Here in the policy and technical team at The Association of Corporate Treasurers (ACT), many topics pass across our desks.
They range from the huge – like Libor transition – to the niche, such as pensions, and from the slow burn – like ESG – to the immediate: European Market Infrastructure Regulation refit reforms.
We’ve put our heads together and come up with five things we feel that we’ll be spending time on in 2020…
It is almost 18 months since Andrew Bailey of the Financial Conduct Authority announced that Libor would be disappearing from our screens at the end of 2021.
The reasons behind this decision are well documented, but what the market continues to wrestle with is what to replace it with, and how to transition away from a benchmark referenced in contracts with nominal values of some $350 trillion.
While the frustration grows that banks are still not offering alternative financial markets products, nevertheless, corporates must take things into their own hands as far as possible.
What is now important to do is establish where Libor is used – and in particular where it is referenced in non-financial market contracts (so, commercial contracts, trade products, intercompany lending, valuation models, etc) and start to identify alternate reference rates to be used in these contexts.
Replacing Libor with a risk-free rate (RFR) may not be appropriate or desirable in many cases.
The official sector has stated there will be a forward-looking (term) rate available for use in certain cases (at least in GBP), but its arrival feels some way off yet – partly because the regulators do not want financial institutions to use it, as this would risk many of the challenges faced with Libor.
In reality, Libor transition will result in a fragmented market, increased cost and genuine litigation risk, but it’s not going away, so we need to wrestle it into a form that doesn’t adversely impact the real economy more than necessary.
As treasurers are taking a more strategic role in their organisations, concerns that impact the entire company are becoming a common topic of conversation among treasurers, particularly as they are in a unique position to garner knowledge from the wider financial community.
The past 12 months have seen dramatic increases in political instability, not only within certain countries such as Hong Kong and China, but also across borders.
In addition to the US facing off against a number of countries, there are other hotspots such as Japan and Korea that may impact business operations. And the UK/EU relationship seems to be a ‘work in progress’…
Then there are the various and increasingly complex sanctions regulations – whereby it’s almost impossible to keep entirely up to date as the EU and US, for example, issue updated and differing lists of unfavoured nations.
Treasurers will need to keep abreast across all of these developments if they or their suppliers and customers do business internationally – not only to ensure security of funds, but also to support the wider business with relevant and current information.
Every finance conference for the past 20 years has leaned heavily on the role technology can play in transforming treasury activities. Most treasurers use some form of technology – from simple electronic banking through to fully integrated straight-through processing activities.
Billions of dollars are being invested in new solutions, and fintechs are building a range of applications to make life easier.
We hear stories of apps that can be built in a matter of weeks that can connect disparate sources of data – but how does a treasurer assess what it needs and who they can trust? The landscape is becoming more complex (not less) with new acronyms like XML, ISO 20022, DLT, RPA and NLP* adding to the difficulties.
To make matters worse, some standards have multiple versions.
Treasury functions are full of business-critical activities and many have a high degree of manual intervention. This creates risks around business continuity, operational resilience and manual error.
Treasurers need to find the investment budget and the bandwidth to get more from their existing technology and to look at how application programming interfaces and fintechs can provide cost-effective solutions to everyday problems.
For more on the technologies that are shaping the future of treasury, click here.
It’s hard to avoid talk of ESG (environment, social and governance) these days – both in our general news with Extinction Rebellion back in the headlines or in the financial press with comments from Mark Carney.
The attention of policymakers and regulators has resulted in a number of initiatives, including:
Employees, shareholders, lenders, regulators and policymakers are all taking action, and treasurers will need to take proactive measures to ensure they can respond appropriately.
Whether it’s raising finance through green structures, dealing with financial partners with strong ESG credentials or reporting on ESG activities, treasurers will need to play a key role.
If they don’t take action now, they may find themselves locked out of financing options in the not too distant future.
And it’s not just the risks that arise, but the opportunities. ESG is no longer a purely philanthropic effort, but it offers the opportunity to raise cheaper finance, be more attractive to suppliers and customers, get a better credit rating and be more profitable.
For many decades, the payments landscape has experienced very few innovations.
Most of us, as individuals, will have taken advantage of new payment providers and technologies such as PayPal, contactless payments and instant notifications of payment activity. The impact on businesses has been slower to catch up with retail innovations, but changes are imminent.
Confirmation of Payee will be delivered by the six largest banks in the UK by March 2020. This will help fight fraud by requiring validation of the beneficiary account name.
Request to Pay will be coming soon and for those treasurers reliant on direct debit income, their cash forecasts may change significantly as customers choose to delay payment.
Strong Customer Authentication was scheduled to have been implemented in the summer of 2019, but due to various reasons is now being delayed.
These changes and others will affect key payment activities – both inbound and outbound.
For most treasurers it will provide an opportunity to look at the overall payment activities to ensure that the different channels available are being optimised and that innovations such as SWIFT’s track and trace are being taken advantage of.
Many of these changes will require investment in payment and customer systems, and treasurers will benefit from ensuring they are included in any technology investment plans.
You will find lots of materials relating to all of these and many other subjects elsewhere on this website.
We’d really like to hear what your top five issues for 2020 are. Please drop us an email with your suggestions – after all, we’re here to help.
*Those abbreviations in full: eXtensible Markup Language, distributed ledger technology, robotic process automation and natural language processing
Sarah Boyce is Associate Director – policy and technical at the ACT
This article was taken from the December 2019/January 2020 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership