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16 Eastcheap, 5th and 6th floor
United Kingdom

+44 (0) 20 3880 0575

Office Hours
Monday - Friday
8:00am - 5:30pm

The present global environment of geopolitical unrest, economic uncertainty and market volatility has a direct impact on today’s corporate treasurers.

Companies of all shapes and sizes are seeing their treasury departments take on more responsibilities, adapt to new technologies and meet fresh demands.

In this article, we’re investigating the role of the modern corporate treasurer and the challenges they face.

Jump to a section:

  1. What is corporate treasury management?
  2. Sustainability and the role of ESG
  3. The challenge of real-time payments
  4. Compliance and regulations
  5. Uncertainty in FX

What is modern corporate treasury management?

The ever-evolving corporate world keeps treasury managers on their toes. Traditional methods are outdated, and today’s treasurers face a more diverse, tactical and demanding role than ever before.

Corporate treasurers manage a business’s financial risk, liquidity and growth potential. In recent years, the role has adapted from one that aims to deliver smooth financial processes to one that seeks to deliver significant business value.

Here are some of the challenges of treasury management in the modern world.

Sustainability and the role of ESG

Today’s corporate treasurers are tasked with handling tough regulations. And modern sustainability demands are no exception.

Sustainability is quickly becoming a major focal point for companies around the world. New regulations and expectations are putting pressure on businesses to be adaptable.

To evidence their pro-sustainability attitude, many businesses are developing an environmental, social and governance (ESG) strategy.

ESG is a set of criteria that assesses the impact corporations have on the world. By showing how they meet each set of criteria, companies can prove their efforts towards mitigating risks and generating sustainable, long-term financial results.

For this reason, high-scoring ESG companies are becoming increasingly favoured by investors. Let’s look at how it works.

What is ESG?

Under the ESG framework, companies are evaluated on their environmental impact. This factors in their energy usage, waste production, resource management and how they look after their surrounding environment.

The social metric analyses a company’s relationships with its clients and employees. It also investigates whether the company’s workforce is diverse and inclusive.

Governance focuses on how well run a company is. It considers transparency, evidence of industry best practises and quality of communication with regulators.

Also, high-scoring ESG companies have internal systems, processes and controls to govern and make crucial decisions.

What is ESG for corporate treasurers?

The concept is likely to be in firm focus for governments going forward, and today’s treasurers will have to respond.

In 2021, we saw the EU introduce its Sustainable Finance Disclosure Regulation (SDFR). The goal is to improve company transparency for sustainable investment products and cut out greenwashing.

In the same year, we also heard the U.S. Securities and Exchange Commission (SEC) share its intentions to make ESG a top priority.

Similarly, the FCA released an initiative called the Sustainability Disclosure Requirements (SDR). The regulation requires ‘real economy companies’, including listed issuers, asset managers and asset owners to report their sustainability risks, opportunities and impacts.

Regulations surrounding sustainability will unquestionably challenge the modern corporate treasurer.

Read: How is ESG impacting modern treasurers?

The challenge of real-time payments

In an ever-advancing technological world, patience for payments is wearing thin. Companies are shifting towards Faster Payments and SEPA instant payments, making a global real-time environment seem inevitable.

The challenge, then, is to create an ‘instant treasury’. To achieve this, treasurers must evaluate whether they have the processes and capabilities to handle lightning-quick settlements. Here are some of the factors they may need to consider.

Payment errors and recall

It’s crucial that businesses carry out thorough checks before releasing any payments – especially those that operate in a global market. The pressures of real-time payments offer very little time to stop a transfer if an error or breach is spotted.

Fortunately, businesses can revoke international payments. However, changes in exchange rates may affect the amount they receive back.

Corporate treasurers will need to find ways to effectively manage appropriate pre-release checks and the demand for immediacy. If not, they run the risk of market movement going against them in the event of payment recall.

Cash position and liquidity

Treasury managers may need to reinvent their cash and liquidity operations to cater for real-time payments.

Instant payments shake up the typical working day. With no natural end of day, businesses need to determine when to set their cash position for investment and reporting purposes. This can be difficult if a company develops a round-the clock flow in and out of its accounts.

Additionally, treasurers will need to consider cash buffers and settle on an acceptable amount of funds that can be received after the determined end of the day.

They will also need to think about whether payments can be made after close of business hours. And, if so, what controls they’ll need to handle them.

Read: What is liquidity risk and how to manage it.

Real-time payment costs

As we’ve discussed, real-time payments bring with them a level of intensity. To keep up, businesses may have to invest in new technologies and systems.

This can be costly and is an important aspect for treasurers to debate.

Automation and streamlined information

With the continuing evolution of FinTech programs, software tools and treasury management systems (TMS), modern corporate treasurers need to think about automation.

The treasury is often conducting a balancing act between departments. For example, on the one hand, it’s receiving inputs like cash from sales and procurements. On the other, it’s paying bills to its creditors.

Modern treasurers should figure out how to deploy state-of-the-art technologies across their departments, streamlining information and cutting out unnecessary admin.

This gives them the opportunity to focus on the key demands of today’s treasury. Namely, ensuring cash is in the right place at the right time and financial risk is kept to a minimum.

You can read more about automation in our article: Expense management strategies for CFOs.

Compliance and regulations

Earlier, we mentioned how modern corporate treasurers are facing tough sustainability demands. But their impact on the environment is just one piece of the puzzle.

Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements are invariably getting more complex and further complicated by fast moving sanctions and restrictions. Mainly, through investment in jurisdictions and industries.

KYC and AML restrictions

In recent years, we’ve seen regulatory bodies come down hard on fraudulent payments and money laundering. This peaked in December 2021 when NatWest was handed a criminal conviction (along with a £340m fine) for its corporate failings. It then became possible for non-financial entities to be fined for a lack of appropriate checks and controls.

As a result, banks have become stricter when accepting clients and onboarding them. In some countries, it can take months to open an account and rejection risk is high. There’s also the possibility of the bank exiting a sector and dropping a large group of clients with little warning.

Today’s treasurers face the challenge of establishing slick communication with banks and water-tight KYC and AML processes, to prevent these issues from causing disruption.

Non-traditional banking options such as Electronic Money Institutions (EMIs) still hold the same high standards in terms of AML and KYC. However, they offer a more personalised service where due diligence is carried out by a small team of experts.

Uncertainty in FX

A crucial aspect of a corporate treasurer’s role is to mitigate financial risk. For companies that make international payments, managing foreign exchange (FX) volatility is crucial. With insufficient management, treasurers risk facing the negative effects of FX market movement.

Recent geopolitical events have created a rollercoaster ride for governments and financial markets. The Covid-19 pandemic and Russia-Ukraine conflict have catalysed uncertainty and rocked economies.

Corporate treasurers will have to manage the fallout of such events and their impact on financial markets. They’ll need to devise and implement strategies to limit the subsequent risks. Without an effective strategy, treasury managers are endangering their future cashflows.

Take control of your FX risk. Request a callback with a Privalgo Foreign Exchange Specialist and see how we can help.

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