Setting up an IHB is a key milestone common to corporate treasuries looking to better structure their organisation. HSBC has assisted corporates across markets and industries, most recently for a Japanese multinational in the beverage industry, Ray Suvrodeep, Managing Director, Treasury Solutions Group & Liquidity Commercialisation, Global Payments Solutions, tells Treasury Today in an interview from the bank’s Singapore offices.
“As with any major project, it is important to clearly define the expected outcomes, which can be quantified in hard-dollar savings and qualified in productivity gains (converted into dollar equivalent) as well as risk-mitigation enhancements. As a reference point, the cost of maintaining a bank account is approximately US$5,000 per year, which takes into account time spent and management costs unrelated beyond bank fees.”
Suvrodeep says establishing an IHB is a strategic move that requires thorough preparation and collaboration with tax, legal and accounting experts to navigate the complex regulatory landscape effectively. “Comprehensive due diligence must be performed to understand the tax implications of the IHB’s operations across all relevant jurisdictions,” he says.
Group legal will not only need to review any contracts required for the implementation of the IHB but also understand the proposed IHB structure and activities in case of unintended consequences like creating a permanent establishment that may lead to unexpected tax obligations, for example.
“Additionally, ensuring accurate bookkeeping and appropriate accounting treatment is essential. Any proposed structure should be reviewed by the accounting team to confirm that the intended outcome can be accurately reflected in the group’s consolidated accounts. The accounting team can also advise how participating entities should report transactions in their local accounts,” he says.
A critical yet often overlooked step in setting up an IHB is to clearly delineate the scope of activities and responsibilities of local finance and treasury teams in alignment to a comprehensive group treasury policy.
It is vital to assess the implications of the newly defined IHB function on the existing treasury management strategy and the duties residing with local teams. This includes determining the future interaction model across the board of directors, the IHB, and local finance and treasury teams of the participating companies. The skills required in each role must also be identified, and there may be a need to restructure the teams and re-skill some of the staff.
Suvrodeep concludes on the importance of maximising the synergies between banking solutions and IHB systems. The creation of an IHB is enabled by the adoption of solutions and systems to implement treasury policies and run daily IHB operations. These include providing internal counterparties with banking-like services and reporting on IHB activities and comes with the necessity to exchange data between external systems (eg banks, trading platforms, market data providers) and internal systems (eg ERPs).
