Optimising cash management; getting into the nuts and bolts of treasury standards 

Key takeaways

Held against the backdrop of March’s banking sector turbulence, the ACT Cash Management Conference 2023 delivered a timely forum for corporate treasury professionals. It highlighted the following:

• The importance of treasury to organisations’ cash management and overview of working capital – and, in particular, how they affect the overall performance and resilience of organisations in challenging periods.
  
• The growing value and significance of treasury being involved in the wider aspects of the organisation, as technological transformation and regulatory change impact on the corporate financial/cash management landscape.
  
• With challenging economic conditions of high interest rates, inflation and volatile FX markets, the value of the treasurer across the business was emphasised around recurring themes of security, liquidity and returns.
  
• The positive effects of applying new and existing technology in the treasury space, and how it could support the business to improve key aspects, such as cash forecasting, FX risk management, liquidity management and reducing counterparty risk – particularly important in the current economic environment, where treasurers find themselves at the sharp end of risk management.
  
• Technology and the evolving role of treasury provided an important focus, particularly around how technological solutions can support treasurers to meet corporate objectives, and how this evolution is impacting on the treasury team and its decision-making processes.
  
• The opportunity presented by major system upgrades, and how treasurers can work more closely with colleagues across the business to develop new solutions that meet the needs of customers for payment options, but that also crucially integrate fully with the organisation’s needs from a treasury management perspective. “It’s about visibility and control,” said Srini Kasturi, Barclays’ Global Head of Digital and Platforms emphasising how these were vital in evolving the business.
  
• The digitalisation and real-time data in cash management offers enhanced insights that can be used across the business. Visibility of cash balances instantly allows treasurers to focus on fixing issues and taking important forward-looking decisions.

Digital pound

From a broader technology perspective, there was discussion around treasurers having an input into the design and possible implementation of a central bank digital currency. This underlined the key role treasury plays in business planning, and the hope of ensuring the proposed ‘digital pound’ is fit for purpose. This means businesses not only prepare for the payment change, but also have a say on what it will look like.

There was also focus on ISO 20022, the new intelligent payment-routing standard that describes a common platform for the development of messages to be used by all financial standards initiatives. The standard, which is being implemented in the UK and globally this year, will facilitate new faster payment rails across the world, delivering huge benefits for organisations and their customers. That richer data environment opens up a new area of digitisation potential for treasurers and the wider business.

Security and protection

Scott Thorpe, Director of Cyber Operations at Barclays, delivered a cybersecurity update, with a reminder of the role treasurers have to play in preparing businesses for the ever-evolving cyber-threat landscape.

Cryptocurrency theft is one of the key emerging threats that organisations and marketplaces face, while cyber attacks – including data encryption and extortion – pose serious and growing risks. Proactive risk management of these increasingly complex cyber threats is vital, and organisations should look to mitigate zero-day vulnerabilities and prepare remediation measures against possible cyber attacks. Treasurers should determine what steps could be taken to stay ahead of the criminals. Cybersecurity threats are continually changing, so they need to be mapped consistently so organisations can prioritise threats and vulnerabilities, and invest accordingly to ensure measures are in place.

Organisations should also develop procedures for decision-making should security be compromised, creating outages, or the organisation faces ransomware/extortion breaches.

Liquidity optimisation

Another immediate, if more conventional, challenge for organisations, is protecting cash in a high interest rate and inflationary environment. While opportunities exist for additional returns, treasurers need to ensure additional security at the same time, adapting policies and strategies to reflect the macroeconomic environment. The session covered anomalies in the yield curve and the implications for investors in optimising liquidity and rates of return – while minimising risks – over different timescales through a portfolio of instruments.

In the context of the recent banking turmoil in the US and Europe, risk management – particularly counterparty risk in the current environment – is vitally important in establishing the security of investments. Developing a multiple-period investment strategy that can adapt to potential changes in monetary policy, while maintaining liquidity and, crucially, protecting cash assets is vital. Such a strategy includes mitigating counterparty risk by diversifying deposits in multiple banks, rather than consolidating them with single-relationship banks.

While bringing together the themes of technology and the latest developments affecting the work of treasury, the event underlined how the profile of treasury has been raised with the unanticipated turmoil of the banking sector. It highlighted again the vital role of treasury to carry out its basic functions well, and have robust policies and good risk management plans in place to reduce exposure to third parties. 

Conference chair Fiona Crisp, Director of Crisp Consultants and past President of the ACT, concluded: “Now is the time to test and update your treasury policies, and ensure they are flexible and relevant in this changing business environment.”

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