Management Framework Financial Risk Management Division 31 January - - PowerPoint PPT Presentation

GSF Act Pt.6 & the Whole-of-State Risk Management Framework

Financial Risk Management Division

31 January 2019

NSW Treasury

Presentation Overview

• 1. GSF and Financial Risk Management in context
• 2. GSF Act Pt. 6 – Key Changes and Implementation

Update

• 3. Updating the WoS Financial Risk Management

Framework

• 4. Next steps and questions

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 2

NSW Treasury

• 1. GSF Pt 6 and FRM in context

▪ Good financial risk management (FRM) practices help:

▪ Ensure government can deliver its priorities efficiently and without undue risk ▪ Maintain the State’s triple-A credit rating and reputation ▪ Support the principles of the Fiscal Responsibility Act 2012

▪ GSF Pt 6 plays a key role in promoting robust FRM

▪ The approvals process assists you in identifying and considering your risks and their early management

Ensuring long-term fiscal sustainability is the ultimate goal – and a shared responsibility

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 3

NSW Treasury

• 1. GSF Pt 6 and FRM in context

▪ Excellence in managing State finances and balance sheet (a key Treasury goal):

▪ Risk/reward optimisation (including capital optimisation) ▪ Change how debt/liquidity/other exposures are managed to improve efficiency across the sector

▪ e.g. avoiding hidden costs of the State borrowing long-term to fund agencies’ short-term investments

▪ Making the Financial Arrangement (FA) approvals process a tool to efficiently manage risk – not just a compliance exercise

What we want to achieve

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 4

NSW Treasury

• 1. GSF Pt 6 and FRM in context

▪ GSF Pt 6 has now replaced PAFA – legislation that was

• ver 30 years old

▪ More flexibility by reducing red tape and enabling Treasury to support agencies in a more time- efficient manner ▪ Benefits of current and future developments in financial management

▪ TPP07-7 – Commercial Policy Framework –Treasury Management Policy

▪ Updating the WoS FRM framework to align with the GSF Act and provide clearer guidance to agencies

▪ Foreign exchange policy released last year, further policies to come

Bringing financial risk management into the 21st Century

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 5

NSW Treasury

• 1. GSF Pt 6 and FRM in context

▪ Treasury established the Asset and Liability Committee (ALCO) in 2015 to oversee and advise the Secretary

• n State Significant Financial Risks (SSFRs)

▪ Treasury’s FRM Division established in 2016 to support ALCO and the Sector in managing financial risk

▪ Responsibility for FA approvals process ▪ FRM framework and policy development ▪ FRM advice to the Sector ▪ Monitoring and reporting of WoS financial risks Managing financial risks from a Whole-of-State perspective

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NSW Treasury

• 2. GSF Pt 6 – Key Changes and Implementation

▪ Enhanced flexibility and streamlining

▪ Governor’s approval no longer needed ▪ Treasurer’s approval by delegation ▪ Approvals can be tailored to a variety of needs – from very general to very specific ▪ Treasurer’s Directions – easier to adapt to changing circumstances

▪ Some key changes

▪ Investment powers replaced by approvals ▪ Approvals ‘to do’ rather than exemptions ‘from doing’ ▪ Ability to revoke and vary approvals ▪ Clarification of certain arrangements (operating leases) Building in enhanced flexibility and oversight into the system

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NSW Treasury

• 2. GSF Pt 6 – Key Changes and Implementation

▪ Some new financial arrangements

▪ Operating leases now formally prescribed – consistency with incoming accounting standard changes ▪ Supplier finance arrangements ▪ Bank guarantees ▪ Social benefit bonds Building in enhanced flexibility and oversight into the system

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NSW Treasury

• 3. The Financial Risk Management Framework

▪ Government Sector Finance Act 2018

▪ Financial Arrangements Approval Process ▪ Treasurer’s Directions ▪ General Approvals

▪ Financial Risk Management Policies

▪ Foreign Exchange Risk ▪ Interest Rate Risk ▪ Debt Management ▪ Credit Risk ▪ Cash Management Embedding financial risk management in day-to-day operational thinking

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 9

NSW Treasury

• 3. The Financial Risk Management Framework

Big picture view of the Risk Management Framework – Institutional settings

GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 10 NSW Treasury ALCO NSW TCorp Financial Markets GSF Agencies Policy Engage Monitoring Monitoring

Advise and report Set strategy and review

Execute

• Early identification of risks
• Quantify and communicate risks to Treasury and TCorp
• Manage those risks with Treasury and TCorp
• Monitor Whole-of-State financial risks
• Ongoing engagement with Agencies

to support risk management process

• Advise Agencies and Treasury
• n specific FRM strategies
• Execute with financial markets

NSW Treasury

• 3. The Financial Risk Management Framework

▪ Early engagement

▪ As soon as possible, engage with relationship leads on potential financial risks ▪ Engage with TCorp for practical implications and execution

▪ Risk management as a core part of the Budget process

▪ Proactive approach ▪ Treasury relationship leads Behaviours

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NSW Treasury

Contact details

▪ FRM Issues

▪ frm@treasury.nsw.gov.au

▪ Financial Arrangements approvals

▪ financialarrangements@treasury.nsw.gov.au ▪ Your Treasury relationship manager

▪ Execution and advisory

▪ Your TCorp relationship manager

We want to hear from you

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GSF Act Pt.6 & the Whole-of-State Risk Management Framework

Financial Risk Management Division

31 January 2019