Smart Cash turns spotlight on risk, liquidity and the economy

At the 2018 Smart Cash Management Conference, speakers and panellists discussed core concerns for treasurers

Cyber risk and fraud prevention

Preventing fraud and improving defences against cyberattacks have long since moved up the agenda for corporate treasurers. The statistics are alarming.

Delegates at this year’s Smart Cash Management Conference heard that 76% of UK organisations have been subject to some kind of cyberattack, while only 24% have taken out an accredited form of insurance. In the UK, cybercriminals have successfully made off with over £1bn and possibly much more.

Email impersonation continues to be a favoured method. Increasingly, criminals arm themselves with detailed knowledge of their target organisations, right down to personal information gathered from social media platforms.

Innovation is always a double-edged sword. Later in 2018, cheque imaging and the faster clearing cycles this will bring is likely to represent an opportunity for cybercriminals in the short term, while Open Banking raises the possibility of fraudsters registering shadow organisations as fake payment initiation service providers.

Against this barrage, keeping up with the latest intelligence and security innovations becomes paramount, as does ensuring that members of staff are protected. The methods hackers use are highly credible and sophisticated. Ensuring everyone understands internal processes and encouraging them to challenge anything untoward remains paramount.

Liquidity and risk

Ten years on from the financial crisis, and corporate treasurers and their banks continue to wrestle with a legacy of liquidity challenges, many of them brought about by bank regulation.

The viability of short-term deposits has been eroded and the ongoing march of regulation – most recently around money market funds, for instance – continues to add complexity. However, with interest rates gradually ticking upwards and an improvement in market sentiment, the balance between security and the search for yield may at last be starting to shift.

Participating in group discussions on liquidity, delegates reported that some risk areas remain fairly intractable. Counterparty credit risk is a case in, along with concentration risk. Making careful choices about banking providers and allocation of business is still a priority.

One upside to the financial crisis, however, has been the increased influence of treasury around the business. Difficult times have made the job of persuading subsidiaries or business divisions to flow funds back to the centre a little easier, one delegate reported. However, the search for clear and accurate financial information from the wider business can still be a challenge, according to another.

Regulation and fintech

The swathes of banking and financial regulation that came into being after the financial crisis have played a significant role in bringing the fintech sector into being.

Notwithstanding a phenomenal pace of change within the technology sector itself, without that regulation – and the challenges it has brought for financial institutions and non-financial corporates alike – fintechs would likely not have taken hold the way they have.

As fintech matures, we are seeing a polarisation within the banking market between organisations that can leverage new technology to innovate and grow and those who find such changes difficult to achieve.

And while many of the more visible success stories have occurred in the consumer space, it is only a matter of time before fintech players have sufficient credibility and financial firepower to start addressing the needs of the corporate treasurer more widely than the FX solutions we have seen so far.

Bank relationships

A panel discussion on the relationship between corporates and their banks sketched out wider implications than merely having the right products at the right price. Bankers who show willing and go the extra mile on relationship building and problem-solving were the ones who drew plaudits.

Three of the areas highlighted were:

  • detailed knowledge of a customer, including its industry, its drivers and its objectives;
  • impeccable customer service, including a desire to work to resolve a corporate treasurer’s issues; and
  • a willingness to network with treasury staff at all levels.

Corporate treasurers also want relationships with bankers who will work with them in the bad times as well as when things are going well. The real test, one panel member said, of how solid a bank-corporate relationship was, is how a bank reacts when things are not going to plan.

Both banks and corporate treasurers are aware of the need to play the long game. One member of the panel praised those banking contacts willing to maintain relationships even in the absence of formal arrangements. Having those banks in reserve can be helpful if other banks withdraw from particular territories or lines of business.

Economic headwinds

Keynote speaker Amit Kara, head of UK macroeconomic forecasting at the National Institute of Economic and Social Research, gave an assessment of the UK’s prospects as Brexit draws closer.

The majority of forecasters have noted a gradual uptick in the global economy, with many upgrading previous assessments on the back of continued good momentum. However, the UK faces uncertainty on a number of fronts: productivity performance remains puzzlingly sluggish and there are signs of potential wage inflation in the UK. The prospect of wages rising above productivity growth remains a core risk.

 The viability of short-term deposits has been eroded and the ongoing march of regulation continues to add complexity 

The UK’s trade sector is expected to make a positive contribution to economic growth this year and next, Kara said, as it continues to take advantage of a weaker-than-usual currency value. The outcome of Brexit negotiations would be key, he said.

A bespoke arrangement with the EU was possible, but would require a trade-off in terms of access to the EU market, the loss of the UK’s net financial contribution and the freedom of labour movement.

The Norwegian, Swiss and Canadian trading relationships with the EU have all been thoroughly debated. The Norwegian and Swiss models retain a significant freedom of labour movement element, while the Canadian model involves a much more restricted access to the EU market. An alternative outcome remains in the hands of the politicians.

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