One step ahead: the treasurer’s great hope for regulatory compliance

Looking back just 10 years, treasurers would be forgiven for thinking that dealing with regulation was a straightforward business. All that was required were risk models based on standard deviations and normal curves. Fast forward to the aftermath of the 2008 global financial crisis and treasurers are now faced with a tsunami of regulations and historically low interest rates, forcing them to rapidly adapt.

It swiftly became clear that securing a constant flow of information would be crucial for keeping control of revenue, particularly given the lack of liquidity in the aftermath of the crisis. However, expecting a small team of treasurers to manage this with a few excel spreadsheets would be an accident waiting to happen from a regulatory perspective.

For multinational corporates (MNCs) facing numerous pieces of new legislation in countries all over the world, it is close to impossible to stay compliant without a reliable technology provider that can automate reporting and stay current with local legislation changes.

The regulatory maze

To understand the scale of the challenge, consider derivative trade reporting – the process that gives every treasurer a headache. Every country in the G20 group of major economies has committed to regulate it within their respective countries, so that the derivative market becomes transparent to authorities in order to evaluate the overall exposure that is built into the financial market. Complicated, yes – but understandable given the scale of the 2008 crisis.

In Europe, this regulation goes under the name of the European Market Infrastructure Regulation (EMIR), while in the US, the legislation is called the Dodd-Frank Act, or DFA. Similar regulations are also in place in countries such as Canada, Australia, Singapore and Japan.

EMIR covers 26 countries in Europe and any MNC entering a derivative contract in any of these countries must report all life-cycle events of this trade to the local authority. The reporting is both complex and subject to constant changes, indirectly affected by political decisions.

To stay compliant, treasurers need to have staff who are knowledgeable about each of these regulations and who can monitor all changes throughout the world as they happen all while also reporting accurately on a daily basis. This is where the right technology comes in.

TMS and robotics

Many treasurers are now considering their technological options. For some time now, enterprise resource planning (ERP) systems have been the ‘go-to’ option for many; they frequently contain finance functions which integrate well with any datasets, but for treasury purposes many ERP systems are not sufficient.

Leading ERP vendors have acknowledged this and embedded treasury management systems (TMS) shipped as an important module in the ERP. To stay in control, treasurers need this kind of sophisticated tool, dedicated to cover the requirements of a treasury, that is fully integrated with external sources of information, such as market data providers, banks, brokers and clearing houses, as well as all internal departments.

TMSs come in various shapes and sizes, but all aim to provide the treasurer with visibility, flexibility and accuracy in reporting. The value of being able to manage multiple sources of data and immediately spin up multiple forecasting models with iron-clad accuracy, for example, can’t be overstated given the sheer volume of data to be dealt with.

Yet the treasurer’s inventory doesn’t stop there. Treasury teams are often small departments within much larger organisations and so need to focus their best resources on intellectual analytics, where this expertise is needed, rather than non-expert business processes that can be automated.

As a result, automation, particularly robotic process automation (RPA) is beginning to develop a reputation as the treasurer’s secret weapon. Every task that traditionally has been carried out manually can be automated to free up intellectual capacity among staff. Using RPA technologies, treasurers will eliminate manual errors and optimise the forecast performance, leading to improved cash flow.

Looking to the future

A 2014 study by consultancy firm Zanders estimated that 40% of treasury professionals use a TMS of some description. It’s therefore reasonable to assume that around 60% are still relying on spreadsheets or other legacy system that does not fit the purpose to manage their sensitive financial data.

It’s time for the conservatism around new technologies to end. Cloud computing, for example, may be the de facto standard by this point, but finance professionals have traditionally been slower to adopt it due to concerns around security. Yet a fully cloud-based treasury operation could stand to benefit from the added flexibility and scale that cloud affords, helping treasurers to keep on top of their payments more efficiently. Greater co-ordination may well be needed between treasurers and the IT department to ensure that interests are aligned, but the benefits of cloud can’t be ignored forever.

Alternatively, take blockchain as an example. Arguably the most widely-discussed financial topic of 2016, blockchain could revolutionise treasury, especially in areas such as settlement and confirmation. Yet it has barely scratched the surface among treasury professionals, despite making waves across all manner of different industries. When we look at the general conservatism that many treasurers have with cloud, it’s hardly surprising that blockchain hasn’t yet been given a chance.

Ultimately, the ‘good old days’ of modelling risk based on standard deviations and the like aren’t coming back. Regulatory challenges are only likely to become increasingly complex, and that’s not even factoring in the potential of another financial crisis. Treasury professionals must begin to consider the vital role that technology must play in meeting these shifting demands today – because in the long-run spreadsheets just aren’t going to cut it any longer.



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