Compliance’s silver lining

Published: Mar 2019

Compliance looms ever larger in the treasury landscape. Accounting changes multiply. Regulators have cowed banks into compliance and are turning their attention to corporates from a sanctions and anti-money laundering perspective. Derivative regulation is making hedging increasingly complex and costly. Treasurers understand the need for regulation but attending to it distracts them from adding value to the business. Non-compliance is not optional, so is there any way to benefit from the so-called regulatory tsunami?


Compliance keeps rising on the treasury agenda. The so-called regulatory tsunami seems more like a sharp clawed and razor toothed dragon with impenetrable scales and dark spells than a wall of water. Requirements come from different sides and in different forms.

Tightening accounting rules make derivatives more complicated and jeopardise hedging operations and certainly make hedging more expensive. New leasing rules limit a form of funding that can be important in many businesses.

Tax authorities around the world are trying to maximise their take with tighter transfer pricing rules under base erosion and profit shifting (BEPS) and like monikers. This would not be so bad if cross border tax initiatives were accompanied by rationalisation of complex tax codes, but if anything, tax codes are getting more complex even without additional cross border constraints.

Post crisis derivative regulation intended to limit banks’ proprietary trading are causing collateral damage to corporate treasurers, both by requiring them to report (and possibly reconcile) trades and by making banks less eager to provide derivative services.

Bank regulation such as Basel III and related liquidity coverage ratio (LCR) and Net Stable Funding Ratio (NSFR) are making it even harder for corporate treasurers to understand their bank financial providers and distorting markets for example in bank deposits, bank loans, and derivatives.

In the areas of know your customer (KYC) and anti-money laundering (AML), regulators have frightened the banks into paranoid regulatory creativity. In an attempt to protect themselves from vague regulations and the huge fines that have been agreed by many banks, institutions are dreaming up unique and heterogenous rules which present corporate treasurers with disparate but consistently large workloads.

Non-compliance is not an option and, in any case, corporate treasurers want to do their part to make the world and our economies safer. The problem is that most corporate treasuries are already understaffed and at best compliance detracts from their ability to keep up with changes in market infrastructures and markets and at worst compliance jeopardises existing daily operations, adding to operational risk.


Since treasurers must comply, and since at the same time boards are pressuring them to add value to the business, they are in a difficult position. It will be hard to add headcount and there may even be pressure against buying new systems (which in practice need headcount anyway).

A knee jerk reaction may be to try to cover regulatory requirements in overtime. For many, this is challenging since even overtime is probably already busy with core treasury and business value added. And for all treasurers, handling compliance with overtime is not sustainable – the regulations will remain for the foreseeable future and, if anything, compliance will only become more arduous.

The only way to make this work is to automate the regulatory compliance, either with systems or maybe with outsourcing. Outsourcing can work in some areas – for example, getting banks to do derivative reporting on behalf of treasurers. This implies trust in the outsource provider since the penalties for non-compliance may be onerous.

Automation will generally be the most cost effective and sustainable solution to the resource challenge presented by most regulatory compliance requirements. In the past this might have been a scary prospect involving expensive software acquisition and even more expensive consulting to implement it. Happily, technology is evolving.

With current generation cloud and software-as-a-service (SaaS) offerings and more competitive markets, costs tend to be much lower than previous generation installed software, and implementation is much simpler – not least because from a technology perspective there is no implementation per se at all (assuming a reasonable browser is already installed on each laptop).

Solutions are available from software vendors and solution providers of various kinds to cover most of the new regulatory compliance requirements. eFX and confirmation platforms can handle derivative reporting, as can banks acting for example as prime brokers and CLS providers. The burgeoning regtech space is full of sanction screening and (AML solutions. The KYC space is overcrowded already with database and blockchain based solutions.

KYC provides a good example of how pragmatic treasurers streamline regulatory compliance without huge expensive software projects. Most KYC solutions are cloud based services, requiring no installation beyond appropriate security keys. Since most treasurers do not have integrated systems on the corporate side, there is no deep integration. This lightens implementation.

While integration with HR systems could potentially enhance automation, for most treasuries a manual interface still saves time. KYC documents need only be handled and uploaded once which, depending on the number of banks, considerably reduces effort. By keeping the platform updated with a super set of their banks’ requirements, platform users minimise the effort required for each KYC review or update. Such solutions may not cover 100% of bank requirements but in this space 80% coverage still brings big time and effort savings.

The added bonus is reduced operational risk and improved security compared with paper-based KYC compliance.


The potential silver lining to the compliance challenge may be in resourcing. Compliance, being non-negotiable and potentially ruinously expensive, can change the discussion about treasury resources, especially technology resources.

Treasurers needing to implement or upgrade systems or otherwise invest in solutions to improve treasury performance, efficiency and safety often find it hard to convince boards and CFOs. Even the strongest business cases will be viewed with scepticism. And there are always bigger priorities within finance. Treasury can seem like a small obscure side show.

The requirement for regulatory compliance provides a very different basis for resourcing discussions. Boards and CFOs are familiar with the huge non-compliance fines that have hit banks so far, and they will have read that regulators are turning their attention to non-financial corporations. They will not want to be responsible for failing to manage potentially existential risks.

From this perspective, since automation and technology are the safest and most sustainable way to manage compliance risk, regulatory compliance provides a basis for treasurers to get their technology platforms in order – install or upgrade treasury management systems (TMS), build interfaces where needed, add discrete solutions like KYC where needed.


The regulatory tsunami may cripple or even drown treasurers who do not respond effectively. Technology and automation are the safest and most cost effective and sustainable way forward. The advent of potentially existential regulatory compliance risks provides treasurers with a strong argument to obtain the needed systems and solution resources.

David Blair, Managing Director

Acarate logoDavid Blair, Managing Director, Acarate

Twenty-five years of management and treasury experience in global companies. David Blair has extensive experience managing global and diverse treasury teams, as well as playing a leading role in eCommerce standard development and in professional associations. He has counselled corporations and banks as well as governments. He trains treasury teams around the world and serves as a preferred tutor to the EuroFinance treasury and risk management training curriculum.

Clients located all over the world rely on the advice and expertise of Acarate to help improve corporate treasury performance. Acarate offers consultancy on all aspects of treasury from policy and practice to cash, risk and liquidity, and technology management. The company also provides leadership and team coaching as well as treasury training to make your organisation stronger and better performance oriented. |

The views and opinions expressed in this article are those of the authors

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