Written By: David Winter – Corporate Finance
Corporate treasury managers are facing the clear trend toward increasing complexity in their daily work. To a great extent, they are becoming closer to their bankers in their search for not only specific transactional or cash-management solutions but also for advice and support on the various issues they have in common. Many corporate treasurers now have transactional and treasury-management platforms. The larger the corporate, the more sophisticated their platforms. Over time, they have optimized their processes and developed leaner treasury functions.
But today they are facing other complex challenges, such as:
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responding to technology changes,
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meeting regulatory-compliance constraints,
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controlling operational risks, such as fraud and cyber risks
They are looking for help from banks in navigating through all of the changes and complexities they are facing.
Corporate treasurers have always targeted maximising operational efficiency. In the past, many efforts had been made to improve their real-time views on their corporates’ liquidity and their ability to forecast treasury. They still face the efficiency issue nowadays as the treasurer’s scope continues to expand, moving away from being a “department” scope to becoming a company-wide process. In fact, the reality is that the processes of companies have “burst out” the consolidated view of treasurers.
Today, most companies have outsourced or relocated their back-office and payment-factory processes. This has resulted in treasurers needing to work permanently in collaborative ways with employees who are involved with treasury processes but are far from reporting directly to treasurers. The recent PwC (PricewaterhouseCoopers) Global Treasury Benchmark Survey 2017 titled “The virtual reality of treasury” explains that two-thirds of staff involved in treasury processes are not reporting directly or even indirectly to the treasurer. The study also explains that treasury is no longer only about technical skills and centralised processing. More than ever, success in treasury is about integration and collaboration.
But with new collaborative tools and processes appear new risks.
The connectivity or digital-security risks that treasurers now face are looking more and more like what banks have experienced for several years.
The interconnection needed by corporate treasurers to be efficient has created an increase in information-technology (IT) operational risks. Treasurers are responsible for connectivity to banks. As they are working on more collaborative platforms to encompass all the back-office and payment systems of their group, as well as bank systems and maybe fintechs, they also need to understand and monitor the fraud and cyber risks they face due to this increased connectivity.
The virtual or digital environment does increase efficiency in terms of processing, time, cost and instant visibility and may foster collaboration across the enterprise; however, operational risks attached to this type of automation in virtual environments must be properly assessed and addressed.
The PwC study reveals that just over half of respondents solely rely on manual key controls. As in banks, in which all IT-security controls are now subject to management reports in all departments up to the top of the hierarchy, it is predictable that corporate treasurers will have to implement more and more automatized controls and reports on key IT-security controls. The security improvement of the treasury chain is an issue common to banks and corporate treasurers.
Other evolutions are similarly faced by both banks and corporate treasurers.
To determine their funding needs and solutions, treasurers are now applying advanced approaches, and their considerations include business-risk profiles, impacts on weighted average cost of capital (WACC) and credit ratings. In all of those issues, banks have certain experiences to share and can offer valuable advice about what processes to put in place.
But one field through which cooperation between corporate treasurers and banks could also work is surprisingly the new accounting standard, namely IFRS 9 (International Financial Reporting Standard 9), which requires assessment of assets by the treasurer at fair value. According to the PwC study, one-third of treasurers have not yet considered the impact of this standard, and only one out of every five organisations is actively working on implementation or already reports under this standard. The study reveals that only small companies’ treasurers are inclined to rely on banks for fair-market evaluation on assets. Cooperation also could be increased as counterparty risk; market indicators and asset analyses from banks could largely help to assess those fair values.
Finally, banks’ experiences could be helpful in KYC (know your customer) and management of embargoes, anti-money laundering and transfer pricing. Indeed, corporate treasurers have also been pushed to face all of those compliance topics; if they cannot be totally responsible for the choice of providers and clients, or the pricing of group financial transactions, they face the compliance issue.
In all those fields, banks have progressed a lot in putting processes in place. Sharing their experiences could be interesting for corporate treasurers.
For a bank, the difference between being a secondary or primary bank significantly relies on the quality of its relationship with the corporate treasurer. The potential to enhance the bank’s advising power is increasing and should benefit both sides in the future.