Economic, political and regulatory change - how is this affecting corporate treasury?

13 September 2017

“In my years in corporate treasury I have never seen so many economic, political and regulatory changes either in train or on the horizon that will affect my job”. So said a client recently as she reviewed her objectives for the year ahead.

From Brexit to the rise of new technologies such as Blockchain and artificial intelligence, through to the cyber security world and the ever-changing accounting, banking and tax regulations, the treasurer has seemingly never had such volume and variety in the risks and opportunities facing them from the external environment.

We conducted a brief survey of treasury professionals at the recent ACT conference in Manchester looking at the significance of external change on their work. Perhaps unsurprisingly we found that all the changes occurring are having an impact, but dependent upon circumstances, some are prioritised to deal with ‘now’ whilst others are longer-term plays.

Financial regulation for banks

Changing financial regulation is certainly affecting the appetite of banks to lend and provide banking services. Whilst consequences vary, the implication for many is an ongoing need to re-align their banking wallet towards key banks and refine their banking providers to focus on their lending group. Other treasurers are looking at alternatives such as new providers in the cloud, although this is probably only effective for smaller corporates.

IFRS 9 and BEPS

Accounting standards change – particularly IFRS 9 – are a concern for all. Whilst the general thrust of IFRS 9 may make hedge accounting less onerous to obtain, the devil is in the detail and there may be a significant time commitment for some to change their risk management activities to take advantage.

By contrast, the effect of the OECD initiative on Base Erosion and Profit Shifting (BEPS), is seen as having significant opportunities for some but impacts others minimally. For those affected, BEPS may provoke a change in inter-company financing structures with potential repercussions on the whole treasury operating model, including the locations from which services are provided.

Cyber risk

A real challenge for all treasurers is protecting activities from intensifying cyber security threats – recent high-profile bank incidents have brought payment fraud risk back to the top of the agenda. In my view, cyber risk has the potential to encourage changes in the use of treasury technology, particularly the methodologies used by corporates to connect to their banks to make and approve payments.

FinTech

Developments in the FinTech space are resonating although many are still working through implications. Interestingly, consumer payments are one area of current impact and treasurers in B2C businesses are embracing the opportunity. A specific example is the growing use of Digital Wallets, allowing businesses to collect receivables prior to sale and hence reduce working capital – a significant implication for the treasurer.

Blockchain

Wide application may be some way away for the corporate treasurer, however, there is a current focus on the opportunities Blockchain can provide around improving the efficiency in trade finance processes. Solutions have moved from proof of concept to production for a number of banks during 2017 and it is only a matter of time before use becomes the norm.

Big Data

Big Data (improvement in the handling, analysis, storing and processing of large collections of data), is seen as a longer-term opportunity. The use of data analytics solutions has great potential to improve one of the perennial problems of the treasurer: getting reliable cash flow and exposure forecasting. However, success relies on the business better managing its data and prioritising the extract of such data for the treasurer, something that has perhaps been lacking in the past.

Political landscape

For those with any UK presence, there are then the additional challenges and opportunities of Brexit. Not only does the treasurer need to consider the possible implications on the services they provide to their business and those their banking partners provide to them, but also the timeframe of any changes.

Summary

Although the impact of these issues on each business varies, it’s certainly a challenging external environment for the treasurer. Response demands a material time focus even for the most strategic, leaving less time for the main job of business support. In reality, treasurers (given limited resources) are understandably prioritising the immediate issues whilst keeping a watching brief on others.

David Stebbings 
+44 (0)20 780 42323

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