FIS Blog

Updated Treasury Technology Helps Comply with Regulations

Andrew Bateman | Wednesday, August 17, 2016

Keeping up with regulatory change can be one of treasurer’s biggest frustrations. According to survey results in a recent white paper, Treasury Technology – Six-step Guide to Gaining Sophistication Through Simplification, “the second biggest group of participants, 20 percent, identified regulation as their biggest challenge in the coming year.

Processes and reporting that were previously highly automated suddenly have exceptions and workarounds, while treasury policy may be pulled towards “easier” compliance rather than the needs of the business. However, often this is because treasury technology is not being maintained in line with new and updated functionality that is available. A quick run through the list of current or forthcoming financial regulations reveals more than 50 regional or global changes that treasurers will need to contend with, in addition to local regulations in the countries in which they do business.

In many cases, corporate treasurers are not the target of new regulations, but they still need to manage the impact. A key example is Basel III, identified by a third of participants in a survey featured in the white paper as their biggest regulatory concern. As banks comply with capital and liquidity ratios, treasurers are likely to see a change in both products and pricing for borrowing, investment and the management of operational flows, such as notional pooling.

Although the aim of Basel III is to increase the resilience of the banking sector, the impact of Basel III and specifically the liquidity coverage ratio (LCR) is already being felt by treasurers. From our conversations with clients, the two issues that treasurers are most concerned about are the re-pricing or replacement of notional pooling programs, particularly where multiple entities are involved, and banks’ reduced appetite for non-operating deposits of less than 30 days. While the situation is not yet clear, some treasurers may need to replace notional pools, whether because they are no longer available or not cost-effective. From a cash investment perspective, although new “LCR friendly” deposits are already emerging, treasurers’ ability to invest for 31 days or more is often hampered by inaccurate forecasting or short term liquidity requirements. Some treasurers will overcome this by using instruments such as money market funds (MMFs) but these too are subject to regulatory change, initially in the U.S. but ultimately in Europe and other regions too.

There are solutions, and indeed opportunities, for treasurers that are able to take an integrated view of liquidity that incorporates both cash pooling and cash investment. For example, by optimizing the use of cash pooling and other liquidity management techniques, treasurers can use surplus cash to offset borrowing requirements across the group more effectively. This is a more cost-effective means of using cash than investing in deposits or other cash investment instruments given the low or negative interest rates. To do this effectively, treasurers need visibility over balances and exposures across the business, and the ability to forecast with a high degree of accuracy. This requires automated communication with all partner banks, sophisticated treasury management solutions and seamless integration with the wider business.

It is not only Basel III where the right technology plays a crucial role. In order to comply with changing demands in the way that hedging instruments are reported, support revised MMF instruments and be in a position to adopt new investment instruments, treasurers need to maintain their technology in line with the latest versions. This is often easier when companies move their treasury operations to a SaaS or private cloud model with services wrapped around the technology. By keeping up to date, whilst also making sure that treasury solutions are being used in the best way possible, treasurers can comply with regulatory change, without adding to the financial or business cost of compliance.


Tagged in: Cloud Computing, Treasury Technology, Corporate Solutions

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