In the last decade, banks, under pressure to cut costs, have continued to invest heavily in the digitisation of their services for treasurers, heralding technology as the panacea for the sector – promising efficiency, speed and compliance.
But is this what corporate treasurers, FDs and CFOs really want, especially when it comes to their FX needs? Maybe not, argues Harry Adams, co-CEO of Argentex Group, a company specialising in providing corporate foreign exchange for institutions, corporates and high net worth individuals.
“Of course, for those who are margin trading, spread betting, using CFDs or similar products, technology is vital,” comments Adams. “But for those undertaking FX transactions which are related to genuine underlying business needs, voice broking still provides the most compelling form of execution.”
He offers the following reasons.
“No one can expect corporate treasurers to be foreign exchange experts in addition to an already long list of financial management responsibilities,” says Adams. Indeed, as operating environments become more competitive and complex, treasury is increasingly regarded as a Board level discussion and with this comes a growing amount of pressure on the treasury function to offer strategic value.
Whilst the role of treasurers continues to evolve, the less time they spend on foreign exchange, the more time they have available to deliver their day-to-day objectives like assessing, reviewing and protecting company financial wellbeing and ensuring a healthy cash flow.
“Being confident to devolve foreign exchange execution responsibilities to third parties relies on the assurance that sound, bespoke advice will be provided when you need it the most,” explains Adams.
A firm such as Argentex, set up to offer a client service model, calls upon human interaction at the sharp end to assist with and deliver what may be sophisticated propositions “in a straightforward and efficient manner”. It is the human component, he argues, which is able to accommodate the complexity and one-off special situations which he says technology is not yet able to.
Case in point
Offering proof of his approach, Adams cites an Irish business client that sells and exports food products to a large US retailer. “Given the nature of their contract, the producer was exposed to any extreme FX moves beyond certain thresholds for 18 months between signing the supply contact to payment, regardless of having a hedge in place.
If the value of the dollar strengthened versus the euro, they would have been left out of pocket. The contract did not allow for participation in favourable FX moves. The business required a tailored solution to fit their hedging requirements and shelter their business from this asymmetric downside risk, which a formulaic tech-led approach could not have provided.”
One size doesn’t fit all
Without economies of scale, Adams feels that many firms are missing out on the benefits that banks, brokers and other large existing providers of currency exchange have traditionally provided. This, mixed with the lack of in-house foreign exchange capabilities, means many corporates are not receiving the competitive pricing and product set needed in order to efficiently execute and settle foreign exchange trades.
The view that deep-rooted execution experience and expert analysis can only truly be provided through human interaction should not be disregarded as outdated. For Adams then: “Not only can it achieve a material impact on both pricing and efficiency, but at a time of increasing scrutiny in the sector, adherence to the complex regulatory frameworks can be ensured and not left up to automated ‘one size fits all’ technologies.”
During this period of unprecedented uncertainty, where currency movements are at the mercy of geopolitical events, Adams sees treasurers “increasingly turning to, and valuing, the advice, reassurance and control provided by advisors who have experience of trading throughout the economic cycle, rather than digital products”.
Through the Brexit uncertainty of the last three years, for example, he notes “a greater reliance from clients on high-touch, voice-driven trading as they seek to navigate heightened volatility where the margin for error nullifies”.
FX technology is undoubtedly bringing with it a wave of greater efficiency and client service and, for brokers, it is now surely impossible to ignore. But Adams has a point. “Of utmost importance is that the industry does not forget its roots as a human-led advisory service that clients are still turning to in their time of need.”