Banknote and precious metals businesses must automate processes and operations or risk being left behind by the rest of the market.
From real-time position monitoring and stock control to cost control and compliance, banknote and precious metals trading is full of risks and complexities that need to be closely managed. Credit risk, operation and dealing limits, auditing and tracking, and regulatory compliance must all be flawlessly handled to ensure the ongoing sustainability of the business.
That is why progressive banknote and precious metals businesses are stepping up efforts to automate processes from the back-office to the front-end.
Tracking physical inventory against the backdrop of growing transaction volumes and compliance with increasingly tough anti-money laundering regulations are just two examples of areas where firms in this sector have invested in automated solutions over the past few years.
Here’s a rundown of the areas where automation can help businesses that trade in banknotes and precious metals to boost efficiencies and reduce costs, while achieving other ends such as regulatory compliance.
Real-time position monitoring
A robust automated solution provides the organisation with the tools it needs to monitor and manage its foreign exchange and commodities positions in real time. With up to the second data, it becomes a simple matter to get a clear picture of profit and loss, and stock value compared to the prevailing market rate. This gives businesses the ability to react quickly to market moves in the way they handle their inventory – they’ll be able to accurately manage their cash needs and optimise their stock.
This also allows the dealer to hedge each banknote trade on a trade by trade basis, or the ability for the dealer to hedge the positions at the close of each day, with the net position being displayed. Real-time risk monitoring generally leads to stricter adherence of company policies on the trading desks, as Risk Departments can see the exact exposure of each dealer individually, the trading desk as a whole or multiple trading desks for an international operation.
Without a sound automated solution, it is difficult to keep track of stock levels across multiple currencies and cash centres and by inventory status. An automated solution means dealers know with confidence what they have to offer customers at transaction time, right down to the denomination level. They’ll also know what is in-transit, what is reserved, what is sold but not yet dispatched, and what is held on consignment.
Banknote and precious metal trading is a high volume, low margin business making cost control even more critical. Shipping costs, insurance, transaction fees, overnight positions, funding of settlements and overheads such as vault and labour costs must be considered. Automated solutions help to reduce or remove the errors, costs, risks and time usually involved in the holding, trading, and shipping and logistics of physical inventory and give dealers an accurate view of deal profitability prior to committing.
Profit and Loss
The value of inventory changes as precious metal prices and foreign exchange rates fluctuate. Automated systems help organisations to stay on top of the value of their inventories and the realised profit or loss made on actual turnover – the value of sales against the cost of the inventory that has been sold. Management need to be able to analyse trading performance by : currency, dealer, client or group of clients.
Integration and straight-through processing
The integration of front and back office operations is essential for banknote and precious metals businesses. They need the benefits of transparent, real-time information and ease of management to remain competitive in today’s market. Today, straight-through processing is also essential for automating processes across payment systems such as SWIFT, banking systems such as credit control, and FX trading systems for hedging purposes, as well as anti-money laundering software.
Without automation, trading businesses will struggle to meet the growing demands of regulators. They must deliver audit trails at every level of operation – covering everything from reference data integrity, KYC due diligence to logging user activity on every deal – to demonstrate compliance.
A practical automated solution for banknote and precious metals dealing will simplify system control. Some examples include controlling dealer’s trading limits as well as their ability to adjust deal rates relative to the prevailing market rates or to cancel or change completed deals. Such a solution will also enable management of counterparties’ credit risk, control of the organisations’ foreign exchange exposure by tracking positions against pre-set limits, and changes to the standing settlement instructions of a counterparty.
A good system will track credit risk at the counterparty level, single deal level and volume spot level to provide organisations with the ability to keep track of their exposure to counterparties. It will also manage deals where there is no risk because the client fulfils his obligation first.
Automation is essential for minimising the costs of regulatory compliance. A sound automated system will be capable of implementing dealing controls, segregating duties between front and back office, and producing reports and files for regulators. In addition to having its own reporting capability, it must be able to export data to third party anti-money laundering systems and provide management of customer information to satisfy ‘know-your customer’ precepts.
The case for automation is compelling – it is essential for regulatory compliance and inventory management. Companies in the banknote and precious metal trading sector should be looking at where there are further opportunities to automate more functions and to tighten integration across their infrastructure. This will allow them to further improve efficiencies in their operations.
There can be no better way to achieve automation than by embracing a configurable, packaged solution from a vendor that specialises in this complex sector and its always-changing, increasingly onerous regulatory landscape. Today, it’s not practical or affordable to rely on in-house solutions or spreadsheets to keep track of customer data and the inventory while staying ahead of changing compliance needs.
An off-the-shelf solution will be cheaper, easier to maintain, and more flexible. It will provide the customisability to fit any individual business’s needs, yet the vendor will do the hard work of keeping the software up to date with the latest regulatory demands. That will free the forex operator to focus its resources on service and customers rather than on maintaining compliant systems.