Treasury Practice

Future-proofing the treasury department in an uncertain world

Published: Oct 2015

The role of the corporate treasury has evolved exponentially since the global financial crisis. Circumstance alone has not pushed treasury in this direction of change, treasurers themselves have stepped up, utilising new technology to protect the business from financial and operational risks. But, as recent market volatility has demonstrated, treasurers need to stay agile and must ensure they have the correct tools to meet any challenge, both today and in the future. In this article, Sanjeev Chatrath, Managing Director, Asia Pacific & Japan, Financial & Risk at Thomson Reuters, discusses how corporates operating in Asia and beyond can best prepare themselves to meet these challenges and the tools that they have at their disposal.

Sanjeev ChatratSanjeev Chatrath

Region Head and Managing Director

Sanjeev Chatrath is the Region Head and Managing Director for Thomson Reuters Financial & Risk (F&R) business covering Asia Pacific and Japan. He is responsible for client business in the region encompassing end-to-end client experience, account management, market development, go-to-market regional strategy, sales, operations, and technical functions. Sanjeev is a member of the Global Operating Committee for Thomson Reuters, and Global Executive Leadership Team for F&R.

Sanjeev has worked in Asian financial markets for almost two decades in leadership roles encompassing sales, client management and business management, spanning Asia Pacific, South Asia and Middle East.

What are the major risks that corporate treasurers face today and how is this impacting their priorities?

In recent months, both in Asia Pacific (APAC) and globally, there has been a significant amount of volatility in the market that has created numerous challenges for corporates. The stock market crash and macroeconomic slowdown globally have been well reported and brought to light uncertainties in the economy and heightened operational fears. There has also been the currency devaluation that has occurred across the region which has given corporates a different set of challenges to manage, as have the all-time lows and volatility that we have seen in the commodities market.

Heightened geopolitical risk in Asia is further adding to the list of concerns for corporates and the consequences of these transcend the region’s borders. Recent examples include the anxiety in the Korean Peninsula created by flashpoints between the North and South and political uncertainty in some of the region’s other markets, including Malaysia and Thailand. These events all raise questions for the corporate treasurer around what the potential impact might be to the onshore cash and assets that the business has and how to safeguard the same.

In market conditions such as these it is unsurprising that companies, which have enjoyed years of growth through expansion into new markets, have begun to refocus their attention on ‘sustainable’ growth. As a result of this change in focus, the role of the treasurer, the custodian for the company’s cash assets, has also changed in the face of these new market realities and become even more critical for the success of the organisation moving forward. Treasurers across the region are therefore now performing more strategic roles to help the organisation navigate through the plethora of risks that exist by leveraging new technology and ensuring that the treasury is nimble enough to respond to any future market events.

How has the recent market volatility demanded both a new approach to, and new tools for, FX risk management?

As a result of rising market volatility, we have seen many corporates proactively revisiting their policies to ensure that they have adequate room to manoeuvre when reacting to market events. This has given treasury the opportunity to step up and shield the business from currency movements where required – allowing business leaders to focus on their core objectives rather than FX.

With high volatility in the market, treasurers are increasingly recognising the need to leverage technology to allow their operation to be more resilient and agile so they can respond with pace. We have witnessed progressive corporates use innovative technology to process data and gain better visibility over their respective positions. Armed with this holistic view, the next step we are seeing many of these companies take is to pull leverage data from numerous external sources, including news wires and social networks, in order to analyse market sentiment, identify anomalies and allow for proactive decision making.

When executing on these decisions, technology once again has a vital role to play. Traditionally when conducting FX, corporates would interact with a pool of banks individually, either over the phone or through a proprietary portal, to obtain the best price for their trades. Today, however, this can be done using multibank platforms such as FXall. In these multibank venues both the buy side and the sell side come together allowing for more accurate, and efficient, price discovery. The solutions also allow treasurers to be much more nimble in their approach to FX, removing the need to pick up the phone and negotiate a deal. This can be particularly useful in times of market turmoil, for instance, when the Peoples Bank of China (PBoC) allowed the renminbi to fall on 11th August, FX transaction volumes on the FXall platform increased 600% because corporates knew this was a venue where they could tap the largest amount of dealers and obtain the best price.

Digital solutions are also proving crucial in ensuring that treasurers can meet the increasingly burdensome regulatory reporting requirements being placed upon them. By their very nature, these tools facilitate a digital workflow, providing treasurers with an automatic audit trail which they can then provide to the regulators. Moreover, by creating a digital workflow straight through processing (STP) and centralised FX risk management can be attained, enabling treasurers to ensure the groups FX activities are managed by experts, mitigating the risk of human error.

As corporate supply chains become increasingly global and complex, how can companies best create and maintain an efficient and scalable risk management framework?

In many respects the heightened FX risk faced by some companies is a result of their adventures into new markets and the growth, in both the scale and complexity, of their supply chains. Although this has, of course, provided corporates with numerous benefits, it has undoubtedly increased the concern around not only FX but also geo-political, counterparty and operational risk. Corporate treasurers have become progressively more involved in supporting the supply chain both financially and operationally.

Many firms have already consolidated their various local treasury activities into one regional treasury centre (RTC) or in-house bank (IHB) to act as a centre of excellence for multiple functions and allow them to employ the professionals needed to manage their policies and trade execution. It also allows them to streamline all their workflow, especially post trade confirmations, which reduces their operational risk and gives them greater control.

Examples of such behaviours are the establishment of RTCs in Singapore and Hong Kong. These two locations are extremely strategic for corporates wanting to expand in and have a control over their APAC subsidiaries. Depth of capital markets, ease of currency movement, availability of skilled labour and transparent liquidity venues all contribute to the attractiveness of these locations.

The continued expansions into new countries and new markets have exposed companies to new risks, that now treasurers have to handle as part of their role.

A major component of this is counterparty risk management. While many corporates will be well versed in this topic, given its importance during the financial crisis to track exposures to various financial institutions, the scope of their counterparty risk management requirements has grown exponentially to encompass any third party (know your third party – KYTP/KY3P) in the supply chain and even knowing your customer’s customer, given the rigorous enforcement of regulations governing Anti-Money Laundering (AML) and Counter Terrorist Financing. Of course, corporate supply chains can contain hundreds if not thousands of counterparties, both upstream and downstream, making KYC a nearly impossible task without assistance from technology. Similar to FX technology, digital KYTP and KYC tools are powered by data and when looking to adopt new solutions corporates are looking for providers they can trust to deliver the most reliable information in the fastest time.

As a leading provider of financial information and data, Thomson Reuters has developed a number of solutions for KYTP designed to help corporates fulfil their due diligence requirements and mitigate risk. Our Org ID service as an example, has been developed with input from numerous senior industry professionals including a number of corporate treasury professionals and facilitates a common standard around KYC and Know your Counterparty processes.

At a fundamental level these services can be used by corporates to screen their third parties, and warehouse and streamline the distribution of its client identity documents. This helps corporates have better risk management for third parties, centralise their KYC, eliminate a lot of the duplicate work that typically takes place and also simplify the process of updating and informing multiple counterparties of any changes to the documents.

For organisations looking for innovative and intelligent data solutions, Thomson Reuters also offers award winning World-Check One. With hundreds of researchers speaking multiple languages across 240 countries and territories, we have a detailed and in-depth insight into these markets and the key risks that exist. This can prove vital in helping the company effectively identify, monitor and pro-actively make decisions around heightened risk counterparties and possibly avoiding any unnecessary financial or reputational damage.

What role will treasury play in the future in APAC and how can technology help?

The term ‘the new normal’ is often cited during discussions around China’s attempts to deliver more sustainable and balanced growth and I often borrow this phrase when I talk about the role of the treasury. In my opinion there will be continued volatility in the markets. Regulation, both in-market and extra-territorial, will also continue to increase, making it crucial to understand its impact and make the necessary changes. This is the new normal and, unsurprisingly, against this backdrop, the role of the treasury department will become increasingly important.

To help treasurers meet these challenges, technology, and more precisely open (bank agnostic) technology, will need to be leveraged. And with the global and diverse nature of business today, it is no longer effective to be tied to endless proprietary systems, each with their own strengths and limitations. There is therefore an increasing demand for open technology and platforms as corporates continue to centralise their treasury function and manage their operations in the Asia region, and even the world, from a single treasury hub. This will give treasurers the ability to reduce their costs, harmonise processes, and offer the potential to drive further efficiency and ensure the corporate treasury is resilient and nimble enough to meet the challenges of both today and the future.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience.