Trading funds, which have more appetite than commercial banks for “at-risk” clients, also drive demand for collateral management services, as they use collateral management as part of the operations they offer. “Technology can never replace your own compliance and due diligence procedures when it comes to knowing your customer. If a customer intends to take you and not reimburse your installation, they will find a way, regardless of the caliber of collateral management team on site,” Meyer explains. These assets, “security rights”, can be more or less anything, but usually include metals, a wide range of soft raw materials and, of course, petroleum products. Increased regulation has highlighted the benefits of using collateral management agreements to secure commodity operations in sub-Saharan Africa. But bankers still have to do their own preliminary work to minimize the risks of fraud and corruption, writes Rebecca Spong. “Many collateral managers work on clients` premises, so there is a propensity for collusion or fraud on the part of employees. In recent years, there have been few cases. It`s always a risk to manage millions of dollars of shares of a person who earns a meager salary in comparison. There are a lot of controls and balances that need to be maintained,” says Dheerie Govender, CEO of Global Collateral Control (GCC). Selecting the Collateral Management Company with the best practices to combat the risk of fraud or corruption is essential Drones are used by some collateral managers to monitor actions remotely and immediately report deviations. To combat this, collateral managers often employ expatriate country managers at their main sites: someone who did not grow up on that site and did not have the opportunity to establish relationships with people who would seek agreements.
Staff rotations are also recommended. You are less at risk if the collateral manager you have appointed: there are also other benefits that a CMA brings. The CRR requires that the bank have the right to physically examine the collateral, which can be achieved by the agreement.