Opening the ACT Annual Conference, Sir Ivan Rogers, the UK’s former permanent representative to the EU, gave an informed view of Brexit negotiations to date and his sense of the hurdles still to be overcome.
The next stage of the negotiations would be critical, he said, with pressure building from the EU27 leaders for negotiators to make progress on a credible framework for the UK’s future relationship with the EU by the autumn.
Without a solution to the Irish border question, the provisional agreement on a standstill transition running until 2020 would collapse, he said, leading to the hardest of hard Brexits.
Corporates increasingly need breadth and depth of liquidity in the territories in which they operate
Collapse remains unlikely, he argued, but not impossible, and crucial choices around the customs union could not be avoided forever.
The customs union has, Sir Ivan argued, become the focus for debate, even though it is not the most significant issue within Brexit in economic terms.
Lobbyists representing key manufacturing sectors, including the auto, aerospace, pharmaceutical and chemical industries, are increasingly making their position heard in Westminster, emphasising their need to remain closely integrated in the EU market and aligned with its rules and standards.
There was, he said, little economic upside in removing that alignment, and considerable friction would result from upending it.
A panel discussion on a conference essential – cybersecurity – identified some important dos and don’ts for treasurers – such as:
1. Do look at cybersecurity from a business point of view and as a security threat, rather than specifically as an IT issue. Financial criminals will always target businesses. Cyber is one means of doing that, albeit an increasingly significant one.
2. Do remember that your weapons against cyberthreats will be education and awareness. So establish your policy and educate your staff, enforcing the controls and procedures you set out.
3. Don’t forget about the risk that might exist within your supply chain. An outage at a key supplier caused by a cyber breach could lead to significant damage to profit and even to reputation longer term.
This is a key area for the treasurer’s remit that touches on the need to maintain an overview of funding and debt management across the business. As a risk management point, treasurers should look at third parties and partners, and ask who the business is dependent on. Would a single point of failure represent significant risk?
And finally…
4. Don’t forget that treasury – with its large transactions, many of them cross-border – represents something of a golden prize for fraudsters.
The payment landscape is developing at different speeds and with differing levels of effectiveness, depending on where in the world you operate, delegates attending the cash management session heard.
While the UK and Europe might be considered quite evolved in terms of payment infrastructure, the US and other jurisdictions lag behind in key respects.
The role that banks and fintechs can play within this environment is collaborative, Nick Haslehurst, chief financial and operating officer of Moneycorp, argued.
And integration is critical: corporates increasingly need breadth and depth of liquidity in the territories in which they operate.
Catherine Porter, EMEA treasury director at commercial real estate services and investment firm CBRE, set out an overview of her approach to streamlining the cash management function.
Increased ease around payment products and the capacity to switch providers has worked very well for individuals
It would enable her to maximise effectiveness within short-term cash management; close down those aspects of the existing framework that would not fit with future technology, such as one particular cash pool; and apply best-in-class aspects of cash management achieved via acquisitions to legacy businesses.
Graham Taylor, assistant treasurer at Vodafone, explained the history of adopting SAP, implementing a Single Euro Payments Area direct debit hub and moving to a shared service centre model, while working towards an overhaul of Vodafone’s payment landscape incorporating PoBo, rationalisation of bank accounts and a single view of global bank account balances and mandates.
A panel of economists evaluated current indications in the global environment and tried their hands at some predictions for the near and mid-term.
Among the issues flagged by the panellists was the prospect of inflation in the US as a notable risk to global growth. Full employment and the recent tax cuts put it firmly on the table.
Inflationary pressures would make the significant levels of debt within the global economy difficult to service, might be exacerbated by protectionist policies and the combination could dampen investor sentiment.
While it would take a significant disruption to derail US growth, the increases in interest rates were reckoned to continue. The Fed needs some dry powder for the next downturn.
The prospect of growth in the eurozone bottoming out was also highlighted. With difficulties continuing in Italy, Spain and Portugal, Italy’s new populist and untested coalition government only increases the sense of uncertainty.
Brexit, of course, remains one of those uncertainties and additionally serves to divert attention away from other important issues in the UK economic environment, such as the housing market or public service funding for an ageing population.
A discussion about the pressures that smaller treasury functions face highlighted the highs and lows in the lives of a small team.
The range of tasks tackled by smaller treasuries is often exactly the same as those within a bigger organisation, explained one panel member.
That often means that treasurers in smaller functions are not experts or specialists in any one functional area. They are able to take on debt, FX and cash management – but without a team of analysts to review products.
There can also be a recognition issue for smaller treasuries, especially in the current low interest rate environment, where the function is seen as a cost rather than a value add.
More positively, these treasurers will come to the fore and find their profile improving when their organisations become acquisitive. At this point, the treasury team’s ability to manage debt across the business becomes more apparent.
Smaller treasuries may also find themselves in a position to highlight their worth by identifying the hidden FX costs within the supply chain, albeit this task can
be difficult to achieve without automation.
How businesses manage the Earth’s resources has become one of our most pressing issues, with governments almost competing on setting limits and targets on energy and natural resource consumption.
Now, the concept of climate risk is becoming central to financial equations, and sustainable (including green) finance is gaining ground and increasingly priced above, or on a par with, mainstream investments.
Ines Faden da Silva, deputy treasurer at water and waste company Tideway, which recently raised £775m in green bonds, is the largest issuer of green bonds in the UK.
She described the decision-making behind Tideway’s issues and explained that the policy drivers included the alignment of the financing plan with the company’s sustainability principles and reaching a wider universe of investors.
Adam Richford, group treasurer at recycling company Renewi, the first issuers with a bond listed on the London Stock Exchange green segment, meanwhile, explained the match between Renewi’s activities and the Green Bond Principles, the fundamental governance behind green bond issuance.
In a panel discussion on the future demise of Libor as a reference rate, Sarah John, head of sterling markets division at the Bank of England, explained the low transaction volumes behind Libor and its lack of viability as a reference rate – aside from its loss of credibility in the wake of the financial crisis.
Nevertheless, a misconception persists that Libor will continue to be used beyond 2021.
Frances Hinden, vice president, treasury operations at Shell and a member of the Risk Free Rate Working Group, warned against ignoring the coming ending of the use of Libor and argued that once the considerable pain of transitioning to an alternative was worked through, corporates would find themselves in a much better place.
Three-month Libor is not a strong facility on which to base corporate funding.
The immediate practicalities are around the reference rates within existing contracts that go out beyond 2021, said Tom Gilliam, corporate finance director at GSK.
If existing contracts have no language around what will happen to those contracts beyond that date, then corporates would need to look for measures to either reference an alternative benchmark rate such as SONIA or to update the contracts to include fallback language covering the possibility that Libor will no longer be published.
In a session dedicated to changes within the banking landscape, a panel explored potential benefits to corporate treasurers arising from the EU’s payment services directive and the UK’s Open Banking initiative.
The Second Payment Services Directive (PSD2) is set to bring improved transparency, as payments going out of the EU will be required to have transparency on cost, opening the way to better management of one-leg-out payments.
Increased ease around payment products and the capacity to switch providers has worked very well for individuals and will now have benefits for businesses, the audience heard.
In addition, the introduction of account information service providers will deliver three years’ worth of credit data to lenders, making them better placed to improve lending decisions.
While many of the ramifications appear aimed at making life easier for consumers and SMEs, the treasurers on the panel could see some benefits for corporates, including the potential to access multiple bank accounts on one platform and more steps towards real-time visibility on balances.
When we think about the essential features of high-performing organisations, strong leadership is what first springs to mind. And yet, defining good leadership, breaking it down into its key components, often defeats us.
A good job then that the conference marshalled a panel of experts, led by consultant Andrew Wood of HCubed, to discuss and elaborate on the distinguishing marks of good leaders.
Among the qualities they identified was the sensor. Strong leaders either are, or know, who the sensor is in their organisation – the individual who plugs in to what is going on within and outside the business, and acts as the eyes and ears of the company.
They have a highly developed awareness of their relationships and networks, along with a recognition of those areas in which they themselves need support and expertise.
They practise touch empathy, which means they look to address the needs of the business and individuals within it rather than their wants or feelings.
And they bring a unique value to the organisation, in that they are mindful of what makes up their personal brand.
Green bonds are no longer a niche area of the bond market. Stated at ACT Annual conference @actupdate #ACTAC18 — Michelle Price (@michellehprice) May 16, 2018
The cost of treasury is one of the most hidden costs in an organisation? Interesting point @actupdate #ACTAC18 — caroline stockmann (@carolinesSCI) May 15, 2018
RISE OF THE HUMANS! @dcoplin Chief Envisioning Officer closing #ACTAC18 : what you need is someone who can ask the right questions...not a computer! Only then can you unleash the power technology has to offer. @actupdate #treasury pic.twitter.com/qNunSmthDd — Jonathan Bates (@jhbb) May 16, 2018
The ongoing uncertainty surrounding #Brexit was of great concern at this year's @actupdate #ACTAC18 pic.twitter.com/AjRb2tlrXy — NatWest Commercial (@NatWestComm) July 10, 2018
Click here for further conference highlights from ACT speaker’s chair Peter Matza.
Liz Loxton is editor of The Treasurer
This article was taken from the August/September 2018 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership