New regulatory changes requiring urgent attention continue to land in treasurers’ in-trays around the globe on a near daily basis. In this article, we ask: does regulatory compliance always have to be a burden? What happens when treasurers conceive of compliance projects instead as an opportunity to improve the operational efficiency of their departments?

It would be fair to say that corporate treasurers – much like the bankers they do business with – have been feeling ever more disgruntled by the continuing torrent of new rules and standards global regulators have been asking them to comply with of late.

Some of the responses Treasury Today received in its most recent European Corporate Treasury Benchmarking Study are indicative of this point. Of the treasurers surveyed, a total of 37% said that compliance and regulations were ‘very important’, with a further 44% labelling the issue ‘fairly important’. Important or otherwise, though, on the matter of how treasurers perceived the value of these ever frequent compliance projects, the comments received left little ambiguity.

“An increasing overhead, some of which is a tick-in-the-box exercise and thus doesn’t add any value,” one treasurer at a well-known automobile company lamented. “I prefer to remain polite and not comment on valueless, EMIR-like constraints!” another tellingly remarked.

It is hard not to empathise. While no new significant financial regulations have been introduced in the past year, with many existing ones having been refined or amended, the compliance burden is taking up more and more of the treasurer’s working day. And that is why treasurers’ eyes tend to roll every time a new compliance requirement lands in their in-tray. It’s not resentment of conducting business in a right and proper way. It’s the time, cost and distraction from other pressing matters that such projects inevitably bring. A survey carried out at EuroFinance in Budapest last year suggested as much, with around 74% of treasury professionals stating they were expecting to spend more time on compliance this year than in 2014, and are needing to dedicate extra resources to dealing with regulatory requirements.

Regulation is then, unquestionably, a challenge for everyone in the treasury profession. What it is also known, however, but often forgotten, is that regulation – whether we agree with it or not – is often a game changer. And when the rules of the game change, opportunities present themselves which companies can, regrettably, let slip if they approach the project with the wrong mind-set.

One treasurer, for instance, told Treasury Today that in his experience, certain compliance projects have presented opportunities to put in place the structures that would turn around a loss-making business to a profit. But those opportunities were missed, he says, because of protestations from senior executives.

But there have been examples in recent years of corporate treasuries who have taken a better approach to compliance, and as a result, have been able to transform such projects from necessary but valueless ‘box checking’ exercises into springboards for improving treasury operations and broader business decision making. Two of this year’s Treasury Today Adam Smith Award winners, the French pharmaceutical multinational Sanofi, and US healthcare insurer Health Care Service Corporation (HCSC) offer examples of the benefits of this approach. The two companies faced different compliance challenges: for Sanofi’s treasury it was the issue of sanctions, while at HCSC it was the US Affordable Healthcare Act; both treasuries, however, responded to their respective challenges in ways that are demonstrative of best practice for compliance projects.

Avoiding the blacklisted

In 2013, the Sanofi European Treasury Centre (SETC) began deploying a payment factory: a project that, according to the SETC, was to have a very strong focus on fulfilling the highest standards in terms of compliance, security and internal controls.

Treasurers have had to get increasingly sanctions-wise over the past year. Although economic sanctions are by no means a new phenomenon, businesses are typically more accustomed to bans on doing business with parties in places like Iran, Cuba or North Korea. The introduction of sanctions in 2014 on Russia by the US and Europe – the first time sanctions had ever been imposed on a G10 economy – naturally brought the issue into the forefront of treasurers’ minds.

That was why Sanofi decided that, in addition to efforts to improve the efficiency of bank master data management through centralisation, a second pillar of the payment factory project would to be introduce a restricted party screening solution, developed in order to ensure Sanofi does not enter into business with ‘blacklisted’ or sanctioned parties. This applies at both a master data (in the ERP) and payment factory level. In doing so, the group has not only improved compliance (avoiding potentially heavy fines and, not to mention, reputational damage) but also automated what was becoming an increasingly time consuming task, allowing treasury resources to now be redeployed on to other, more value generating activities.

“The key risk related areas that we needed to address were improvements in terms of compliance, internal control and security,” says Wolfgang Weber, General Manager and Head of Sanofi In-House Bank. “Through automation of processes that were (partly) done manually before, we are now less error prone and can make better use of our resources within accounting and treasury teams throughout the organisation. Given a global environment where regulations and constraints become increasingly tighter, locating these tasks in the Group payment factory and mobilising resources to build robust infrastructures bring additional added-value for the entire group.”

Leveraging industry regulation

Another ambitious project was undertaken by HCSC in response to the introduction of the US Affordable Healthcare Act, otherwise known as ‘Obama Care’ that was passed in 2010 and came into effect in 2014. Against this shifting regulation, HCSC treasury prepared proactively to anticipate transformative change in the industry looking at, not just achieving compliance, but how the project could be used to radically reshape the department and its priorities.

“The company’s treasury organisation launched its own plan to evolve from a process-orientated treasury function to a consultative think-tank treasury function focused more towards problem solving throughout the business and bringing value-added treasury solutions to our internal stakeholders and process partners,” says David T. Deranek, Senior Manager of Treasury Operations and Control at HCSC.

The catalyst for this change involved multiple projects that focused on creating a leveraged and customised TMS tool that would centralise all treasury activity from over 14 bank portals and over 150 bank accounts, eliminate Excel-based uploaded accounting process and automate manually intensive transactions, accounting, and reporting. Further, the TMS would provide the basis for a forecasting tool to more efficiently manage working capital and thereby increase incremental returns on the $10bn investment portfolio.

HCSC treasury decided that in order to improve its ability to manage liquidity and properly support the company in a changing healthcare industry environment, it needed to re-engineer how it administered its treasury operations. In addition, centralisation of company treasury functions across their member Blue Cross Blue Shield organisations, including over 30 subsidiaries, made this task to reformulate treasury’s working model absolutely essential.

The HCSC treasury team faced a crossroads to accomplish more through automation and therefore participate in transformational healthcare industry change via their role as financial consultants for the business enterprise. Treasury leadership determined that a fully leveraged and automated solution was imperative. A new working model was required to replace the multiple stand-alone systems – none of which communicated with one another, resulting in manual keying of data multiple times, creating data integrity concerns and requiring additional resources. Due to the disjointed technology infrastructure, management also had limited ability to obtain and analyse key treasury data soundly, efficiently, and reliably. In short, it was clear that all cash and liquidity management processes, together with the deployment of talent resources, needed to be re-engineered.

HCSC treasury department’s transformation project is a unique combination of technology, process and talent improvements. And today, HCSC treasury is now a centralised department supporting all five state plans (Illinois, Texas, Oklahoma, Montana, and New Mexico) of Blue Cross Blue Shield including its 30 plus subsidiaries and 20,000 employees. “Principal to our success is that the new treasury operations working model established comprehensive, enterprise services now centralised out of our Chicago headquarters with no duplication of treasury services in its member business units or subsidiaries,” explains Deranek.

Throughout the course of the project, HCSC treasury team was restructured from 2011 through to 2014, to comprise 15 diverse professionals that include advanced graduate and undergraduate degrees, CPAs, CFAs, CTPs, and have backgrounds in banking, finance, tax, investing, accounting, and IT. Deranek notes: “Together we comprise a dynamic and balanced team of subject matter experts that have been a guiding force behind a centralised treasury organisation modelled to emulate a centralised financial services model.”

Also, by reducing 86% of the treasury staff’s daily manual transaction volume through automation, treasury has transformed itself into a knowledge centre of subject matter experts who are much more nimble to participate in enterprise wide project teams that bring value where it was previously missing. In 2014, treasury operations consulted on no less than 150 cross functional initiatives ranging from the Affordable Health Care Act, Industry Prompt Payment requirements, OSC outsourcing initiatives, business unit profitability and enhanced investment returns to Medicaid payment regulation and cash forecasting. Previous participation on such projects was typically limited to the directors and treasury consultants.

Another important aspect of the success of this transformation project is the close development and understanding of requirements necessary between treasury, IT, and HCSC’s banking partners, including Bank of America Merrill Lynch. Because of this, HCSC treasury processes have reached a high level of functional performance and automation, which not only creates seamless transparency of transaction flow for treasury but also cultivates an environment of continuous improvement.

Worth the effort

Perhaps the principal reason why treasurers are becoming so exasperated with the growing regulatory burden they are finding themselves under is, as the Treasury Today Benchmarking Study results suggest, a pervasive sense that each compliance project undertaken is a mere box ticking exercise of little business value.

The danger for treasurers, however, is that this becomes a self-fulfilling prophecy. As the above examples have shown, there are other ways of thinking about compliance. Those treasurers who feel they are automatically sure each time a new regulatory requirement is introduced that attaining compliance is going to be a difficult and an ultimately worthless exercise from a business perspective may not notice opportunities, like Sanofi or HCSC did, to improve the efficiency of a particular process or even radically overhaul the entire treasury function.

Treasurers have a very limited scope to influence the development of the regulatory environments in which they operate. What they can control, of course, is how well they respond to such developments.