Transcript Title set in Georgia 50pt

North American Treasury
The U.S. – Canada connection
Nick Orchard
Vice President, Wells Fargo Global Product Management
TEXPO, 4 April 2011
.
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Agenda
 Trade and economics
 Geography
 Canadian banking landscape
 Regulatory environment
 Clearing systems
 Payables and receivables
 What does the future hold?
© 2011 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
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Trade and economics
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Trade and economics
 Trade with Canada supports over 8 million U.S. jobs*
 U.S. and Canada are world’s largest trade partners - $596bn
 Accounts for 4.4% of total U.S. employment; 1 in 23 U.S. jobs
 Canada is one of the few developed countries that is a
net exporter of energy*
 U.S. imports 2X as much oil from Canada as from Saudi Arabia
 U.S. is largest market for Canada agriculture produce*
 Less than 1% of U.S. companies export – significantly
lower than all other developed countries**
 58% export to only one country
*Government of Canada
**U.S. Commerce Department
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Trade and economics
 Canada leads all G7 countries in ease of doing
business
2009 World Competitiveness Yearbook
 Canada forecasted to be the #1 place to do business
in the G7 for the next five years
Economic Intelligence Unit
 Canada ranks in the top 3 for investment and trade
opportunities
World Trade Magazine
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Trade and economics
Canada
U.S.
Growth
Relatively strong economic growth;
managed to avoid worst effects of
global recession
Uneven economic recovery; trends
are increasingly positive, but some
sectors continue to struggle
Interest rates
Rates moving higher; three 25bp
increases in 2010
Low interest rates expected to
continue
Jobs
Strong job creation; employment
back to pre-recession levels
Unemployment remains high;
recovery is sporadic
Housing
Little impact from recession; strong
sales activity and price stability;
banks very conservative
Construction of new homes and
sales of existing homes still
depressed
Income
Household debt to disposable
income ratio close to all-time high;
low savings rates
Income growth remains slow;
spending recovering; high
household debt
Federal debt
Federal debt to GDP ratio is half of
G7 average
Government debt is high and
increasing as a consequence of
stimulus
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Geography
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Geography
Area (sq. miles)
Population
Population growth
GDP (US$)
Canada
U.S.
9,984,670
9,161,966
33,487,000 (80% urban)
307,212,123 (82% urban)
0.817%
0.975%
$1.3 trillion
$14.3 trillion
 Canada is the world’s 2nd largest country
 Slightly more area than the U.S.
 Only one tenth of the U.S. population
 GDP running at around 10% of U.S.
 80%+ of Canadians live within 100 miles of the U.S. border
 A similar proportion of those people lives in the main urban
areas of Montreal, Toronto, Calgary, Edmonton and Vancouver
Source: Government of Canada and U.S. Census Bureau
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Canadian banking
landscape
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Canadian banking landscape
 Highly efficient – same day clearing of paper and
electronic payments
 Progressive – world leader in ATMs, debit cards and
internet banking
 Electronic – 75% of payment transactions in Canada
are processed electronically; dominated by debit cards,
credit cards, and ACH (EFT)
 Nationwide – operates across Canada in 6 time zones
 Stable – one of world’s soundest banking systems
 Scale – all major Canadian banks have 1,000+
branches
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Canadian banking landscape
U.S. and Canada comparison
Canada
U.S.
Over 150 deposit taking institutions; over $2
trillion in assets
Over 9,000 financial institutions; $12.6 trillion
in assets
Top 5 banks control 80% of the assets
Top 5 banks control 30% of the assets
Centrally regulated by OSFI; 12 direct
clearers with direct exchange
Federal Reserve Board, OCC, the Office of
Thrift Supervision, 50 state regulatory bodies
Highly regulated: strict privacy, KYC, AML
Highly regulated: strict privacy, KYC, AML
Check volumes decreasing, 85% of retail
transactions are electronic. World’s largest
ATM and debit card users.
Consumers still issue significant volume of
checks, but usage is now decreasing at faster
rate than in Canada
Cross country network; no processing float
Limited interstate banking; processing float
6 Clearing Centers. Consolidated check
processing through 2 processors
Federal Reserve has single check clearing
center
Clearing and settlement of checks and lowvalue payments occurs overnight
Specified intra-day clearing times
No national image exchange
Check 21 image capture and exchange
Same day value for CAD deposited items
Multiple days for clearing; generally 1–3 days
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Regulatory environment
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Regulatory environment
Canada
U.S.
Bills of Exchange Act and Canadian
Payments Association
Treasury Department; Federal,
State and Case Law
Governance:
electronic items
Canadian Payments Association
NACHA
Central bank
Bank of Canada
Federal Reserve
Office of the Superintendent of
Financial Institutions (OSFI)
Treasury Department; regulatory
and supervisory areas of the
Federal Reserve
Deposit insurance
Canadian Deposit Insurance
Corporation (CDIC)
Federal Deposit Insurance
Corporation (FDIC)
Anti-money
laundering
Financial Intelligence Unit (FIU)
and Financial Transactions and
Reports Analysis Centre of Canada
(FINTRAC)
Office of Foreign Assets Control
(OFAC)
Governance
Market
supervision
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Anti-money laundering policy in Canada
 Policy controlled and enforced by Canada’s FIU and
FINTRAC
 Account Opening – Formal identification required for:
 Account holder
 Corporate customers and directors
 Beneficial ownership of companies, and percentage thereof
 Reporting – FINTRAC reporting required in respect of:
 Deposits of $10,000 or more in any 24 hour period (15 days)
 Suspicious activity reporting (30 days from initial detection)
 Customers making cross-border wire transfers, buying life
insurance or money orders over $3,000
 Formal policies on transactions for non-clients
Source: FINTRAC – Financial Transactions Reports Analysis Centre of Canada
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Clearing systems
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Canadian clearing systems
Canadian clearing and settlement systems are operated
by the Canadian Payments Association (CPA)
 Automated Clearing Settlement System (ACSS)
 Low value payments (Checks, ACH (EFT))
 Batch processing
 Large Value Transfer System (LVTS)
 Collateralized Real-Time Gross Settlement System
 Wire payments and interbank settlements
 US Bulk Exchange
 Next day (ACH Style) settlement of USD items between
Canadian banks; positions settled via U.S. correspondents
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Large Value Transfer System (LVTS)
 RTGS introduced by CPA in February 1999
 Facilitates the simultaneous transfer of irrevocable
payments in Canadian dollars between participants
 15 direct participants
 Other CPA members connect via a direct participant
 All payments are final and irrevocable
 LVTS is a hybrid RTGS
 Combines real-time payment finality with lower collateral costs
of a netting system
 End of day settlement on books of Bank of Canada
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Automated Clearing Settlement System (ACSS)
 ACSS is the retail clearing system through which most
Canadian payments are cleared (by volume)
 ACSS is a deferred net settlement system
 Clears paper items (checks) and electronic items (EFT)
 Maximum dollar value limit on checks of $25 million
 End of day batch process determines the net positions
of the direct clearers
 The 11 direct clearers maintain settlement accounts at the
Bank of Canada
 Posting to direct clearers’ customer accounts occurs overnight;
value date given is the transaction date
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17
Canadian clearing and settlement statistics 2010
LVTS
Value (Average $ per day)
ACSS
$149,000,000,000
$20,000,000,000
88%
12%
24,000
24,000,000
Transactions (%)
1%
99%
Transaction Value
$6,200,000
$825
Value (%)
Transactions
(Average per day)
(Average $)
Source: Canadian Payments Association
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Payables and receivables
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Payables
Canada
U.S.
Controlled disbursements
Not available – overnight
check clearing
Available
Wire payments
Available
Available
$25 million limit;
Unlimited $ value;
No conversion to ACH
Check conversion to ARC
Positive pay
Available
Available
Payee match
Emerging
Available
Electronic Funds Transfer (EFT)
Automated Clearing House
(ACH)
Checks
ACH/EFT
CAD and USD
Remittance information not
exchanged
USD only
Remittance information
available
Debit block
Emerging (ACH)
Available
Account balancing
Overnight check clearing; no
advance knowledge of clearing
amounts
Available
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Canadian check clearing process
Day 1:
Date of Deposit
Encashing Branch – Bank A
Data Centre Bank A – (Symcor or Intria)
Day 1: Evening
Overnight Processing
(Toronto)
Data Centre Bank B
Data Centre Bank
A
Bank A receives value for the cleared item when it is delivered from
the local Data Centre of Bank A to local Data Centre of Bank B
Day 2:
Vancouver
Drawee Branch Bank B
Data Centre Bank
B
Bank B receives check and forwards to drawee bank branch
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Receivables
Branch network
Canada
U.S.
Nationwide
State or regional
Nationwide lockbox sites:
Vancouver, Calgary,
Winnipeg, Toronto (primary),
Montreal, Halifax
Lockbox
Accepts and processes
Canadian and US dollar items
Mail is delivered to the
lockbox once per business
day; no weekend activity
Nationwide lockbox service
available
Limited availability of foreign
currency items
Mail is delivered throughout
the day, including Saturday
Imaging available
Imaging available
Remote capture
Truncation and Electronic
Cheque Presentment (TECP)
initiative cancelled in 2008;
Check 21; remote deposit
solutions
No remote capture available
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Accounts, liquidity and fraud considerations
Canada
U.S.
Canadian dollar accounts
Available
Limited availability
U.S. Dollar accounts
Available
Available
Foreign currency accounts
Available
Limited availability
Permitted (as approved)
Not permitted
Debit interest charged
Overdraft fees apply
Credit interest earned
Credit Interest not available
Earnings credits not available
Earnings credits
Notional pooling
Sweep accounts
Zero balancing
Zero balancing
Unauthorized B2B PAD with
agreement: 10 days
Unauthorized B2B PAD: 24hrs
Overdrafts
Credit interest
Cash concentration
Electronic return time
Unauthorized B2C PAD: 60 days
Without agreement: 90 days
Unauthorized B2C PAD: 90 days
Altered item: 90 days
Check return time
Counterfeit item: 24 hours
Forged endorsement: 6 years
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Altered Item, counterfeit Items,
forged endorsement: 24 hours*
* Note UCC varies from stateto-state so this timeline varies.
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What does the future hold?
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CPA payment strategy: Vision 2020
 Vision 2020 is the CPA’s strategic plan for the
development of the Canadian payments market
 The plan anticipates that automation and increasing
national and international regulations will shape market
 Focus will be on five key areas
 Supporting electronic payments
 Driving payments efficiencies
 Modernizing the legal framework
 Enhancing exchange, clearing and settlement technology
 Expanding value-added services
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Payment System Task Force
 June 2010 – Canadian Minister of Finance announced
launch of the Payments Systems Review Task Force
 Mandate of task force is to review:
 The safety, soundness and efficiency of the payments system
 Whether there is sufficient innovation in the payments system
 The competitive landscape
 Whether businesses and consumers are being well served by
the payments system, and
 Whether the current payments system oversight remains
appropriate
 Task force recommendations expected by end of 2011
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Check imaging developments
 Truncation and Electronic Cheque Presentment (TECP)
initiative cancelled in 2008
 TECP was intended to deliver an image-based nationwide clearing
capability in Canada
 Duration, complexity and continuing emergence of electronic payment
options in Canada led to cancellation
 TECP did deliver consistent cheque formats and standard image
capabilities for customer reporting
 No plans to resurrect the TECP initiative
 Banks are exploring bi-lateral agreements for exchange and are
continuing to introduce image enabled services
 June 2010: images recognized as legal equivalent of cheques
 Established legality of images supplied to customers with statements,
online, etc.
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Bill payments
 Electronic bill payment is an 18-year old industry in
Canada with extremely high adoption rate
 Canada has no online, real-time, end-to-end process to
support electronic bill payments
 Government expressed concerns regarding the
efficiency of the electronic bill payment system
 Bill Payment Task Force created to focus on credit
transfers (cleared through the CPAs systems) between
two financial institutions resulting from a customerinitiated bill payment to a biller
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Expectations for the future
 Continuing migration away from cash and paper
 Check usage in Canada is very low compared to U.S.
 Pace of check decline in U.S. is now faster than in Canada
 Convergence of consumer and business payments
 B2B payment alternatives, T&E, purchasing cards
 Online payments for businesses and consumers
 Online bill payments
 Online tax payments
 Increased e-presentment of bills
 Real-time payments
 Chip technology for cards
 Mobile payments
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Questions?
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