Risk Management

Shell opens up new opportunities

Published: Oct 2019

Managing over 30,000 FX spot, forward and swap transactions worth over US$1trn a year, Shell’s existing FX management system was in desperate need of an upgrade. In the latest podcast with Treasury Today, Shell explains how a successful partnership with Bloomberg has resulted in a best-of-breed FX solution which helps manage its FX transactions.

Listen to the podcast

Managing risk is a key responsibility for any corporate treasury. For Shell, with its multiple subsidiaries across the globe, managing risk is crucial. With over 700 operating units in 25 countries, FX accounts for a large proportion of the company’s risk profile. Michael Dawson, Head of Liquidity and FX at Shell, recognised back in 2015 the need to streamline its current FX management systems, and looked to Bloomberg to help find a solution.

Managing risk

“At Shell Treasury, given our size and our complexity, we have always been an early adopter of technology as a way of increasing efficiency and control,” says Dawson. He points out that Shell traditionally built its own technology, or heavily customised some third-party products. If certain technologies weren’t available for example, Shell would simply build them themselves. “This meant that we had an incredibly complex IT infrastructure, with numerous systems and providers, and they were all interconnected – which not only increased our costs to run and maintain, certain risks were created with regard to upgrades.”

For Shell’s treasury department, the journey over the past five years has been one of simplification. It has consolidated its treasury operations into utilising fewer providers – which has not only maintained running costs, but it has also kept the expense of any future upgrades to a minimum. However, the main consolidation for Shell was the pressing need to replace one of its internal audit management systems which was approaching the end of its life.

In 2015, Shell approached Bloomberg to see if a more standard market model could be developed. “Having moved to execution of our excel transactions via Bloomberg’s FXGO in around 2012, the opportunity to build a single workflow with one provider was particularly attractive,” says Dawson. He points out that for many years Shell and Bloomberg had a strong working relationship, developing solutions in other areas, so the partnership was only natural.

The challenge

For Dawson, what was particularly challenging and interesting was watching two companies with two very different mentalities come together. “Shell, with its oil and gas and engineering background runs a very structured and robust methodology,” he says. “Bloomberg however, is an IT and data company and so much more agile – something that Shell as a treasury team is trying to get closer to.”

He notes that having two companies at two very different extremes of the spectrum required strong levels of project governance. “However, our partnership worked incredibly well; we learnt so much from each other in how to manage large projects.” From the very start of the project, Dawson made it very clear that it wasn’t just going to be a solution for Shell, but a solution for the industry as a whole.

Fundamentally, the challenge was simple. “There are only so many ways you can execute a spot, a swap, or a forward deal. The challenge was that as a big company, we had well-defined ways of doing things, and our systems have historically supported that. As such, we needed to ensure that we didn’t just get lost in the Shell world.”

A brighter future

So what does the solution do that Shell couldn’t do before?

In a nutshell it allows Shell’s subsidiaries around the world to communicate effectively with central treasury. Teams can either manually or automatically request deals to hedge their positions. These deals are then submitted automatically to the treasury centres of London and Singapore – to one central blotter. These central teams can then net positions, allowing Shell to take advantage of natural group offsets, which then allow the dealing team to route the trades.

“The control framework was a major sticking point, as was how to build a best in class solution around user access management,” says Dawson. “As process owner I now have a simple dashboard that gives me instant visibility on users and also the ability to change who can do what”. Given the numbers of FX transactions Shell executes, Dawson notes that hundreds of billions of dollars a year of spot and forward trades would fall apart pretty quickly if a robust framework was not in place.

So how has the solution benefited Shell and the industry as a whole?

“It’s been a significant win for Shell treasury. Having just one end-to-end solution has really propelled us towards implementing a software to service-type model.” As a result of Shell’s increased IT standardisation and automation, the company has been able to net its exposures by as much as 70%.

Shell and Bloomberg’s comprehensive solution, created from a single technology platform, really is a deserved winner of our 2019 Adam Smith Award for Best Foreign Exchange Solution.

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