FIS Blog

What’s your treasury risk battle plan for 2017?

Andrew Bateman | Wednesday, December 21, 2016

Risk is inherent in every action we take – or don’t take – but these risks need to be calculated and the potential outcomes understood. This is where treasury plays a critical role: not to prevent the company from taking financial risks, but to make sure that they are understood, measured and balanced against potential benefits.

Although identifying, measuring, monitoring and potentially hedging risk has always been an inherent element of a treasurer’s role, the priority and immediacy of different types of treasury risk have changed over time. So while FX, interest rate, commodity, credit and operational risks are all similar, today’s increasing cybersecurity threats, plus the market volatility triggered by the fragile and unpredictable geopolitical trends we’ve recently experienced are totally unlike the risks treasurers faced as recently as a decade ago.

The speed and unpredictability of market change, as well as the increased risk scrutiny at both the board and regulatory level, mean that treasurers must now be more proactive in reviewing and refining treasury risk policies; Risk reporting and decision making must also evolve with market conditions evolve. No longer is it acceptable to produce a risk report a week after a board request. Similarly, treasurers need to be able to explain and monitor the effectiveness of hedging decisions as key events unfold, often very rapidly.

New risks, particularly around fraud and cybersecurity, are emerging so quickly that the rule book cannot be written fast enough. These risks extend beyond treasury, but given the value of transactions and the sensitivity of information that treasurers handle, they must be addressed. (I’ll discuss these risks and important organizational efforts to identify and minimize them in my next blog.)

In this environment, the most effective treasury functions are those equipped with the right skills, policies and treasury and risk management technology, as FIS’ recent Risk & Regulations Management Study 2016 outlines. These treasury management systems are not there to predict the unpredictable like political outcomes or the Brexit referendum outcomes. What these tools do offer, however, is the ability to identify, monitor and support risk decision-making by enforcing effective processes and controls, providing visibility over risks and the effectiveness of hedging decisions, and enabling sophisticated risk analytics.

As we move into a new year with new risks, challenges and opportunities, treasurers must consider whether they have the right skills, policies and technology to support their businesses through periods of major volatility. Furthermore, how well-equipped are they to provide prompt, accurate information on group liquidity and risk? Without full confidence in these issues, treasurers are entering the risk battle unprepared and unarmed.


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