GSF Act Pt.6 & the Whole-of-State Risk Management Framework Financial Risk Management Division 31 January 2019
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 Ensuring long-term fiscal sustainability is the ultimate goal – and a shared responsibility ▪ 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 3 NSW Treasury
1. GSF Pt 6 and FRM in context What we want to achieve ▪ 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 4 NSW Treasury
1. GSF Pt 6 and FRM in context Bringing financial risk management into the 21 st Century ▪ GSF Pt 6 has now replaced PAFA – legislation that was over 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 5 NSW Treasury
1. GSF Pt 6 and FRM in context Managing financial risks from a Whole-of-State perspective ▪ Treasury established the Asset and Liability Committee (ALCO) in 2015 to oversee and advise the Secretary on 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 6 NSW Treasury
2. GSF Pt 6 – Key Changes and Implementation Building in enhanced flexibility and oversight into the system ▪ 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) GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 7 NSW Treasury
2. GSF Pt 6 – Key Changes and Implementation Building in enhanced flexibility and oversight into the system ▪ Some new financial arrangements ▪ Operating leases now formally prescribed – consistency with incoming accounting standard changes ▪ Supplier finance arrangements ▪ Bank guarantees ▪ Social benefit bonds GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 8 NSW Treasury
3. The Financial Risk Management Framework Embedding financial risk management in day-to-day operational thinking ▪ 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 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 ALCO Monitoring Monitoring Advise and report Execute Financial NSW Treasury NSW TCorp Markets Set strategy and review - Monitor Whole-of-State financial risks - Advise Agencies and Treasury - Ongoing engagement with Agencies on specific FRM strategies Policy Engage to support risk management process - Execute with financial markets GSF Agencies - Early identification of risks - Quantify and communicate risks to Treasury and TCorp - Manage those risks with Treasury and TCorp GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 10 NSW Treasury
3. The Financial Risk Management Framework Behaviours ▪ 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 11 NSW Treasury
Contact details We want to hear from you ▪ 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 GSF Pt. 6 and WoS FRM Framework – GSF EWG 31 Jan. 2019 12 NSW Treasury
GSF Act Pt.6 & the Whole-of-State Risk Management Framework Financial Risk Management Division 31 January 2019
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