds of separate systems causes costly duplication at best and poor business and risk-management decisions at worst. For example, an institution may have created multiple risk profiles for a customer who has purchased products from different business lines – e.g. a credit card, a mortgage, an RRSP mutual fund. By not being able to recognize that those risk profiles represent an integrated view of the customer, the business misses the opportunity to make tailored offers or loan decisions with all of the best available information. In addition, the data that was painstakingly created and maintained depreciates in value.

At a minimum, what DSIBs must, and smart FIs should do is tear down these silos and build a single, aggregated data management strategy so that data can flow throughout business lines, its integrity can be regulated, and the information that matters most can be accessed easily to make important risk-related decisions quickly.

Even then, meeting the minimum requirements – to be compliant – won’t be enough over the long term. To remain competitive, FIs should capitalize on this opportunity to aim beyond compliance and establish the capacity to optimize the value of their data. Tomorrow’s successful FIs are those who create a data vision and strategy

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executive not only allows FIs to comply with regulations, it can also improve financial reporting, allay risks, increase trust in the quality of the data, and drive growth by uncovering new business opportunities.

By removing silos and consolidating data assets – starting with risk data but eventually encompassing all data domains – FIs can embed their operating model with a sound strategy and solid foundation for managing and governing data. This will serve as a launch pad for higher-end value uses of data, which is where analytics plays a critical role.

Additionally, a CDA that absorbs and adapts to new technologies serves to ‘incubate’ the future by positioning FIs to jump on opportunities quickly. The key is to create a foundation on which to appreciate data assets, comply with regulation, and grow the business.

A few years ago, the senior executives of major FIs in Canada didn’t see the need for a CDA. It’s a sign of rapidly evolving perspectives – caused by a data explosion and, of course, mounting regulations – that most major Canadian banks have by now begun the process of establishing. Deloitte has been assisting many of them in this major undertaking.

The next steps Successful information governance and management programs hinge on the adoption of an enterprise-wide strategy. If you work in a DSIB, you’re probably already engaged in a program to comply with BCBS 239; ensure

Financial Operations | FALL 2014 | www.financialoperations.ca

you understand the new model well because, as treasurers, regulators will be coming to you for additional information. To help drive it ‘beyond compliance’, get truly engaged with the broader view your organization should have for unlocking its data’s potential.

If your company is not a DSIB, seize the opportunity to develop a strategy for the data that treasury uses. This will soon connect you with other functions within your organization and sow the seeds for a CDA. Make the case for how robust data and analytics programs can help your firm lead innovation in the FI sector. As a note, if your organization isn’t using them, rest assured others likely are.

Start by identifying the right data champion. Then take stock of your data assets, both internal and external, and determine which are most important for your area. Examine also the cost to acquire or create quality data. The next step is to develop a data performance program, strategizing to align corporate data performance with corporate goals, and embed this throughout your organization.

Implementation should start small with a specific initiative as a ‘test drive’. Share the outcome with the entire company, so the benefits of the new system are clear.

Most of all, remember that creating a new direction and strategy for data governance and management at the organizational level will entail a sea of change in corporate culture. A CDA affects every employee by fundamentally changing how information is collected, stored, and handled. Change management needs to be amongst the top C-suite priorities.

Eventually all FIs, big and small, will have to spend a great deal of money to overhaul their data systems. Capitalize on the opportunity, engage in the cultural shift to go beyond compliance and embed risk analytics in the operations so that data can be used to contribute greater value.

The results – an agile, high-performing organization that has the right data at the right time to make the right business decisions – will be worth the short-term disruption.

After all, you have to break eggs to make an omelette.

Azer Hann is a partner at Deloitte Canada and currently leads the firm’s national risk and capital management practice.

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Technology report

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Financial Operations | FALL 2014 | www.financialoperations.ca

Technology Report

Financial Planning and Analysis: The Need for Technology Traditional systems and spreadsheet programs have teams searching for better technology

By Joseph Howell

T

he role of financial planning and analysis (FP&A) is continually evolving in response to the growing demand for supporting organizational goals and growth objectives through data. The FP&A function is becoming more strategic in nature and it needs to possess a great amount of flexibility to support and advise management decisions. However, this emerging role is often difficult for FP&A teams due to lack of skills and insufficient technology.

Management teams, as well as boards, are looking at the technology used throughout their organizations. They’re asking if they need to make the extra investment to improve their reporting processes and, above all, they need to know what the ideal system would look like.

These issues, and more, are explored in the ‘2014 gtnews FP&A Technology Survey’. The survey assesses: • The state of FP&A technology around the world today • The challenges these systems create in the planning and reporting process • What features companies should look for when choosing a new technology system

The analysis is based on a survey of 224 gtnews corporate practitioner FP&A subscribers, conducted in the first quarter of 2014.

General findings The survey found that 53 per cent of organizations do not currently use a specific FP&A technology system. Instead, respondents rely primarily on Microsoft® Excel® or other spreadsheet programs.

There are no overwhelming trends that predict what type of organization is more likely to adopt such a system, and no strong traits shared among those that do. However, the size of the organization and number of drivers behind the decision are thought to have an impact.

Of the organizations that have implemented a specific FP&A system, 53 per cent consider them to be effective, indicating there is room for improvement in the development of stand-alone FP&A software.

Most organizations that currently use an FP&A system are dependent on traditional Tier 1 systems, such as IBM Cognos®, Oracle Hyperion® and SAP® – complex systems that need dedicated IT support and specialized programming skills to run efficiently. These

systems can also be very difficult to maintain.

Advancements in technology have brought Tier 2 systems, which are typically cloudbased, to the forefront in popularity. These cloud systems are flexible and dynamic and don’t require special programming, IT support, or costly upgrades.

Limitations of Excel Seventy-three per cent of respondents report that Excel is used for most of the analytical work at their organization. However, only 38 per cent consider it effective at sorting and interpreting large amounts of data, indicating much room for improvement. Attributes that attract organizations to Excel include the low cost, convenience, and familiar interface.

Reporting challenges According to the survey, FP&A teams are facing a considerable number of challenges when collecting, consolidating, and reporting key business information. These highly-skilled professionals are spending the majority of their time dealing with simple tasks such as: • Identifying and correcting errors (64 per cent) • Manually updating information for review (63 per cent)

Financial Operations | Fall 2014 | www.financialoperations.ca

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Technology report • Verifying accuracy of data (61 per cent) • Manually collecting and aggregating unstructured data (60 per cent) • Spending time proofing numbers (55 per cent) • Keeping track of multiple report versions (54 per cent)

Desired functionality The limitations of traditional Tier 1 systems and spreadsheet programs have FP&A teams searching for better technology. According to the survey, an ideal support system would enable collaboration, flexibility, adaptability, speed, and planning functionality.

Nine out of ten survey respondents cited accurate reporting as an important attribute in any organization’s FP&A support system.

A similar amount, 92 per cent, indicate they want tools that promote efficient reporting.

Additional valuable attributes include: • Automatic updates for real-time results (89 per cent) • Intuitive interface for easy updates (85 per cent) • Ability to drill down data (83 per cent)

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• Collaboration among teams (81 per cent) • Speed (80 per cent)

What to look for FP&A teams can overcome current planning and reporting challenges by adopting technology systems that offer several key functions. First it must promote collaboration among teams and enable version control with a common working environment for creating reports. This encourages the flow of information, reduces the risk of inaccuracies, and improves the quality of planning and forecasting.

The system should also have a mechanism that helps ensure the accuracy of data shared across documents, spreadsheets, and presentations. Such a mechanism will not only streamline workflows but will also eliminate the need to manually copy and paste data when collecting, aggregating, or reporting data.

High-quality FP&A technology should be able to automate routine tasks, which would increase overall efficiency and reduce risks of inaccurate plans and reports.

Financial Operations | FALL 2014 | www.financialoperations.ca

Finally, the system needs to be able to present accurate, up-to-the-minute data and offer secure access to the data at anytime, from any location.

FP&A leaders need to select technology solutions wisely. They must insist that the solutions they adopt are flexible and userfriendly. They must chose systems that allow their teams the freedom to respond quickly to changes and to develop strategic recommendations based on accurate data.

Word, Excel, and PowerPoint are registered trademarks of Microsoft Corporation in the United States and/or other countries.

Reference: “2014 gtnews FP&A Technology Survey.” (2014). Association for Financial Professionals. Retrieved from https://www.workiva.com/ resources/2014-gtnews-fpa-technology-survey

Joe Howell is Co-Founder and Managing Director at Workiva. Prior to founding Workiva, he served as chief financial officer for a number of public and private companies.

Joe is also co-founder, organizer, and community moderator for the SEC Professionals Group.

A Certified Public Accountant (inactive), he earned a bachelor’s from the University of Michigan and a master’s degree in accounting from Eastern Michigan University.

Technology Report

Streamlining the Close How does your company’s financial system compare?

I

f your finance team is still reconciling accounts manually, you’re not alone.

In ‘Benchmarking the Accounting & Finance Function: 2014’, a Robert Half report that surveyed nearly 1,600 finance executives in North America, 66 per cent of Canadian companies said they do not use a tool or system for reconciliations.

The finding was surprising, as last year’s benchmarking report found that only 50 per cent of Canadian organizations relied on manual reconciliation. Furthermore, this 16-point increase runs counter to the trend in the U.S., where the percentage of companies closing accounts by hand dropped six points since 2013 – to 59 per cent.

says the CFO of a Canada-based aerospace company in the report. The likely results are stressed out workers and more errors.

Another finding of the report was that 96 per cent of Canadian executives expect their compliance costs to rise or stay the same. See how your company compares.

ERP systems dominate Ninety per cent of Canadian firms use an ERP system as their primary financial system to create efficiencies and manage costs. In fact, the popularity of enterprise resource planning is on the rise in Canada — up four per cent from last year.

The preferred ERP system, used by 21 per cent of Canadian companies in this study, is Microsoft Dynamics GP. Second place goes to JD Edwards, with a 14 per cent share. The former is more common in mid-sized companies in North America, with revenue of $25 to $99 million, while the latter finds its place in larger companies with earnings ranging between $500 million and $1 billion.

Oracle PeopleSoft, SAP, and Legacy round out the top five. However, the ERP market is not uniform – four in 10 executives said their companies use an ERP system other than these leading brands.

“The less time finance and accounting staff have to spend on closing the books, the more they can devote to highervalue activities …”

A return to a more labour-intensive method is a worrisome business trend.

According to many executives interviewed for this report, streamlining the close gives organizations an advantage: The less time finance and accounting staff have to spend on closing the books, the more they can devote to higher-value activities such as forecasting, budgeting, and analytics.

And at the same time that manual reconciliations are increasing, “there is a push to get [annual statements] done even faster,”

SaaS has a low adoption rate Because so many Canadian companies use an ERP system, only two per cent rely on SaaS (Software as a Service) as their primary financial system. The report found that the smaller the company, the more likely it is to use in-house systems or cloud-based solutions.

Of the Canadian businesses that do use SaaS, 40 per cent of them use NetSuite and 20 per cent each use ADP and Microsoft.

SaaS reduces cost and increases efficiencies, so why do so few companies use it? It boils down to caution and control.

Commerx Corp. in Calgary recently moved from an ERP system to the cloud, but controller Marietjie Bower isn’t yet a full convert. She says in the report: “When it’s internal, I know how to protect it. When it’s out there [in the cloud], I have to rely too heavily on external factors to make sure my information is protected.”

Excel is evergreen Microsoft’s popular spreadsheet program shows no sign of flagging, especially among smaller businesses. Seven in 10 companies in Canada use Excel for budgeting and planning. No other tool even breaks into the double digits. The smaller the organization, the more it relies on Excel for accounting functions. “Excel is still the most dominant program for doing any kind of quick analysis or storing of data sets,” says Lynn Wise, director of operational accounting at Ritchie Brothers Auctioneers headquartered in Burnaby, BC. There are several reasons for Excel’s enduring popularity: It’s a robust and versatile tool that most finance and accounting professionals are very familiar with. The software and files reside – for the most part – on personal computers; this give users a sense of greater control over data security and integrity. On the down side, the more finance departments depend on manual tools like Excel, the harder it is to widely share data and keep them updated.

Provided courtesy of Robert Half Canada, parent company of Accountemps, Robert Half Finance & Accounting and Robert Half Management Resources.

Robert Half is the world’s first and largest specialized staffing firm placing accounting and finance professionals on a temporary, full-time and project basis. Follow Robert Half Management Resources at http://www.twitter.com/ RobertHalf_CAN for workplace news.

Financial Operations | Fall 2014 | www.financialoperations.ca

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Technology report

Data Incident Management: A Reality for Businesses of All Sizes It’s time to get evangelical about creating protection

By Darrel Anderson

S

upervalu is the latest in a string of retailers to report a data breach of its payment card network. In recent months, data breaches have been reported by Target, Neiman Marcus, Sears, and Michaels, affecting millions of North American cardholders. Further, the payment card brand Visa estimates that 95 per cent of data breaches actually take place at small businesses, which can be confirmed by a spate of recent malware attacks targeting small businesses resulting in thousands of data breach events.

The new reality for businesses today, from mom-and-pop shops to big-box retailers, is that they are all at high risk of experiencing a data incident. The question now for business owners is how best to manage these data incidents, as they can be catastrophic in terms of lost revenue, potential fines, mitigation costs, and reputational damage. The aftermath of a data incident can swiftly put mom-and-pops out of business and can wreak havoc on even the mightiest of retailers. To be clear, the newest payment industry security requirements surrounding protection of credit card data puts significantly more of the burden of the protection on merchants themselves than ever before.

Sustainable models With organizations accepting the fact that they cannot avoid data privacy and security incidents, relying on ad-hoc incident management for the most part is ineffective.

Companies must move toward a sustainable operating model, systematically and robustly building incident management into their business ecosystems. This will help companies of all sizes react quickly, proactively, and professionally, and eliminate as much business harm and out-of-pocket expense as possible.

Unfortunately, putting a data incident management program in place is easier

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said than done, especially for the small- to medium- business (SMB) segment that has little or no time, leverage, wherewithal, or financial resources to develop and maintain their own programs. And asking them to do so is simply ridiculous – it’s like trying to put a square peg in a round hole.

With some surveys reporting 10 to 15 per cent PCI compliance rates for small merchants, 33 per cent of businesses saying they don’t have a data protection plan in place, and still others saying 67 per cent of small businesses don’t even use antivirus protection on their systems, it can be concluded that the current system for data incident management and compliance enforcement, with all its prodding, fees, and fines is not working. The notion of making SMBs perform tasks they don’t understand, don’t have time for, don’t enjoy, and can’t afford has long passed.

So what can be done? What is realistic?

A reasonable approach It’s time to get evangelical about creating protection for ourselves and our customers.

A reasonable approach is to provide SMBs with a host of solutions and services based on a subscription basis that gives them access to expert assistance that can be tapped into in the event of a data incident. This includes access to things like compliance and encryption services, cyber/breach insurance, data incident forensics, help getting new point-of-sale equipment or software, Johnnyon-the-spot legal services, legal and consumer notification help, public relations support, and more. There are solutions out there for solving virtually every aspect of these considerations. It’s just a matter of making access easy, simple, and affordable.

A subscription approach incents SMBs to get serious and proactive about data and privacy protection. It also levels the playing field as SMBs gain access to solutions and services normally reserved for only the

Financial Operations | FALL 2014 | www.financialoperations.ca

biggest of companies. They can take a comprehensive or à la carte approach to constructing data incident management programs, signing up for as many or as few solutions and services as they’d like.

Ease of mind SMBs gain ‘ease of mind’, which to me means a combination of peace of mind and simplicity, while at the same time enhancing business performance by saving time and money. Plus, a subscription approach acts much like an insurance policy. The advertising jingle, “Like a good neighbor, State Farm is there,” keeps ringing here and that message is certainly apropos when professional subscription services kick in as and when they’re needed, allowing SMBs to remain focused on the day-to-day importance of running their businesses.

Given the billions of dollars that data incidents cost organizations annually, along with the associated disruption and risk to consumers and businesses alike, having a data incident management plan in place – no matter the size of your organization – is a vision all can and should embrace.

Let’s not fool ourselves that this endeavor is easy, but it certainly is worth it? After all, we’re talking about protecting the viability of hundreds of thousands of businesses and the livelihoods of millions of their employees and their families with proper data incident management. It doesn’t get any more evangelical than that.

Darrel Anderson is president and chief executive officer for Conformance Technologies, a fast-growing provider of operating systems, educational systems, and expertise used in managing business compliance requirements. Distributed through resellers and corporate aggregators who manage groups of businesses and consumers, Conformance Technologies gives these entities the opportunity to increase compliance rates, measure adherence, lower operating costs, and generate ongoing revenue streams.

Contact Anderson by phone at 775.336.5533 or email danderson@conformancetech.com.

Technology report

SaaS-querading in the Cloud Fake cloud vendors are on a catastrophic course — and their customers are riding shotgun

By Paul Turner

A

s cloud solutions become more widely used within businesses worldwide, legacy on-premise vendors have consistently tried to migrate their outdated tools to the cloud and brand them as cloud-based. It’s a frugal attempt to ‘SaaS-querade’ – trying to position these applications as cloud-based tools intended to meet modern business needs.

Thanks to heavy evangelism around the big benefits of cloud-native business solutions, organizational leaders are more privy to the warning signs of a fake cloud – they’re much more difficult to use than cloud-native apps, customers of these on-premise vendors are running on different versions of the software, the tools are often an ‘operations horror’ behind the scenes, and there’s an overall slower pace of innovation.

Not only are these legacy vendors making a blunt attempt to deceive business leaders into buying fake cloud solutions, but the strategy doesn’t actually work. I’ve seen vendor after vendor take the eerily similar, ill-advised, threestep path to fake cloud catastrophe over the last 10 years. Once they embark on the fake cloud path, they’re in the fast lane to failure. And the worst part of it all? Their customers are riding shotgun.

So what is the path that fake cloud vendors (and all of their customers) almost inevitably follow? It goes something like this …

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Financial Operations | FALL 2014 | www.financialoperations.ca

Technology Report Step 1:

Step 2:

“Our customers and partners are begging us for a cloud solution! No biggie, we’ll host it.”

“No problem, we can make our old solution more ‘cloudy.’”

Seeing their traditional businesses in precipitous decline while true cloud providers grow in customer base, revenue, and market share, legacy vendors spin-up an ops team to host the solution. The ops team – typically specialists in hosted software operations – say “No problem!” Most on-premise vendors are far into this step already.

The company starts spinning-up hosted software instances. Marketing knocks out a subscription-based price list and creates the requisite collateral littered with calming images of fluffy clouds. All done, right?

Wrong.

After a few initial sales, the ops team realizes that hosting is much more than a question of hosting infrastructure.

• “Customers are complaining about performance – how do we tune the real application anyway? Adding more memory to the server didn’t help.”

• “We have to individually upgrade hundreds of customer instances? What are the application level considerations for each customer?”

• “How do we manage SLAs across our 100 instances and how are we going to do it when we reach 1,000 and beyond?

We need to hire 100 more people to keep these plates spinning!”

• “Customers are asking us to make changes because it’s too difficult to do it themselves! This wasn’t meant to be a managed services agreement!”

• “Engineering, you have to help us. We can’t successfully scale this system and feed each customer instance – do something!”

• “Hey engineering, those patches and fixes you delivered to customers without worrying about applying them – guess what? We have to do it now – and it sucks.”

The business guys look across at the realcloud providers and say “We need to put the pedal to the metal on this cloud thing!”

However, operations has already raised the red flag. Costs are outrageously high, customer satisfaction is shockingly low.

Something has to change. So…

This step is almost inevitable once a vendor has sold the fake cloud. Some bright spark develops a multi-year roadmap to the cloud, which includes a few ‘optimizations’ to make the existing product run more cost effectively, more reliably, and more user-friendly as a service. Salvation!

• “We’ll make it multi-tenant, so it’s easier for ops to deliver.”

• “We’ll provide tools to help ops run it more effectively.”

• “We’ll make the app more intuitive for business users to take the pressure off of our own team.”

It’s just not that easy. No vendor has successfully turned an on-premise application into a real, multi-tenant, self-service cloud app, and scaled up to thousands of customers.

Old applications are innately complex because they’re running on several code bases – Java, C++, client-server, N-tier – each of which is decades old and never meant to run in a multi-tenant environment.

This is the point at which the vendor starts their great ‘cloud experiment’; trying to service the airplane while it’s in flight and the customers are on-board.

Can you really blame the engineering team; a group of on-premise software developers trying to build a cloud solution for the first time? Turning their solution into a self-service, cloud application requires multiple UIs just to hide the complexity, but those UIs create more complexity on their own.

Throughout this process, innovation comes to a grinding halt. Adding features that customers really want takes a backseat to getting the Frankenstein-like ‘cloud’ solution off the ground. Overall complexity increases, while customer satisfaction decreases around a solution littered with patches, fixes, and bolt-ons.

Finally, the number of customers that the vendor is supporting rises to precipitous levels. Step 2 isn’t working out. Customers are asking for free-trials like the ‘real cloud’ vendors offer. They’re looking for real features that solve their problems, not endless cloud fixes and kludges. So it’s on to step 3.

Step 3: “Hmm, this didn’t pan out. We need to build a new solution from the ground up.”

Just when you thought it couldn’t get any uglier, the vendor reaches the inevitable deadend two to three years after first launching the fake cloud solution. Business leaders are panicking, realizing they’ve performed a failed surgery on their antiquated application.

Their product is a monster of complexity and it’s practically impossible to support on-premise and hosted customers while delivering a reliable, cost-effective, self-service solution. Customer satisfaction continues to decline and it has become clear that the future is 100 per cent cloud.

It’s time for project re-do – building a brand new cloud-based solution.

This is going to take at least another two to three years to complete. Additionally, the vendor can’t simply retire the old solution because there are hundreds of customers using it and still paying maintenance fees.

Those customers won’t see any new features while the vendor dedicates all resources to creating a new cloud-based solution, at which point the vendor will have to re-implement that new cloud app.

No innovation + re-implementation + a fledgling cloud app = no fun for years to come.

Then the pain for the vendor really begins.

There are two solutions – a highly functional and mature old app that runs great onpremise and badly in the cloud. And a brand new app that runs better in the cloud, but with far less functionality.

In the meantime, true cloud vendors – using one code-base and years of SaaS experience – continue to build a worldwide customer base. They’ve steadily innovated and improved their solutions, adding new features that meet customers’ needs. By the time legacy vendors are ready to launch a cloud app, it’s too late to get in the game. And that’s why, regardless of the road they choose, legacy vendors are destined to crash. There’s only one question left to answer: Will you join them on that ride?

Paul Turner, Senior Director, Strategy at Adaptive Planning has spent nearly 20 years in corporate performance management, business intelligence and ERP. He started his career implementing EMEA business planning and forecasting within finance at Xerox Europe, and spent nearly ten years at Hyperion in consulting, product, M&A, and strategy roles. Paul has implemented financial and operational analytics at leading Fortune 500 organizations and also built one of the industry’s first packaged sales performance management analytic applications. Most recently, Paul focused on cloud ERP at both NetSuite and Workday.

Financial Operations | Fall 2014 | www.financialoperations.ca

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COMPLIANCE

Dramatic 2015 VAT Changes for Digital Service New rules are set to affect both EU and non-EU suppliers providing digital services with the EU

By Casper Winkelman

A

s of January 1, 2015 new VAT rules will apply to the supply of e-services within the European Union (EU). This change is the final phase of the EU VAT Package that has introduced new ‘Place of Supply’ rules for services in 2010, 2011, 2013, and now in 2015. This final phase of changes dramatically impacts both EU and non-EU suppliers of digital services to private individuals and nonbusiness customers within the EU. The digital services sector evolves rapidly.

Therefore, rather than define a specific list of every service covered by this change, the legislation provides a comprehensive set of categories for the types of digital services that

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are impacted.

The three categories of services include: • Telecommunications: Sending or receiving signals by wire, radio, optical, or other systems. This includes fixed and mobile telephone services, video phone services, and Internet access.

• E-services: Video on demand, downloaded applications (or ‘apps’), music downloads, web hosting, gaming, e-books, distance learning, on-line auctions, anti-virus software, etc.

• Broadcasting: the supply of television and radio programs transmitted over a radio or television network or live broadcasts over the internet.

Financial Operations | FALL 2014 | www.financialoperations.ca

Customers and suppliers in scope (B2C) These new rules are set to affect both EU and non-EU suppliers that provide digital services to consumers within the EU. The current rules for business-to-business suppliers are unaffected. However, if your customer does not have a valid VAT registration number issued by an EU Member State, then you should treat this customer as a consumer (B2C).

What rules are changing on January 1, 2015?

VAT determination for B2C suppliers The main change relates to suppliers of digital services by EU-based suppliers to EUbased consumers. Under the current VAT

COMPLIANCE MOSS has two schemes available: • a Union scheme for EU-based suppliers and

Table 1

• a Non-Union scheme for non-EU suppliers Please refer to the VAT MOSS Registration decision tree published by the UK tax administration (HMRC).

A digital service supplier who opts to use the MOSS scheme is required to register in the Member State of Identification (MSI).

• For the Union scheme, the MSI is required to be the Member State in which the respective supplier is established • For the non-Union scheme, the supplier can designate any Member State to serve as the MSI rules, the VAT for these intra-EU supplies is determined by the location of the EU supplier.

However, as of January 1, 2015, the VAT for these intra-EU supplies will be determined by the location of the EU consumer, similar to the way use tax is treated within the United States. The main reason for this change is to prevent businesses from establishing an operation in EU countries with more favorable rates (i.e. across the EU, the VAT rates currently range from 15 per cent to 27 per cent).

For example, a Luxembourg supplier of digital services to French, Spanish, Italian, and Luxembourg consumers should currently charge 15 per cent Luxembourg VAT. As of January 1, 2015, this Luxembourg supplier should charge 20 per cent French VAT to the French consumer, 21 per cent Spanish VAT to the Spanish consumer, 22 per cent Italian VAT to the Italian consumer, and 15 per cent Luxembourg VAT to the Luxembourg consumer. As you can see, this change has quite an impact.

In addition to the VAT determination rules for intra-EU supplies of digital services to consumers, the VAT determination rules regarding digital supplies in to and out of the EU slightly change as well. See Table 1 for more details.

appropriate rate in every EU country in which they have consumers as customers.

This can clearly create an administrative nightmare for some businesses. For this reason, the affected suppliers may opt to account for VAT across the EU via one single electronic declaration to be submitted to one EU tax authority. This simplified arrangement is called the Mini One-Stop Shop (MOSS) scheme. This MOSS scheme will be similar to the one presently in place for non-EU suppliers of digital services to EU consumers.

Under both schemes, businesses are required to remit quarterly MOSS VAT returns within 20 days of the end of the period covered by the return. The MOSS VAT return must contain details of the supplies sold to customers in each Member State.

The supplier pays one amount for the total MOSS VAT return (instead of a payment in every country where the supplies were made).

The MSI distributes the payment to the other Member States in which the supplies originated.

VAT reporting for B2C suppliers Due to this change, digital suppliers will need to register and account for VAT at the Financial Operations | Fall 2014 | www.financialoperations.ca

23

COMPLIANCE What are the challenges?

The aforementioned changes seem relatively straightforward and understandable. However, there are some challenges to consider, such as: • Required evidence of customer’s location: The biggest challenge is to meet the requirement to obtain and keep two pieces of non-contradictory evidence for the customer’s location and therefore, the basis for the VAT determination decision. Examples include billing address of the customer, IP address of the device used by the customer, location of the bank, the country code of SIM card used, and other commercially-available information.

• Invoicing: As of January 1, 2015, the supplier will need to issue invoices in accordance with the requirements of each EU country where the consumer is located. In some EU countries, it is not required to issue an invoice to consumers; while others may require a simplified invoice. Therefore, suppliers will need to check the rules in each EU country where their customers reside. Key differences may include wording, language, and currency.

• Audits and record keeping: MOSS audits can stretch back 10 years, creating burdensome record-keeping obligations.

As such, businesses may prefer to use their existing

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Financial Operations | FALL 2014 | www.financialoperations.ca

VAT registrations or create new ones across the EU. However, there will be pros and cons to each compliance option.

For audit purposes, the European Commission has recommended the use of a standard audit file for MOSS (SAF-MOSS), in xml format. Most Member States have indicated that they will accept the SAFMOSS format.

• Transition period: At this time, businesses need to check whether their services are subject to the current rules, new rules, or both. This specifically applies to continuous digital supplies, such as annual subscriptions. Payments for annual subscriptions received before January 1, 2015 will be taxed under the current rules, and payments received on or after January 1, 2015 will be taxed under the new rules.

• Pricing: Pricing will need to be re-assessed as a variety of VAT rates will apply to European customers, dependent upon their location. How will this impact margins and what will be the best pricing strategy (globally and locally)?

• Input VAT recovery: The MOSS return only allows the supplier to pay the output VAT on the sales of digital services to consumers in the EU. If the supplier also incurs input VAT on its purchases, the supplier should reclaim the input VAT through its domestic periodical VAT return or via the electronic cross-border VAT refund scheme.

What next?

There is not much time left to prepare for the upcoming changes of 2015. The vital areas businesses need to consider immediately include: • Compliance: Multiple local registrations versus one registration under the MOSS scheme, in- or outsourcing registration and overall compliance • Systems: Use external applications for VAT calculations and reporting or adjust existing systems for new VAT determination rules, all applicable VAT rates, new reports supporting audit and reporting requirements, process for updates and maintenance, etc.

• Audit: Ensure accurate record retention, audit reports (SAF-MOSS xml), evidencing customer locations, etc.

• Other: Consider implications for pricing strategy, internal processes, internal VAT awareness, contracts, etc.

Casper Winkelman is co-founder and managing director of VAT Resource, a company recently acquired by Taxware.

Casper is a tax lawyer with more than 17 years of experience in VAT. Casper has gained international VAT experience as a consultant at Arthur Andersen in Amsterdam, NL, and in the industry as VAT Director at KPNQwest in the Netherlands, a Pan-European telecommunications company. Since 2002, Casper has assisted many international clients in streamlining and managing their VAT compliance processes. In this respect, Casper has gained unique practical expertise by working with various types of organizations and financial systems and has been involved in several VAT technology solution projects.

2014 CMSBA 2nd ANNUAL FALL CONFERENCE - TORONTO - Nov 18, 2014

Official Conference Sponsor:

Lunch Sponsor:

Break Sponsor:

Vendor Booths:

Post Conference Reception Sponsor:

Website Sponsor:

Exclusive Media Partner:

Location:

2014 CMSBA 2nd ANNUAL FALL CONFERENCE - TORONTO - Nov 18, 2014

SCHEDULE: Time

Main Room

Second Room

07:30-8:30

Registration/Breakfast

08:30-08:45

Opening remarks

Main room only

08:45-9:30

FINTRAC: Evolution of Compliance: Examinations and Enhanced Effectiveness – Lisa Douglas

Main room only

9:30-10:15

Panel: CDD & EDD (Matthew McGuire, Naseer Syed, Paul Burak, Susan Han)

Effective Risk Assessment Garry Clement and Jennifer Fiddian-Green

10:15-10:45 10:45-11:30

Break/Vendor networking - Sponsored by YorkFX Panel: Transaction Monitoring (Joseph Iuso, Adnan Ashraf)

11:30-12:45

Effective Risk Assessment Part 2 Garry Clement and Jennifer Fiddian-Green Lunch - Sponsored by ACAMS

12:45-13:30

Digital Currency – Susan Han

Main room only

13:30-14:15

Panel: FINTRAC Exams- From Information Requests to AMPS (Amber Scott, Tushar K. Pain, Bruce McMeekin)

AML/KYC on e-wallets and prepaid cards – Duane Tough

14:15-15:00

Panel: Cybersecurity (Garry Clement)

OTC Derivatives and Reporting Greg Toczylowski, Shaun Olson and Sina Akbari

15:00-15:30

Break/Vendor networking

15:30-16:15

Barriers to Banking MSBs in Canada – Robert Osbourne

Main room only

16:15-16:45

Closing remarks

Main room only

17:00-18:30

Networking and refreshments Location: Toni Bulloni’s - 156 Cumberland St, Toronto, ON M5R 1A8

PRESENTATION OUTLINES: EVOLUTION OF COMPLIANCE: EXAMINATIONS AND ENHANCED EFFECTIVENESS - Lisa Douglas The quality of financial transaction reports submitted to FINTRAC has a fundamental impact on the value of FINTRAC’s financial intelligence.

FINTRAC’s Compliance Program is responsible for enabling and enforcing the reporting of high quality financial transaction reports as well as providing meaningful feedback and clear guidance in order to assist reporting entities in meeting their obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This presentation will focus on the assessments and expectations of the Regulator, while outlining the assistance available for reporting entities.

PANEL: CDD & EDD - Matthew McGuire, Naseer Syed, Paul Burak and Susan Han Money Service Businesses (MSBs) are obligated to perform client due diligence (CDD) on their clients whether as a result of a prescribed transaction or

26

Financial Operations | FALL 2014 | www.financialoperations.ca

throughout the establishment of a business relationship. In addition, enhanced due diligence (EDD) is mandatory when the risk associated with a specific factor has been deemed high. The panel discussions will focus on when and how to perform CDD measures related to record keeping, ascertaining identification and transaction monitoring for all client types including individuals, corporations and charities. An overview of effective EDD measures will also be discussed to demonstrate the importance of aligning the EDD measures to the actual risk deemed to be high.

PANEL: TRANSACTION MONITORING - Joseph Iuso, Adnan Ashraf Transaction Monitoring Systems (TMS) are used to identify suspicious transactions. They consist of different rules which trigger a response when transactions meet certain threshold or criteria. There are no set rules designed by the industry or FINTRAC, although Financial Institutions (FI) are using them to monitor their transactions. Every business creates different rules based on business profiles or records of past transactions.

2014 CMSBA 2nd ANNUAL FALL CONFERENCE - TORONTO - Nov 18, 2014 EFFECTIVE RISK ASSESSMENT - Garry Clement and Jennifer Fiddian-Green A need exists to demonstrate both a qualitative and quantitative Risk Assessment model which can be strengthened through technology. Smaller MSBs also need to be able to evidence a model which ensures clients are rated effectively and efficiently based on the risk tolerance of the owner(s).

The presentation will highlight the need for an effective risk methodology and introduce a model using Excel which can be adapted to any small MSB.

BARRIERS TO BANKING MSBs IN CANADA - Robert Osbourne The goal of this session is to explore the present difficulty that MSBs have in obtaining and maintaining their banking relationships in Canada and to start to set the foundation for strength going forward. It is planned that we will put together a panel of industry members, bankers and other interested parties (currently being explored) to address this issue, to be facilitated by Robert Osbourne, formerly with RBC bank.

PANEL: FINTRAC EXAMS - FROM INFORMATION REQUESTS TO AMPS Amber D. Scott, Tushar K. Pain and Bruce McMeekin In this session we’ll take you through what to expect from a FINTRAC examination, from the time that you’re contacted through to what to do if you’re facing potential penalties. You’ll hear tips and tricks to help you put your best foot forward when you’re preparing your examination materials (including access to free resources). We will help you understand what to expect in your regulator interactions, and how to prepare your staff.

with who is using what third party services and platforms. Duane will talk about the top ten most common things that can go wrong, what to do when they do and how to prevent them from happening.

PANEL: CYBERSECURITY - Garry Clement Garry will examine current trends, the world as it exists today relative to cybercrime and its impact on financial organizations. The audience will be cognizant of current threats, vulnerabilities and risks associated to cyber-crime. The audience will become familiar with various cyber activities and how hackers are winning.

OTC DERIVATIVES AND REPORTING - Greg Toczylowski, Shaun Olson and Sina Akbari OTC Derivatives Trade Reporting Rules (OSC Rule 91-506 Derivatives: Product Determination and OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting). Ontario Securities Commission (OSC) staff will summarize these new OSC rules on the reporting of certain OTC derivatives to a trade repository.

This presentation will focus on how the rules apply to foreign exchange transactions.

DIGITAL CURRENCY - Susan Han The Government of Canada has introduced legislation which will make persons dealing in digital currencies such as Bitcoins MSBs for purposes of AML regulation. Through this presentation, the audience will understand more about Bitcoin and the potential impact on regulation and on payments: “I’m an MSB, what does Bitcoin (and Cryptocurrency in general) mean to my business”?

AML/KYC ON E-WALLETS AND PREPAID CARDS - Duane Tough This presentation will discuss AML/KYC policies from program and platform inception to what to do, what options there are, and how they work, along

For more details please contact your Equifax Account Representation or call 1-855-233-9226 Financial Operations | Fall 2014 | www.financialoperations.ca

27

Business intelligence

Managing Currency Risk and International Payments Seven international payment issues commonly faced by Canadian corporations

By Roy Farah

R

egardless of a company’s size or whether it’s publicly traded or privately held, unexpected currency swings can take a huge toll on business results. These swings can impact quarterly earnings and dampen the outlook for the year. Compared to many American companies, Canadian corporations are often savvier when dealing with the effects of foreign exchange rates. The dominant use of the U.S. dollar for global trade means Canadian businesses have become well-versed in foreign exchange markets and the benefits of using local currencies. What they are less aware of, however, are some of the newer options they have to manage currency risk and international payments more effectively.

Oftentimes, they investigate alternatives to current processes only after an unexpected issue arises, such as a large loss due to unforeseen FX exposure, or delayed payments leading to a loss of foreign business.

While corporations in different industries will have different needs, we have found that there are common pain points amongst our corporate clients, all of whom have some international aspect to their business and therefore must manage international

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payments. Here are tips on how to handle seven of the most common international payment issues that Canadian corporations may encounter:

systems. By implementing this tool, our clients have observed significant enhancement in productivity and efficiency, while reducing manual errors and improving controls.

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2

Mid- to-large-sized corporations are beginning to recognize that their current, largely manual, payment processes are fairly inefficient and costly. This is especially true for any rapidly growing company or for companies that are expanding internationally.

We often find that companies continue to use the processes they had when they were smaller and this can drive inefficiencies that, once identified, can easily be remedied.

The first thing to note is that there are tools available that can effortlessly automate the payment process. These allow corporations to process a very large number of international payments automatically without the need for manual input, which can be costly, inefficient, and can also be prone to human error. We find that customers who use our automated payments tool find particular value in its reconciliation file, which can be uploaded in the company’s general ledger or ERP

As a company grows, often so too does its number of international payments – and costs can add up quickly. For larger companies, these costs may include high international wire charges, intermediary bank charges, and incoming wire fees charged to the beneficiary.

Luckily this is an area where corporations can use a number of solutions to achieve relatively quick and easy wins. An example of this is to find a financial services partner that has its own international bank-to-bank transfer functionality. Making a payment to a supplier in France can be as easy (and almost as inexpensive) as paying for your utility or phone bills online from inside Canada. As an added benefit, the international payee will rarely incur incoming wire charges.

Automate international payments and reconciliation process

Financial Operations | FALL 2014 | www.financialoperations.ca

3

Reduce the costs of international wire charges

Work with a specialist that can simplify international payment processes

Business intelligence Keeping up with different formatting, regulatory, and various other international payment requirements can be daunting, and may prove to be highly distracting and inefficient for a corporation. Collecting and verifying payees’ international banking information requires time, but consulting with an international payments expert may assist in navigating some of these complex requirements.

An expert in this field may also be able to provide a number of strategies to assist corporations, from simple tools that provide lists of all global bank codes to sophisticated payee management tools that are designed to simplify and streamline the collection and verification of the payee’s bank information.

4

Ensure on-time international payroll and pension payments

The above is particularly relevant to companies with international or expatriate staff, or corporations with pension payment obligations outside Canada. A good international payment solution assists large corporations by embedding directly into their own systems and ensuring that regularly recurring payments, such as international salaries, are delivered in the right amount and on time every month without the need for constant manual oversight.

5

Receive foreign currency payments

Companies with significant sales in international markets can find that taking the simple step of invoicing clients in their domestic currency can make it easier for their customers abroad to buy

from them. Canadian exporters, however, can be impacted by significant limitations associated with receiving funds from outside Canada from their target markets. Currently, the only main-stream options are wire transfers from outside Canada or payment by credit card. Both these options can be expensive and inefficient. Setting up a foreign currency holding account and working with a specialist payments provider that can facilitate direct local currency payments are two methods that can make the process more effective. Exporters can also look to grow their international sales by reducing the cost and complexity of the buying process for their global customers.

6

Gain visibility over foreign currency exposures

As corporations expand their international presence, their foreign currency exposure starts becoming increasingly complex and difficult to manage. Fluctuating markets mean the costs of international payments can change drastically, leading to potential gaps in cash flow. The reduced visibility leads to uncertain budgets and challenges when it comes to forecasting. Many of our corporate clients use our visibility and control tools, which range from the most sophisticated software which can be fully integrated with the companies’ GL to simple, yet very powerful, reporting tools.

A foreign exchange services partner can also help firms reduce the risk of currency fluctuation while allowing corporations to potentially participate in favourable market movements.

7

Expand control functions over international subsidiaries

Another growing trend we are seeing is a desire for increased control and visibility over payments that are flowing to and from subsidiaries outside Canada, including the ability to audit them. There are tools available that allow a Canadian parent corporation to view, approve and control the payments of any number of international subsidiaries.

Moving funds around the globe can be a complex and lengthy process. Taking the time at the start to set the right strategy, however, can lead to long term efficiency and time savings. The above are seven tactics that can enable corporations to maximize their

cash flow, increase efficiencies and improve their overall competitiveness. The very first step, however, is to find a strong financial services partner that will bring to the table the right solutions for your business, from embedded automated payment systems to foreign exchange hedging capacities and beyond. The right partner will be able to help build an overall international payment strategy so a company can focus on growing its overall business.

Roy Farah is the head of Corporate Business for Western Union Business Solutions in Canada, a financial services partner for companies engaged in international business. He has over 15 years’ experience working with Canadian companies and organizations on their international payment and cash flow strategies. Roy holds an MBA from McGill University and is a CFA charterholder.

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31

In The Cloud

Why the Future is Bright for the Hybrid Cloud

Enterprises can strike the right balance to meet all the requirements of their end users and applications

By Esmeralda Swartz

J

ust as the emergence of the Internet led to new companies competing with the established technology players of the time, the cloud is now leveling the playing field for many software companies.

However, there is still much confusion about the cloud, since it is rapidly evolving and the market still requires more education. What has not changed since the early days, though, is that users from small to large enterprises alike want to easily and affordably access their applications and data.

The challenge, then, is finding the best solution to meet the specific needs of individual users and applications, whether the solution is on-premise or cloud-based. While some companies may consider a move to the

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public cloud, concerns about data security and privacy mean certain applications cannot be transferred out of the on-premise data center. The public cloud, however, is useful for hosting non-critical workloads and providing endless capacity, particularly for spiky workloads. But when it comes to

mission-critical workloads or sensitive business data, the private cloud is often still the answer.

Because neither a private nor a public cloud meets the full needs of enterprises, major cloud providers are offering a hybrid solution that gives flexibility to organizations to optimize based on changing requirements.

“A hybrid model means enterprise IT teams can prioritize which applications run on which model based on performance, compliance, cost, interoperability, and compatibility considerations.�

Financial Operations | FALL 2014 | www.financialoperations.ca

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33

In The Cloud • Extending the data center or supporting computing intensive applications. It is common for financial services companies to perform detailed modeling or risk computations to measure and model complex financial scenarios. While the enterprise owns the data center, it can accommodate surplus loads by leveraging a public cloud, rather than buying extra data center capacity to accommodate application spikes.

A hybrid model means enterprise IT teams can prioritize which applications run on which model based on performance, compliance, cost, interoperability, and compatibility considerations. With a hybrid model, applications that require customization, control, and optimization can be put in the private cloud, as well as interactive applications that have specific requirements for performance. The public cloud can be used for those applications an enterprise elects to run based on price, policy, and performance. In addition, because large sums of money have often already been dedicated to infrastructure, enterprises are unlikely to move everything to the public cloud. Instead, they will most likely adopt the hybrid approach that can preserve the investment and be cost-efficient moving forward, while also providing risk mitigation and preventing a new type of vendor lock-in.

Balance is Key A hybrid cloud future is on the horizon due to companies’ need for freedom to evolve in an increasingly dynamic business environment.

In a hybrid environment that blends the best of both the public and private cloud worlds, an enterprise can strike the right balance to meet all the requirements of its end users and applications. For financial services companies, specific standards and regulatory requirements drive the selection of a private cloud over a public cloud. The private cloud provides financial organizations greater security and control over their data and applications, while reducing fear of the unknown. But just as with other industries, financial services organizations are increasingly moving to a public-private co-existence model. The financial services industry is fast paced and pushes the envelope on the use of technology to produce new financial instruments. One key mechanism for doing this is the use of analytics and business intelligence to augment existing services.

Financial services companies, whether they are in capital markets banking or insurance, are all evaluating the use of hybrid cloud solutions to develop innovative new services.

In all three segments, there are specific regulatory requirements and information needs, but what they all have in common is the need for flexibility, fast connectivity, and scalability. There are key considerations to take into account to optimize the use of the cloud.

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• What applications must remain under lock and key? Understanding the answer to this question will determine what workloads or data make the most sense to remain in a private cloud environment. Data that is proprietary to the organization or features sensitive customer or financial data should remain within the most secure environment in which the organization has the most control—a private cloud.

• How efficiently can you extend data center capacity? Often financial services companies need to extend data centers to new locations or provide on-demand capacity for applications.

The ability to provision and rapidly de-provision capacity is a big driver for a hybrid cloud. Rather than large capital outlays, a public cloud can be provisioned to support new capacity requirements. The ability to retain control and be able to manage cloud capacity in the same way as on-premise infrastructure is critical.

Financial Operations | FALL 2014 | www.financialoperations.ca

• Support legacy applications and extensions. Financial services companies most often have legacy applications that have been in place for many years and don’t go away overnight. Often, these applications need to be extended to support new services offerings. A hybrid model supports applications that reside on-premise while leveraging the public cloud for extending services that require new functionality.

An example in the auto insurance industry is the use of telematics information to create differentiated services. Insurance companies are providing quotes and cost savings to customers based on information of driver behavior. Telematics data that is collected from vehicles is stored in the cloud while integrating to existing onpremise applications for quoting.

While cloud applications can surely meet many highly complex business needs, it is not without a fair amount of planning that an organization can make the best use of the cloud. While every organization and individual can benefit from cloud solutions, not every application does. By adapting a hybrid approach that leverages the best of private and public clouds and internal environments, organizations can seamlessly operate and focus on developing new solutions to advance their businesses, instead of spending time managing data and applications.

Esmeralda Swartz is chief marketing officer at MetraTech Corp. She has spent 15 years as a marketing, product management, and business development technology executive bringing disruptive technologies and companies to market. Esmeralda is responsible for go-to-market strategy and execution, product marketing, product management, business development, and partner programs.