COVID-19 Puts Spotlight on Strong Liquidity Management, Antifraud Practices
- Keywords:
- covid-19
There’s no playbook for navigating the circumstances we’ve found ourselves in. But the uncertainty of the situation means it’s crucial to make sure you’re practicing sound cash flow management.
I recently hosted a discussion with four BMO experts to discuss the financial environment many businesses are facing, and why managing liquidity and mitigating fraud are especially important now.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
Liquidity Management
As Michael Gregory, BMO Capital Markets Deputy Chief Economist noted, the recently started second quarter “is poised to become the worst since the Great Depression.”
“We look for the Canadian economy to contract at a 6.5% annualized rate in Q1, worse than the 5% U.S. downturn, owing to the rail disruptions and the disproportionate pain caused by the collapse in oil prices,” Gregory said. “Therefore, we’re in a technical recession.”
With the Bank of Canada cutting policy rates by 150 bps to 0.25%, companies need to assess which liquidity solutions work best for them. “We are seeing companies big and small review and confirm their access to cash,” said Jim Santoro, BMO Capital Markets Liquidity Specialist. “This influx of cash is required to provide an essential cushion should the current crisis continue for several months or worsen, so having the accessibility to cash and ensuring principal protection is likely paramount.”
We’re seeing that companies are looking for safe, risk-mitigated investments. But as Santoro noted, the flight to quality is driving yields to near zero. Many companies, for example, are shifting their investments to sovereign wealth funds, either via direct purchase of Canadian paper or government money market mutual funds. But the increased demand has led to a spike in prices, leaving yields near zero, or even negative in certain instances. While these investments are safe harbors, there’s virtually no expectation on return.
The ideal solution is one that affords principal protection while enabling companies to access necessary cash within 90 days. That’s why Santoro said he’s seeing an influx of cash going to bank deposits, especially current accounts offering immediate access to funds.
“Unlike 2008, where the instability of the banking sector precipitated an economic crisis, banks—especially those highly rated and well-capitalized—are in infinitely better shape than they were in 2008 and are proving to be an extremely safe harbor for cash,” he said. “Consequently, while the Bank of Canada has reduced overnight rates by 150 basis points, bank deposits are still offering some yield opportunities, even in daily overnight liquid solutions.”
And given that the Bank of Canada has indicated that it’s not leaning toward negative interest rates in the future, Santoro said that bank deposits should remain an attractive option in the near term.
Enhanced Security
In ordinary times, the need to focus on cash flow management should include strong security and antifraud measures. In the current environment, it’s absolutely crucial. We’ve seen a wave of cyberfraud since the COVID-19 pandemic started, especially as more businesses are shifting to a remote workforce, expanding their vendor relationships to new partners outside of their current supply chain, or using and accepting new payment types than they would under normal operations.
“Prior to this pandemic, no one in the security industry envisioned the remote access environment we’re working at on this scale,” said Larry Zelvin, Head of Financial Crimes, BMO Financial Group. “Our processes are changing quickly and creating new risks. At the same time, there’s more money in the systems than ever before, including billions of dollars from the Canadian government. These funds are important for companies and individuals alike, but they also present a huge opportunity for cybercriminals.”
Zelvin noted that the Canadian Centre for Cybersecurity, the FBI (U.S.) and the International Association of Chiefs of Police are just some of the organizations that have issued stern warnings about new security threats. Some security companies are reporting threats 600 to 800 times greater than before the COVID-19 crisis.
“Cybercriminals are making use of the widespread fear associated with the coronavirus to prey on unsuspecting victims who are merely trying to rush to execute their organizations’ business continuity plans,” Zelvin said. “Through this urgency to execute, organizations tend to miss or bypass processes that are typically in place to prevent fraud attempts.”
Coronavirus-related Attacks
We’ve encountered several examples of fraud in recent weeks based on feedback from our customers and our front-line teams. Here are a couple of examples.
Medical equipment scam. A company was experiencing a shortage of N95 masks because their existing suppliers could not fulfill requests within the required delivery timeline. The company located a new supplier online and sent wire payments totaling $110,000. However, there are indications this might be a fraudulent transaction, and the receiving bank has frozen the funds while this is being investigated.
COVID-19 phishing scam. In the latest version of a common email scheme, cybercriminals send an unsolicited email to potential victims. These emails are made to look like legitimate communications from health care providers, government offices, banks and other trusted sources. The emails offer information and advice about the coronavirus to coerce recipients to unknowingly download malicious software or provide personal information. So far, versions of these phishing emails have been disguised to look like official communications from the World Health Organization, the Centers for Disease Control and Prevention, banks and university health services.
Payment Hygiene
Incidents like these are why Megan Kells, BMO Financial Group’s Head of North American Treasury & Payment Solutions Product, reinforced the importance of practicing “good payment hygiene,” especially because many companies have been forced to alter their normal operating procedures.
“With different individuals moving their work to different locations, and the potential for some individuals sharing roles they wouldn’t have performed before, I would encourage everyone to take another look at their controls,” Kells said. “Review your approvals for wire limits, ACH payments and electronic funds transfers. Ask your employees to confirm they’re using strong passwords. And double-check before acting on any external email instructions, such as supplier invoices.”
Kells noted that use of digital tools, such as biometrics and two-factor authentication, can also support risk mitigation. Additionally, she said it’s a good time to work with your clients and suppliers about sending or accepting digital payments, even if they weren’t receptive to it before. Mobile business banking apps, meanwhile, can help you facilitate payments and approvals anywhere, anytime—especially important now that workforces are more distributed.
It’s also important to stay up to date on the latest threats, as they evolve quickly. As Zelvin put it, “What works today may not work tomorrow.”
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Susan Witteveen
Senior Vice President & Head, Treasury & Payment Solutions
Susan Witteveen is an accomplished executive within the financial industry across North America, having spent over 20 years in a variety of leadership roles. …(..)
View Full Profile >There’s no playbook for navigating the circumstances we’ve found ourselves in. But the uncertainty of the situation means it’s crucial to make sure you’re practicing sound cash flow management.
I recently hosted a discussion with four BMO experts to discuss the financial environment many businesses are facing, and why managing liquidity and mitigating fraud are especially important now.
Listen to the full conversation here, or read the content below that describes what is in the podcast.
Liquidity Management
As Michael Gregory, BMO Capital Markets Deputy Chief Economist noted, the recently started second quarter “is poised to become the worst since the Great Depression.”
“We look for the Canadian economy to contract at a 6.5% annualized rate in Q1, worse than the 5% U.S. downturn, owing to the rail disruptions and the disproportionate pain caused by the collapse in oil prices,” Gregory said. “Therefore, we’re in a technical recession.”
With the Bank of Canada cutting policy rates by 150 bps to 0.25%, companies need to assess which liquidity solutions work best for them. “We are seeing companies big and small review and confirm their access to cash,” said Jim Santoro, BMO Capital Markets Liquidity Specialist. “This influx of cash is required to provide an essential cushion should the current crisis continue for several months or worsen, so having the accessibility to cash and ensuring principal protection is likely paramount.”
We’re seeing that companies are looking for safe, risk-mitigated investments. But as Santoro noted, the flight to quality is driving yields to near zero. Many companies, for example, are shifting their investments to sovereign wealth funds, either via direct purchase of Canadian paper or government money market mutual funds. But the increased demand has led to a spike in prices, leaving yields near zero, or even negative in certain instances. While these investments are safe harbors, there’s virtually no expectation on return.
The ideal solution is one that affords principal protection while enabling companies to access necessary cash within 90 days. That’s why Santoro said he’s seeing an influx of cash going to bank deposits, especially current accounts offering immediate access to funds.
“Unlike 2008, where the instability of the banking sector precipitated an economic crisis, banks—especially those highly rated and well-capitalized—are in infinitely better shape than they were in 2008 and are proving to be an extremely safe harbor for cash,” he said. “Consequently, while the Bank of Canada has reduced overnight rates by 150 basis points, bank deposits are still offering some yield opportunities, even in daily overnight liquid solutions.”
And given that the Bank of Canada has indicated that it’s not leaning toward negative interest rates in the future, Santoro said that bank deposits should remain an attractive option in the near term.
Enhanced Security
In ordinary times, the need to focus on cash flow management should include strong security and antifraud measures. In the current environment, it’s absolutely crucial. We’ve seen a wave of cyberfraud since the COVID-19 pandemic started, especially as more businesses are shifting to a remote workforce, expanding their vendor relationships to new partners outside of their current supply chain, or using and accepting new payment types than they would under normal operations.
“Prior to this pandemic, no one in the security industry envisioned the remote access environment we’re working at on this scale,” said Larry Zelvin, Head of Financial Crimes, BMO Financial Group. “Our processes are changing quickly and creating new risks. At the same time, there’s more money in the systems than ever before, including billions of dollars from the Canadian government. These funds are important for companies and individuals alike, but they also present a huge opportunity for cybercriminals.”
Zelvin noted that the Canadian Centre for Cybersecurity, the FBI (U.S.) and the International Association of Chiefs of Police are just some of the organizations that have issued stern warnings about new security threats. Some security companies are reporting threats 600 to 800 times greater than before the COVID-19 crisis.
“Cybercriminals are making use of the widespread fear associated with the coronavirus to prey on unsuspecting victims who are merely trying to rush to execute their organizations’ business continuity plans,” Zelvin said. “Through this urgency to execute, organizations tend to miss or bypass processes that are typically in place to prevent fraud attempts.”
Coronavirus-related Attacks
We’ve encountered several examples of fraud in recent weeks based on feedback from our customers and our front-line teams. Here are a couple of examples.
Medical equipment scam. A company was experiencing a shortage of N95 masks because their existing suppliers could not fulfill requests within the required delivery timeline. The company located a new supplier online and sent wire payments totaling $110,000. However, there are indications this might be a fraudulent transaction, and the receiving bank has frozen the funds while this is being investigated.
COVID-19 phishing scam. In the latest version of a common email scheme, cybercriminals send an unsolicited email to potential victims. These emails are made to look like legitimate communications from health care providers, government offices, banks and other trusted sources. The emails offer information and advice about the coronavirus to coerce recipients to unknowingly download malicious software or provide personal information. So far, versions of these phishing emails have been disguised to look like official communications from the World Health Organization, the Centers for Disease Control and Prevention, banks and university health services.
Payment Hygiene
Incidents like these are why Megan Kells, BMO Financial Group’s Head of North American Treasury & Payment Solutions Product, reinforced the importance of practicing “good payment hygiene,” especially because many companies have been forced to alter their normal operating procedures.
“With different individuals moving their work to different locations, and the potential for some individuals sharing roles they wouldn’t have performed before, I would encourage everyone to take another look at their controls,” Kells said. “Review your approvals for wire limits, ACH payments and electronic funds transfers. Ask your employees to confirm they’re using strong passwords. And double-check before acting on any external email instructions, such as supplier invoices.”
Kells noted that use of digital tools, such as biometrics and two-factor authentication, can also support risk mitigation. Additionally, she said it’s a good time to work with your clients and suppliers about sending or accepting digital payments, even if they weren’t receptive to it before. Mobile business banking apps, meanwhile, can help you facilitate payments and approvals anywhere, anytime—especially important now that workforces are more distributed.
It’s also important to stay up to date on the latest threats, as they evolve quickly. As Zelvin put it, “What works today may not work tomorrow.”
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