Chairman – South African Association of Treasury Advisors
SAATA’s chairman, Richard Beddow, explains what the motivation was behind the formation of this association representing treasury advisors, and he also shares how SARB is becoming much more progressive towards cryptocurrencies.
CIARAN RYAN: This is CFO Talks and today I am going to be speaking to Richard Beddow, who is the chairman of the South African Association of Treasury Advisors, otherwise known as SAATA, which was launched in October 2019 to facilitate constructive discussion and representation between members and stakeholders, including government departments, committees and regulators within the forex industry. It’s a voluntary association representing treasury advisors big and small. First of all, Richard, welcome, how are you?
RICHARD BEDDOW: I’m very well, Ciaran, thank you and it’s great to be on the show.
CIARAN RYAN: Thanks for joining us, before we came on air here you were telling me that you’re from the Midlands, which for people outside of South Africa it’s down closer towards the coast, and you commute on a weekly basis to Johannesburg. That’s a little bit of an odd way to run your life and your business, is it not?
RICHARD BEDDOW: It is, Ciaran, funnily enough, it’s 13 years that I have been commuting. When I worked in London 20 or 30 years ago, I remember reading about a concept called telecommuting and I thought, wow, that sounds really sci-fi and space age. Over the last few months of lockdown I think we have all had firsthand experience of telecommuting or remote working or working from home. But we’ve been doing it for 13 years now and it’s been fascinating to see how effective one can be if you are forced to embrace the technology that’s available to us. This platform that we’re having this interview over is one that’s new to me and it’s really effective and it’s efficient, and we can have the interview in half an hour and get on with our lives without having to spend an hour in the car on either side.
CIARAN RYAN: Yes, isn’t it amazing what it does for productivity.
RICHARD BEDDOW: Absolutely, in actual fact my staff are almost being too productive and too efficient and I am having to ask them to be cognizant of trying to draw a boundary between work and home because when they are working from home, their work is at home and it’s very difficult for them often to draw that boundary because they are not leaving the office, they are not leaving work. So I think it’s one of the new challenges we’ve got going forward because I think this work-from-home model, as everyone is saying, it’s going to be part of the new norm.
FAIS Act soon to be replaced by COFI Bill
CIARAN RYAN: Let’s talk about SAATA, the South African Association of Treasury Advisors, you’re chairman of that and you also have a company called Forex People, which is a treasury outsourcing operation, you’ve been doing that for 17 years. Tell us what was the motivation behind the formation of the South African Association of Treasury Advisors?
RICHARD BEDDOW: The crux of it is we sit between two different regulators, being the central bank, the South African Reserve Bank and the Financial Sector Conduct Authority, which is the FSCA, which was the FSB, and as such we didn’t really have a formal home or a lead regulator, let’s say. We found that up until a couple of years ago we were being pushed from pillar to post a bit when we were trying to force the pace on how our industry was regulated. Fortunately at the moment we are about to repeal a piece of legislation called the FAIS Act, which is the Financial Advisory and Intermediary Services Act, and that will be replaced by the COFI Bill, which is the Conduct of Financial Institutions Bill, which is much more focused on market conduct, how customers are treated, transparency, all those good things like treating customers fairly and it’s really in line with global legislative movements or regulatory movements with regard to financial institutions. So it’s perfect timing that we got SAATA up and running and the main thrust of it is really to give the regulators a point of contact with our market participants, as well as a forum for our market participants to interact with each other and then for SAATA to be a mouthpiece for the industry to talk to our regulators. So it’s really fulfilling a critical role and capacity within the industry. With everything that’s coming down the line, and I am talking more globally now, because the South African Reserve Bank has been traditionally quite restrictive and we’ve suddenly had a very encouraging development where they have suddenly become much more progressive towards things like cryptocurrencies, how blockchain can be used to make cross-border payments much more effective and much more efficient, and I am talking about speed and cost-wise. So the whole regulatory environment in South Africa has suddenly moved into the global space and it’s really exciting. So the creation of SAATA and to make sure that we are at the forefront of all of these developments, obviously our members are much smaller than banks, so they tend to be a lot more agile in terms of the adoption of fintech technologies and perhaps offer their customers a more tailored approach to their currency and treasury requirements.
CIARAN RYAN: So basically you are dealing with that tier of treasury advisors that operate below the banks, the banks have got the big teams, and one of the things from a South African point of view, we do have the dubious honour of having one of the most volatile currencies in the world, and you mentioned a little bit earlier that it’s so volatile that it can actually wipe out your profits. We’ve seen 20% to 25% moves in the currency in a year, that’s huge, that can really strip out your profits. Does this feature in your discussions that you’re having with the regulators and if so, what kinds of discussions are you having?
RICHARD BEDDOW: It’s a really good point, Ciaran, it’s one of the areas that our clients really find value out of our members’ services is managing that risk. Over the last eight or nine years, unfortunately South Africa’s manufacturing base has really suffered, so we have become much more of an importing economy. So more and more of our companies in South Africa have pivoted away from manufacturing to importers, which means that they are even more at the mercy of the volatility of our currency. So it’s absolutely critical that any company in South Africa that is importing must have a strategy to manage their currency risks. Typically, the larger companies would have their own internal treasury teams, who would obviously manage those risks, but when you talk about mid-size corporates and SMEs in particular, they are at the most risk because they are having to cut their margins in their tendering or if they’re pitching for business in South Africa, so they are cutting their margins very, very tight, which means that they don’t have any space for movement when the currency moves. If they are not hedging out their foreign payments, they really stand a very real chance of losing all the margin that they were hoping to make on a project or a tender and some. So our job is to really understand our clients’ businesses and often it comes down to not just their business, it’s often down to a project level, and then assist our clients with putting in a suitable tailored strategy to manage that risk. So that’s a key part of what we do and the regulators, it’s the main area that they all acknowledge that treasury advisors fulfil an important role and I would almost go as far as saying a vacuum in terms of the financial services landscape when it comes to foreign payments because it’s not an area that’s addressed by the banks or the auditing community and so on within the sector of the market that we look after.
Proposal for SA to start regulating cryptocurrencies
CIARAN RYAN: One of the things that obviously comes to mind is that we have had currency controls in South Africa for decades, this goes back to the apartheid years, it’s something that people in business have been very critical of, and why didn’t we relax it. There are arguments that can be made both ways but it does have a very, very serious impact in terms of liquidity of the rand and, therefore, it does create conditions for this volatility we’ve been talking about. What does your gut tell you, should we have more regulations, or should we have less, should we relax controls?
RICHARD BEDDOW: What we’ve found over the years is as the regulations have been relaxed, often the oversight of the regulations has actually increased. So although from a regulatory perspective it may seem as though things are being eased up, often the reporting requirements have actually become more onerous. Sadly, the anticipated benefit of easing up some of the regulations haven’t really filtered through to exactly what you are referring to, the ease of doing business. Again, I think it’s another critical part of what we do for our clients is to advise them on exchange control matters, so we’ll basically assist our clients to put together motivation letters to the Reserve Bank when they need certain specific permissions to do things in a certain way that is perhaps not catered for in the regulations. But I think what is really encouraging is that the South African Reserve Bank, which you rightly say, has typically been quite restrictive but has in the last six months or so really started to become very, very progressive. A good example of this is that there was a white paper put out by a new intergovernmental fintech workgroup and it was dealing specifically with how South Africa could start regulating the use of cryptocurrencies for a number of different applications and one of them is obviously cross-border transfers. If this happens and it looks like it’s going to happen within the next six months to a year while they effectively sandbox a number of different models, this will mean that South Africa will leapfrog a number of far more sophisticated and progressive jurisdictions. So it’s a really exciting time for us and I think it’s a really important time for this to be happening because our importers really need some help, we do deal with a very volatile currency and the use of some of these fintech technologies will really open up the ease of doing cross-border business, which would be critical for us.
CIARAN RYAN: One of the things about cryptocurrencies is that it was founded on this basis that it falls outside of the regulatory ambit of central banks and now you do see that regulators are moving in on it. I don’t know to what extent it can be regulated if you are determined to escape the supervision of the central banks around the world you can do it, there are cryptos out there that can do it. To what extent do you think regulations can be effective in this space, cryptos and blockchain?
RICHARD BEDDOW: I think the way the South African central bank is handling this is absolutely correct, it’s all very well to criminalise the blockchain arena. But the right way to handle it is exactly what they have done, they’ve put together this workgroup, which has representatives from the FSCA, from all the regulators in South Africa, and they have said to them come up with a white paper on how we should be regulating this phenomenon because it’s coming one way or the other and the longer we ignore it, the more likely it is to be used for nefarious purposes. So what’s actually happened in the global crypto space is that there are a number of different players, and I will mention a couple of them in a minute, where they basically adapted the blockchain technology specifically for cross-border transfers, and to move away from the anonymity side of it and the untraceable reputation of it, and bent it towards all of the things that the central banks want it to be able to do and obviously traceability is a huge part of it. So those two technologies, one is called Ripple Net and the other one is called Stellar, there are a number of others but those are the two that have made massive ground in being able to adapt blockchain for cross-border transfers. Incidentally, the platform that we use, which most listeners will be aware of, is the SWIFT network, that has barely changed since 1972, it’s still very slow, it’s very expensive, it’s not very efficient, it’s highly ineffective, and in one foul swoop the adoption of things like Ripple and Stellar will suddenly make transfers possible in literally minutes, at almost zero cost. So the central banks have to embrace it, they have to find a way to regulate it and embrace it if they are going to have a way of controlling it.
‘Any bank that’s going to dig their heels and not adopt these technologies is going to get left in the dust’
CIARAN RYAN: This, of course, has been the big objection that has been raised about cryptos, if you look at Bitcoin, it take an hour-an-a-half or couple of hours to transfer from one person to another. In terms of a universal payment system where you have Visa card, for example, where it takes seconds, you have to get up to that speed and you have to have the security that you have with the Visa system. But it does seem that cryptos are getting there, the technology is there, it’s just a question of is the network able to handle it. Are we close to replicating the Visa payment system or the SWIFT payment system with cryptos?
RICHARD BEDDOW: I think we are, Ciaran, there’s a lot of good reading out there on the internet with regard to those two particular crypto assets, being Ripple Net and Stellar, a ten or 15-minute read would give anybody good insight as to what’s coming. The networks are incredibly robust, they have been tested and I think it’s a little bit of a snowball effect in a sense that any bank that’s going to dig their heels and not adopt these technologies is going to get left in the dust. I think this is the exciting thing about the way financial regulation is going globally, is that it’s putting the customer first and if the customer wants to do a payment in a certain way and he has the option, then he will go and do it that way and he will ignore any bank or financial player that is not using the most effective way of servicing him. I think the way that this will probably play out in South Africa is through smart partnerships between local players who are on the ground, they’ve got all the required licensing, regulatory approvals and so on. Smart partnerships between those on the ground players and global network players. So I think it’s unlikely that we’ll see any homegrown crypto trading platforms for cross-border transfers, they are more likely to be the meshing of South Africa into those global networks, which again is great, the time to get running is much, much faster and this is the sandboxing, this intergovernmental workgroup that’s been put together in South Africa. They’ve got this sandbox approach, where they are inviting interested parties to come and sandbox their model and prove how on the one hand it fits in with existing regulations, and on the other hand how it will benefit the consumer. So it’s a really exciting time.
CIARAN RYAN: Let’s just talk about some of the regulations that you feel that we need, do we need more regulations here in terms of forex transactability or are we adequately covered?
RICHARD BEDDOW: I think we are adequately covered, the only area that I think needs to be cleaned up and polished up perhaps is around specific industry players. For example, our members, as I was saying earlier, we were between two regulators, which meant that for a long time we didn’t have any specific regulations around the way we conducted ourselves. That changed at the beginning of 2012 when we had our first set of regulations and guidelines. We are now engaging with the regulators to upgrade and update those regulations, and I think with the introduction of the COFI Bill we’ll be even more specifically regulated. So I think what it comes down to is things like transparency, a standard approach to things like the disclosure of fees, a standard approach to what would constitute a mandate, how fees are agreed upfront, all those sorts of things and those are the sorts of areas where our association will be working with the regulators and our members to come up with standard guidelines on these critical areas, so that the customer knows where they stand and they know what they are getting.
CIARAN RYAN: One of the complaints that you often hear from people, whether they’re individuals who are trying to send money abroad or they are businesses that are trying to transact, is the fees that are charged by the banks. To buy a dollar you are sometimes being charged 30 or 40 South African cents, it seems quite high. Now, if you are introducing Ripple Net, it’s almost without cost that’s a huge business opportunity for an intermediary, I don’t even know if you need an intermediary for that, you’d be able to do it direct, peer-to-peer.
RICHARD BEDDOW: As long as we have the reporting requirements in South Africa it probably wouldn’t quite get to the peer-to-peer stage too quickly. But it does mean that it offers the customer something that they haven’t really had and that’s choice. It’s not easy to move from one bank to another with all of the KYC and FICA requirements, it’s not that simple just to go with the service provider that’s giving you the best deal. That’s another area, incidentally, where technology has really come to the fore. Again, this is world class and possibly one of the leading industries globally is our online verification service providers, we’ve got probably half a dozen companies in South Africa that would look really good anywhere else in the world and they’ve got links into Home Affairs and various credit bureaus and so on. So we have access to technology that can onboard a customer on a chat boat or a platform literally in a matter of minutes, which is more robust than the old way of doing things, which was stamped and certified copies of ID documents and proof of address and so on, which was laborious and actually quite ineffective. So we have moved quite quickly to the forefront globally of those sorts of technologies. So as it become easier to move from one service provider to another through more effective KYC and onboarding technologies, then it does give the customer the choice, so if their incumbent bank is offering them a bad deal, they can very quickly say, well, I will do it somewhere else, and they do and they can. So it’s becoming a fintech-driven industry and nobody can afford to sit tight, it’s moving very, very quickly.
‘None of our members are involved with the speculative end of the FX markets’
CIARAN RYAN: Some years ago, there was an investigation into collusion between forex dealers operating at several South African banks, you probably remember that. I see just last month that the Financial Services Conduct Authority stopped a company called JP Markets from operating. Is this something that’s fairly endemic in South Africa or do you think it’s cleaned up?
RICHARD BEDDOW: It’s important to make a distinction here, Ciaran, there are a number of forex platforms where people who are wanting to trade FX for speculative purposes can go on and they can buy and sell different currencies for speculative gain. So they’re obviously hoping that they can read the markets or read the technicals and buy at a low rate and sell at a high rate. It’s tantamount to gambling obviously and I think the company you were referring to was operating in that space. None of our members are involved with the speculative end of the FX markets. Going back to your earlier question about do we need more regulation, that is one industry that needs a considerable amount of regulation because unfortunately it’s preying on people who perhaps don’t really understand what they are getting into, and the swings are astronomical, and because a lot of the platforms effectively use derivatives, the gearing is phenomenal. So somebody can go in with a couple of thousand rand, which they can ill afford to lose, and within a matter of minutes they have lost that and some because of the gearing effect on the losses. So unfortunately, these companies often advertise the potential gains, which are huge, but they are equal to the potential losses, which they don’t talk so much about. That’s really where disclosure is such an important thing when it comes to selling products like that.
CIARAN RYAN: Yes, I have done a bit of that, lost money on it, so I know exactly what you are talking about, it is pure gambling. It’s way too highly leveraged and it’s not an advisable thing. I’ve yet to come across somebody who has been fairly consistently making money at it. I believe they do exist but they’re quite a rare species. So what we’re talking about here when we talk about SAATA, is you’re really dealing with companies and their forex requirements with regard to their trade and their business, we’re not here talking about the trading platforms.
RICHARD BEDDOW: I would say that the majority of our members manage commercial clients’ ethics and treasury requirements. However, there is quite a large number of forex intermediaries and they probably wouldn’t be termed treasury advisors, they’re more forex intermediaries and they predominantly address the private ethics market. This would be people who are wanting to use their R1 million annual discretionary allowance or their R10 million foreign investment allowance. So we have a number of players and most of our members would probably address both markets, both the private FX markets and the commercial FX markets, it would just be a function of focus, some would have 80/20 perhaps and others would be 70% individual and 30% commercial. Then within the commercial space you have members that would focus on the SME end of the market and then we have members that basically would work with a large corporate, listed entities, multinationals and so on, and work with the incumbent bank with regard to banking relationships and actually just do pure treasury advice on a retainer basis. So it’s the whole gambit, it’s a very, very broad range of services to a very broad range of customers.
Discretionary allowances lead to massive outflow of capital
CIARAN RYAN: We’re running out of time, Richard, but just a quick couple of questions, what are you seeing in terms of patterns and trends, are we seeing increased demand for outsourced forex services, increased demand for increased trading or has there been a collapse during this period of Covid?
RICHARD BEDDOW: There’s definitely been a marked increase in the requirement for the services that our members would be providing and I will give you a couple of examples. If we’re specifically talking about the SME end of the market, clearly, as we all know, that end of the market is under considerable pressure at the moment, and with the rand having come off all-time highs and being off the charts in terms of volatility…
CIARAN RYAN: I think when you say all-time high you mean weakness.
RICHARD BEDDOW: Weakness, yes, sorry. So it’s really backed a lot of SME companies into a corner, where they were already struggling and this has just added to that pressure. So the need for more tailored support and advice has had a marked increase. If you move up into the more corporate end of the market, I guess it’s the same thing, the need for a more tailored approach and perhaps a different approach, more qualified, more sophisticated products, more sophisticated models, the use of derivative products, which they may not be aware of, so that’s a huge area. Then on the individual or the private FX market, sadly there’s a huge outflow of capital through these allowances and without wanting to put ideas into anyone’s head I am, frankly, quite surprised that these allowances haven’t been reviewed because R1 million per person over the age of 18 per calendar year with no tax clearance and a further R10 million with tax clearance leads to a massive flight of capital, which could be employed in the country to stimulate the economy if it were being spent in the country. So our members also assist those individuals wishing to avail of their allowances. Many of our members actually assist them with getting their tax clearance certificates, they assist them with market advice, when would be a good time to trade and just take some of the hassles out of moving…so basically spreading the risk a little bit. So to answer your question, I think there’s definitely a trend towards specialist players in the space, be it an individual, an SME or a large corporate. So I think the industry is well positioned to provide that support.
CIARAN RYAN: I think that discretionary allowance went up to R1.2 million in the last budget, if I remember correctly.
RICHARD BEDDOW: No, it actually didn’t, it was misinterpreted, it was something that came up but was misinterpreted, it stayed at R1 million. It had us all racing to the regulations to see what had happened, but it actually was a misinterpretation that got very widely distributed.
CIARAN RYAN: Oh, really, I thought he quite explicitly said that the discretionary allowance would go from R1 million to R1.2 million but you have obviously checked this out. Richard, let’s leave it at that, it’s been very interesting, I wish you the best of luck, we’re entering into very interesting waters right now with the launch of cryptos and this does open up new vistas for companies and new ways of transacting and trading internationally. Of course, what we’ve got to do is get through this whole lockdown crisis and emerge into some kind of decent and dignified normality. That’s going to be a challenge. Let’s stay in touch and let’s get you back on again in a few months, I really want to pursue this thing about Ripple Net and Stellar because you said in six months to a year we could be looking at these things being available to customers. So I’d really like to stay on top of that one with you.
RICHARD BEDDOW: That would be great, Ciaran, I’d love an opportunity to chat to you again. There’s a lot happening in front of us and I think it’s going to, if nothing else, I think this pandemic has forced the pace of the Fourth Industrial Revolution, as people are calling it. So what might have taken a year or two to get traction in an economy or in a particular industry is happening in a matter of months now. I think the technology being embraced in the financial services market is going to be one of the benefactors.
CIARAN RYAN: That was Richard Beddow, who is the chairman of the South African Association of Treasury Advisors, talking about the formation of this organisation in October last year and some of the more interesting technologies and fintech technologies that are in the pipeline. We’re definitely going to get Richard back again because this is a very fast-moving space. Richard, thanks very much for joining us.
RICHARD BEDDOW: Great, Ciaran, thank you so much for the opportunity, it was great to chat. Good luck to all the listeners and stay safe out there.