DIY with RPA: A Tool Removes the Pain of CSA Collateral Exchange

UPS and Coca-Cola describe automation solutions they made using UiPath to cut time exchanging cash, reconciling.

Artificial intelligence and machine learning may ultimately be major forces in the digital transformation of finance orgs. Right now, though, more NeuGroup members are bringing the future forward and scoring wins with robotic process automation (RPA) solutions that can relieve the pain and drudgery of manual processes that take way too much time.

• To wit: two members of NeuGroup for Mega-Cap Assistant Treasurers—UPS and Coca-Cola—recently explained how they used RPA software from UiPath to build bots that have slashed the time required to manage the collateral exchange process for credit support annexes (CSAs) from hours to minutes.
  • CSAs define the terms of the collateral put up by counterparties in derivative transactions and are used by many corporate risk managers as part of hedging programs for interest rates and currencies.
• ATs at UPS and Coca-Cola responded in NeuGroup’s online community to a peer asking about technology solutions to manage daily exchanges of collateral and reconcile differences with banks—which in his case number 20. Reval is this company’s TMS—the same system used by UPS and Coca-Cola.
• The member then organized a follow-up Zoom meeting that, in addition to ATs, included the individuals at the two companies who used UiPath to build the bots. Both companies are willing to help other corporates navigate the RPA landscape as they look for solutions to automate the collateral exchange process.
  • “We love the sharing of ideas, so keep it coming,” said the Coca-Cola AT in agreeing to answer any questions peers have about developing their own RPA tools. The AT at UPS echoed that sentiment.

The problem. “The daily management of our collateral exchange process with the banks is operationally burdensome,” the AT in search of a solution wrote. “Each day, we need to open 20 emails from banks and hand key the banks’ [mark to market] on derivatives into spreadsheets in order to compare it to our internal valuations. When there are discrepancies, the reconciliation process is very manual,” he explained.

• The AT said this manual process can take more than two hours a day. “It’s not a particularly rewarding process or daily responsibility,” he added.
• The company has looked into third-party outsourcing options but found them expensive. Another drawback: treasury would still be required, daily, to provide all its derivatives positions to a third party to calculate valuations. And it would still have to do all reconciliation itself.

Investing time to save time. The manager in UPS’s treasury technology group who developed its bot said the daily, manual collateral exchange process that used to take humans between 90 and 120 minutes now requires just three minutes of automation. (See next section for a description of the automated process at UPS.)

• The manager, who had prior experience using UiPath, said it took about three months to get this RPA tool up and running. That included discussing the bot’s purpose and controls with the treasury team and then developing and testing it. Auditors did a code review to ensure the bot met the company’s security standards.
• UPS has been using the bot for more than a year while Coca-Cola’s bot has been working since before the pandemic. UPS uses an enterprise version of UiPath and received licenses through the company’s RPA center of excellence team. Coca-Cola, meanwhile, built its bot using a free, desktop version of the software.
• After hearing about the development process and the time savings, the AT in search of a better way for collateral exchange said, “It sounds like you’ve both found a really great solution. And if three months of effort is what it takes to put in place, it’s absolutely worthwhile, especially given that the upfront and ongoing cost seems modest to negligible.”

How it works at UPS. The AT at UPS offered this overview of the improved collateral exchange process: “The bot extracts the data from our TMS (Reval), extracts the attachments from the bank emails, does the math on the expected settlements in either direction, and sends the summary to the members of the team that need to input the wires or validate receipt.” The UPS treasury technology manager elaborated on how the bot interacts with Reval:

1. “The first instance is the bot pulls a prior day bank statement from the system and stores it for audit purposes. It is used to validate that the planned collateral settlements from the prior day actually occurred and were recorded by the bank. This statement pull is the first thing that happens in the bot process.
   • “In order to get this bank statement, the bot logs into our Reval using an ID we created specifically for the bot. It navigates to the “Statement” screen in Reval and selects a pre-created report from a dropdown list. From there, it will open and then download the statement into a daily folder that the bot created.
2. “The second instance is a few steps later, but still early in the process. In this case, the bot doesn’t actually log into Reval; instead, it grabs an email that was sent by Reval. We have set up an automated email from Reval that sends our daily Fair Value Report, which contains all of our outstanding trades and their valuations.
   • “The bot will pull this report from email, then copy and paste the entire Fair Value Report into our main [Excel] file that does all of the math mentioned before.”
3. The bot will build an email template, create a PDF from it and send the margin call information to the bank on UPS’s behalf. Then the process reverts to the treasury team to take any necessary action. The bot does not make payments—UPS wants to keep human eyes on that.
4. While the bot runs, it creates its own audit trail and validation, the manager said. It flags any difference between a bank’s reported mark-to-market number and the UPS figure that exceeds $1 million. That or any other issues the bot encounters are highlighted in red and sent to the treasury team to review manually.

The hardest part. The tech manager said because each of UPS’s banks has a unique file format, he had to build a specific automation to read each individual file. “That was probably the hardest part of the process,” he said. Also, some banks change their formats occasionally, which causes problems for the bot. UPS employs an exceptions process when this occurs, he said.

Coca-Cola’s twist. Like UPS, Coca-Cola’s bot inputs numbers into a main Excel file which shows daily valuations, collateral balances and daily movements with counterparties. The business data and visualization analyst at Coca-Cola who designed the bot said the process is almost identical to UPS’s. One difference: Coca-Cola also uses Power BI.

• “We connect this file to Power BI to show a few reports,” he said. That may include how much collateral is held by each counterparty, how much money will be moving the next business day or the collateral balances of various CSA agreements. “This gives us the ability to reconcile daily instead of monthly.”

Follow the leaders? One AT on the call whose company pays a third-party to manage the collateral exchange process liked what they heard about the RPA solutions UPS and Coca-Cola built using UiPath.

• “It’s definitely an intriguing concept that we will investigate further,” they said. “Any change would involve meaningful evaluation, planning and coordination–so not necessarily easy.”
• The AT whose question prompted the Zoom call said this: “We see it as a good, viable solution for our situation and intend to pursue it further.”
• The good news is that RPA leaders among NeuGroup members are willing to share what they can with other corporates facing the same collateral exchange challenges. “If you have the same banks and have the same formats, you may be able to leverage some of the stuff we already have,” the UPS manager said. “I do think there are places where we would be able to share and help speed along the process.”