Is your treasury function fit for the future or fashioned in the past?

By

Karsten Füser

EY Global and EY EMEIA Financial Accounting Advisory Services and Climate Change and Sustainability Services Markets Leader

Outcome-driven leader. Client-focused advisor. Supporting businesses with innovative solutions for a complex and changing world. Enjoys outdoor pursuits and the countryside. Family man.

5 minute read 8 Feb 2019

Many treasury functions are taking on additional activities and increasing their strategic importance. Is your corporate treasury evolving fast enough to keep up?

The strategic importance of the treasury management function has increased steadily over the past few years. As treasury organizations grow in significance, they are also having to respond to the increasing pace of disruptive change.

Disruption comes in the form of global political uncertainty, geopolitical tensions, greater protectionism, unexpected currency movements, rising debt and interest rates, tax reforms, market consolidation and new ways of conducting business enabled by technology and virtual currencies. At the same time, organizations have come under pressure from shareholders and regulators to increase transparency and improve financial performance.

In such an environment, it is crucial to have a scalable and clearly defined target for the corporate treasury function, as well as a forward-looking governance structure. Many organizations are at the start of this transformation, and are searching for guidance on the operating model of the future.

Reshaping the global treasury landscape

The following global market developments could help to define the future working model of the treasury function:

The future workplace — improving enterprise integration

Automation offers great potential for driving transformation in an organization: from cost savings and increased delivery speed, to new operating models, and higher-value activities for employees. Organizations should focus on getting automation right to position the treasury function as the custodian for fully integrating the finance function with the core business. This can be supported by advanced human and machine collaboration.

Technology and digital

With the growing demand to adopt new and emerging technologies, organizations are feeling the pressure to adapt to digital and be seen utilizing the latest innovations. Treasurers and CFOs are taking a practical perspective on short- and long-term opportunities that help build on the implementation of a treasury management system.

Transaction risk

The increasing number of frauds related to financial transactions require banks to leverage technology, data and new ways of thinking, shifting their focus away from compliance to preventing and disrupting fraudulent activities in a more proactive way.

Tax reform

Initiatives, such as Base Erosion and Profit Shifting and the move from worldwide taxation systems for businesses to territorial systems in the US and the other G7 member countries are shaping international corporate tax regimes. These initiatives could be a game changer, forcing businesses to rethink their strategies.

London Interbank Offered Rate (LIBOR) change

The replacement of LIBOR by an Alternative Reference Rate could affect every corporate treasury function dealing with dimensions linked to these rates. The effects can be significant and can influence broad parts of the treasury function.

Corporate M&A outlook

Business leaders expect huge growth in the global M&A market in the near future. An increase in M&A activity will likely require corporate treasurers to manage the funding and liquidity needs of a more complex organization and establish integrated operations.

The treasury function is one of the most critical functions of the business and will continue to be so for the foreseeable future.
Paul DeCrane
EY Global Treasury Services Leader

Is your treasury function evolving fast enough to keep up?

To address the challenges of our fast-changing world, the treasury function is expected to support the execution of the broader business strategy through a variety of initiatives.

Automating treasury

In a changing technological landscape, treasury functions can help their organizations streamline processes to gain efficiency, lower costs and enhance control levels through automation. Keeping up-to-date with new developments driven by FinTech companies and the standardization, coordination and simplification of treasury processes are crucial to support daily business. Developing a clear and progressive treasury IT-road map, confirming that system interfaces work seamlessly and creating a maturity review of the existing landscape are a few ways to improve the treasury management function.

Managing accounting and controls

Changes in accounting and reporting standards have an immediate effect on the treasury function. Organizations should understand and apply the appropriate accounting methods to manage businesses globally as well as domestically.

Transforming treasury operations

It is important to establish a robust organizational structure with a clearly defined and forward-looking governance model. Several strategic roles could be adopted by the treasury department, which include moving away from acting as a cost center and becoming a value-adding service center, improving working capital management, and implementing automation to make the transaction process more efficient.

Executing corporate transactions

Organizations continue to pursue strategic transactions to enter new markets, expand product lines, rebalance business portfolios, sell non-core assets and improve operating models. Treasury functions are increasingly involved in identifying, planning and executing these strategic transactions. This requires a combination of treasury technical knowledge, experience in executing strategic transactions, availability of already scarce resources to support each transaction, integration with other functions, and an effective project management approach. Not being able to meet these requirements can result in missed opportunities to boost company value.

Leveraging treasury analytics

In an ongoing era of risk and uncertainty, insufficient identification, monitoring and management of market price risks can result in volatile financial results, financial loss and reputational damage. The treasury function is uniquely positioned to address these risks by leveraging analytical tools. This helps protect assets, inform business decisions, unlock cash, finance the business and invest cash.

Evaluating specialty treasury activities

The treasury function is increasingly taking on new responsibilities, such as establishing payment entities, factoring receivables, or managing benefit plans and real estate portfolios. In this situation, it is critical to identify opportunities to improve the value the function can create, and work toward establishing the necessary capabilities.

When making decisions about your treasury department’s objectives, it is important to consider the impact of each decision on both the function and the organization as a whole. The treasury function is what provides the visibility into liquidity positions, settlements, forecasts, exposures and risk management of an organization. It is one of the most critical functions of the business and will continue to be so for the foreseeable future.

Summary

It is crucial to have a forward-looking governance structure for the treasury management function in times of increased disruption. Many organizations are at the start of this transformation, and are searching for guidance on the operating model of the future.

About this article

By

Karsten Füser

EY Global and EY EMEIA Financial Accounting Advisory Services and Climate Change and Sustainability Services Markets Leader

Outcome-driven leader. Client-focused advisor. Supporting businesses with innovative solutions for a complex and changing world. Enjoys outdoor pursuits and the countryside. Family man.