The results are in from this year’s Voice of Corporate Treasury Global Study, conducted in partnership with Bank of America Merrill Lynch. They show the profession at a crossroads with treasury teams searching for answers in an uncertain environment. Here, Bank of America Merrill Lynch’s Head of Strategy & Advisory for Global Transaction Services, Jonathon Traer-Clark, and a select group of corporate treasurers discuss the study’s findings.

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In a world in flux, it is good occasionally to take a step back and assess where we are and, most importantly, where we are going. These were the key objectives of this year’s Voice of Corporate Treasury Global Study, conducted in partnership with Bank of America Merrill Lynch.
The results of this quest provide a detailed and unique snapshot of the treasury universe. They show it at an inflexion point where, on the one hand, treasurers are having to weather the storm created by recent political, regulatory and economic upheaval, and on the other they are taking the next step and leveraging new technology and ideas, allowing them to better support their business. It goes without saying that these are interesting times to be a treasury professional.

Conducted in the first half of this year, the wide-ranging study attracted 625 corporate respondents from around the world. The universe was diverse in terms of company size, industry sector, geography and treasury structure. As expected, there were some nuances that arose when the data was cut by region. Broadly speaking, several key themes emerged.

Political turmoil

Almost half of the sample view the outlook for the next 12-18 months as challenging and very uncertain. This is to be expected, given the myriad of political surprises the world has faced over the past two years. Respondents cited the uncertainty around the Donald Trump presidency and the direction of Brexit as two major concerns. Even if corporates are not directly impacted by these two factors, it is clear that they have caused ripple effects around the world.

During a recent webinar covering the results of the study, Sonia Clifton-Bligh, Director, Regional Treasury Services Centre, APAC at Johnson & Johnson, said the political environment, “is one of the factors contributing to the uncertainty”. This, she added, “presents its challenges across cash and liquidity management as well as foreign currency exposure management”.

Specifically, she noted how several countries in Asia, especially China and Malaysia, have introduced new regulations aimed at protecting their currency as a result of political events. These decisions, she explained, “impact the way we would have previously executed our risk management strategy and also impose onerous obligations on the business to be able to operate within the financial markets”.

Séverine Le Blévennec, Director, Treasury EMEA at Honeywell, participating in the same webinar, notes that such events remind us that “political risk exists”. That said, she insists that her treasury sees more opportunities than threats in today’s market.

Treasury: at tipping point or crossroads?

Today, most treasury functions are either at a tipping point or a crossroad. They are undergoing a major transition, having to embrace additional responsibilities whilst continuing to operate with extremely lean teams. There is a keen focus on risk management in its many guises but also a focus on growth. The latter can be influenced by cash-flow forecasting, a frequently cited area in the study, as both the enabler of growth and of capital funding. Treasurers continue to balance risk versus investment, striving to answer the burning question, “where is the best return?”.

That investment may well be in new technology. Bank of America Merrill Lynch’s Jonathon Traer-Clark feels many corporates, “are waiting for the ‘light-bulb’ moment use-case and a compelling event to justify such an investment”.

Treasurers are also navigating the changing technology landscape in a period when their companies are changing too. Many treasurers noted that one of the fundamental changes is that their decisions are being much more influenced and driven by external factors, most notably the shifting commercial models of their organisations.

KYC continues to challenge

Whilst the course of business changes, some issues remain static. KYC is a case in point with many respondents citing this as a major test. “Around the world, we’re helping clients address the KYC challenge in multiple ways, focusing primarily on advisory and secure information sharing,” says Traer-Clark. “Our documentation specialists are current on local regulations so they know exactly what information is required in specific jurisdictions or entity types.” The degree of variation is significant and thus, he adds, “it is important we collate only the information we need and do so in a single streamlined request to avoid any unnecessary duplication or rework from a documentation perspective”.

Realising how big a pain point this is, Traer-Clark also notes that his bank tries, where possible, to self-source information on behalf of its corporate clients. Bank of America Merrill Lynch, he says, also continually seeks to leverage technology. The team recently installed a global ‘document crawler’ that finds and retrieves client information or documentation already held across its global data repositories – whether in credit, a different region or a different line of business, he explains.

Non-bank providers are also looking to solve the KYC challenge. These firms, notes Traer-Clark, are now starting to gain traction. The bank has “cast a wide net” in this regard. It offers “complete flexibility” for its clients and is currently signed up to numerous industry KYC utilities such as SWIFT’s KYC registry, IHS Markit’s kyc.com, Clarient’s entity hub and Bloomberg’s entity exchange. “We think these utilities present a real opportunity in the KYC space – helping banks satisfy the need for robust KYC, and doing so in an operationally-efficient manner.”

Bank relations are as important as ever

Given that many corporates work with a mix of global, regional and local banks, solid relationships are key to success. Although the global financial crisis was almost a decade ago, its legacy dictates that honesty, integrity and trust are most important in the bank-corporate relationship.

Maeve Robinson, Assistant Treasurer at Omnicom Group Inc. commenting on bank relationships and the main factors in the selection process, said that she starts with the banks in the company’s credit agreement, then assesses product capabilities, looking for “the superior product providers” in each market.

For Omnicom, the arrangement relies upon a core banking group supplemented by numerous regional banks servicing operations in each of the company’s home markets. “We find this approach works best given time zones, languages and access to client service or relationship managers,” she explains. “We closely monitor the various products and services each provides to be sure our wallet is fairly distributed according to each bank’s credit support.”

According to Bank of America Merrill Lynch’s Traer-Clark, transaction banking relationships have noticeably evolved since the crisis. “Relationship banking is not a new concept but it became more salient post-financial crisis,” he says. “Both corporates and banks realised they want more visibility and less complexity in their respective relationship groups.”

It is not necessarily easy for corporates to achieve these aims, not least because many corporate bank groups and structures have grown both organically and acquisitively over time. “Rationalising bank structures has obvious advantages from a structural cost and visibility perspective, but the relationship management piece shouldn’t be underestimated,” explains Traer-Clark. “Banking is very much a ‘people business’ so having solid relationships with a select group of banks that know you and your business is really important”. This, he adds, makes it easier to do business and build the collaboration and experience “that really form the foundation of reciprocal trust”.

Relationship banking is not a new concept but it became more salient post-financial crisis.

Jonathon Traer-Clark, Head of Strategy & Advisory for Global Transaction Services, Bank of America Merrill Lynch

The crisis had a severely negative impact on the trust people and corporations have in banks, but Traer-Clark believes the industry is doing a good job rebuilding this. “In terms of trust and integrity from a financial stability and counterparty perspective, this is one of the positive outcomes arising from a decade of increased post-crisis regulation,” he comments. “From contingency planning and capital adequacy, to operational segmentation or ring-fencing – much has been done to ensure the industry is more robust and worthy of our clients’ trust.” And to keep banks accountable, corporates and society at large “should, frankly, expect their banks to treat them fairly, honestly and with complete integrity”.

Cyber-security is top of the agenda

Banks are also rebuilding trust with clients by acting as strategic advisors, especially around areas such as cyber-security. And with almost a third of the study respondents having been victims of a cyber-attack or fraud in the past five years, corporate treasurers are now heavily focused on technology and processes which mitigate the risk of such occurrences.

Digital security company Gemalto recently published its findings from the ‘Breach Level Index’. They revealed that 918 data breaches led to 1.9bn data records being compromised worldwide during the first half of 2017.

“We take this issue extremely seriously but we are not working in isolation,” says Traer-Clark. “We certainly maintain awareness and have introduced procedures that aim to spot things that are out of character, allowing us to identify potentially rogue transactions in a timely manner.”

In general, the banking community is providing a lot of education in this space, hosting workshops and webinars, and ensuring its own shops are in order so it can be a trusted partner to clients. Bank of America Merrill Lynch has a very clear focus on policy, procedures and best practice and strictly adheres to legal and regulatory obligations. “Security is key and we develop, train and encourage the appropriate mind-set around these issues,” Traer-Clark says.

Blockchain revolution

Banks talk a lot about blockchain, but do corporates have the same interest? The results of the survey are somewhat mixed. Whilst there are detractors amongst treasury professionals, blockchain is cited as an area of serious interest and many corporates are considering their own blockchain projects.

We are taking a collaborative approach to blockchain technology which often utilises an open sourced framework. The technology has clearly helped encourage collaboration between banks and regulators, and between banks and fintechs.

Jonathon Traer-Clark, Head of Strategy & Advisory for Global Transaction Services, Bank of America Merrill Lynch

Bank of America Merrill Lynch is evaluating blockchain technology too, validating the benefits and framing the path to commercialisation, says Traer-Clark. “We are taking a collaborative approach to blockchain technology which often utilises an open sourced framework. The technology has clearly helped encourage collaboration between banks and regulators, and between banks and fintechs.”

In September 2016, the bank announced its participation as a founding member of Ripple’s Global Payments Steering Group (GPSG). The GPSG will oversee the creation and maintenance of Ripple payment transaction rules, formalised standards for activity using Ripple, and other actions to support the implementation of Ripple payment capabilities.

Focusing on the client experience

Much has been made about the disruptive nature of fintechs on traditional financial institutions, but in recent years, the dialogue has shifted from disruption to collaboration. Traer-Clark agrees with this notion. He believes banks and fintechs together can make a “formidable team”. Banks have the scale and relationships whilst the emerging fintechs, “make us think differently and make good partners,” he says.

What is most important is that banks are addressing the big issues and leveraging the speed, agility and innovation of fintechs to find solutions to these issues. In doing so, they are also focusing on the client experience. “Assuming that banks can get the basics right first – and that isn’t always easy – they can then think about delivering an enhanced client experience which is where the fintechs have a role to play,” says Traer-Clark.

Where will corporate treasury be in 20 years?

Progress is often incremental – and this is well illustrated by the motor industry. Exactly who invented the automobile is a matter of opinion but if we had to accredit one inventor, it would probably be German, Karl Benz. Many suggest that he created the first true automobile in 1885/1886. In 1903, Henry Ford established the Ford Motor Company and five years later the company rolled out the first Model T. Elon Musk, CEO at Tesla Inc. has taken the automobile to new heights with electric vehicles. And we now hear that British inventor James Dyson is investing £2bn into developing a battery-powered vehicle which is expected to launch in 2020.

It has taken well over 100 years for the motor car to evolve to the type of vehicles we see on our roads today. Yet in less than 30 years since Tim Berners-Lee invented the World Wide Web, we are now all using the internet and mobile technology as if they had been around for a century or more. What does this all mean from a technology standpoint with regard to the world of corporate treasury? The answer must of course be set against a backdrop of geo-political uncertainty, the increasing threat of cyber-attacks, ‘Black Swan’ events and the naturally conservative approach to new technology exhibited by corporate treasury in general. One thing is certain – there are further interesting times ahead.

A voice being heard

Bank of America Merrill Lynch’s client base made up around 30% of this study’s respondents. Nonetheless, it is fair representation of the corporate treasury industry as a whole, concludes Traer-Clark. “We are delighted to have been associated with this body of work. Part of our client-centric approach is to understand their concerns, their challenges and their plans for the future, so that we can support them in the best way possible. The industry is certainly in transition and we hope that by providing the community with an opportunity to express itself, and to be listened to, we are helping to facilitate better solutions and better financial outcomes for all.”

If you would like to listen to the webinar mentioned in this article please go to: treasurytoday.com/voct/webinar