As we are all well aware, the treasury department is the engine room of the bank, in terms of managing and controlling capital and liquidity and making sure that all parts of the bank can readily access the cash they need for their business activities. This ensures that the bank remains financially secure, stable and able to function effectively to serve its clients.
However, new regulations such as the Basel III capital adequacy regime and in the UK the legislative changes recently introduced by the Banking Commission report are going to place significant pressure on treasury departments due to the increased liquidity and capital requirements.
While Basel III outlines the international regulatory standards for capital adequacy and liquidity risk, the real pressure now comes from government regulations in Europe, the UK and the US, which have taken the lead in aligning country-specific legislations with the rules set out in Basel III. The Banking Commission report is an example of such regulatory proposal.
So, where does technology offer assistance to treasury operations in meeting these new regulations? There are four key areas where technology can be applied and these involve getting the right information to the right place at the right time, while ensuring the quality of that information.
Right information, right place and right time
It’s essential that everyone who needs to has access to the right information. Each operational unit of the bank needs to be in dialogue with the treasury department to ensure they have the cash to execute their business and that the bank has the liquidity to cover calls for cash from customers, investors, government agencies and suppliers, within the limits set by the various compliance organisations.
Case management, allied to a social interface within the bank, would provide a powerful mechanism to enable such dialogue to flow in a timely manner, allow the capturing of exceptions and facilitate the automatic reconciliation of each operational unit’s financial position.
Getting information to the right place within a large financial organisation is all about intelligent routing of work (cases). This ensures information from one part of the institution gets to the right person, who is authorised and sufficiently skilled to manage that work, in another part of the institution.
Delivering information and work to the right place at the right time requires sophisticated scheduling of the appropriate tasks for departments and individuals. This means that their piece of the work is done in the correct sequence to allow work (cases) to flow based on a dynamic schedule of business processes that have in-built service-level agreements. This makes it clear when tasks need to be executed as part of the bigger picture and where to escalate when timeliness is at risk.
Using automated data matching processes, that perform matching in a straight-through processing (STP) model, is the ideal way to ensure data quality. Exceptions to the stated quality levels can then be generated as work (cases) and routed to the appropriate point in the bank for correction, with automated adherence to the previously mentioned service levels.
More changes to come
The legislation requirements coming from the Banking Commission report are unlikely to be set in stone for long periods of time, as legislation will change as the results of compliance are measured and fine-tuned. This implies that the technology to support such an environment needs to be agile enough to consume these changes and adjust the automated and manual tasks outlined above.
In my opinion, there is only one class of technology that can justifiably claim to meet all of these requirements, as well as being agile enough to change and that is a technology based on the principles of business process management (BPM). But that BPM technology must be sufficiently well developed to allow a large enterprise, as many of our leading financial organisations are, to join up their operational divisions with the treasury department in the way described above.
Moreover, the BPM technology must allow the business to take more ownership of business change, even to the point of allowing suitably enabled and authorised business users to apply change to their operational systems, as the market and compliance organisations demand.
The result should be a treasury operation that looks very much like an international airport. Arrivals of data, typically in batches, ‘landing’ at the treasury departments doors and needing to be processed within finite time periods, while ensuring transfers of data from one system to another happen seamlessly, driving a real-time dashboard of the financial institution that reflects the arrivals and departures board at Heathrow..
When everything is green, the organisation is in good shape. When individual data feeds are late or of poor quality, their representation on the dashboard is amber or red and a simple drill-down will allow the details of correction to be viewed and monitored. Effectively, a real-time treasury operation that knows at any point in any day, week, month or year that it is operationally compliant with the rules and regulations as they apply to capital and liquidity.
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