The evolution of the corporate treasurer
The role of the corporate treasurer has evolved significantly in recent years. Where this role used to mean pure risk and cash management, especially as related to interest rate and FX risks, regulatory changes and the speed and volatility of global business today have transformed this role into something much bigger.
The corporate treasurer of today has a more strategic decision-making role and quite often a true ‘seat at the table’. And with that increased ownership comes a long list of new tasks which fall into treasury’s court.
With the more sophisticated platforms, risks, and regulations that are commonplace today, corporate treasurers are witnessing bigger demands and increasing expectations, and as a result are taking on more responsibility across a given organization.
Just how much has changed to get this seat at the table and what will the corporate treasurer role look like in the future?
Regulatory changes & volatile markets – the new normal?
Recent regulatory changes – including Basel III, Dodd-Frank, ISO Check 20022, and IRS Section 385 – have created a new and more complex environment in which corporate treasurers find themselves taking on more costs and responsibilities, especially vis a vis banks which historically took on many of these costs and tasks. This has been a result of regulations increasingly focusing on removing certain responsibilities (and asset ownership) from banks, albeit in an effort to deter future bank and broader economic crises.
Add to this the volatile markets of late and a picture of a rather taxing and complicated role for the corporate treasurer becomes quite clear.
Recent regulations have created a world where bank sales and structuring desks have reduced headcount dramatically. Whereas corporations used to be able to rely on banks having adequate manpower to support additional requests outside of dealing, today corporations can barely ask for more than simple dealing requests from banks. One prime example of the implication of this change can be seen in the fact that all hedging pre-trade analysis – a job typically conducted by the banks – now has to be conducted in-house. This dramatically increases the time needed to properly run a treasury team within a corporation.
Current regulations also stipulate against corporations being able to reward banks for their efforts. Where historically trades could be conducted ‘at best’ as a reward for advisory work, this is no longer the case. This makes it more challenging for corporations to ask their banks to provide detailed market analysis and information as the price tag is now much higher without delivering the same value it once did.
In today’s post-Dodd Frank world, market transparency has increased significantly, creating many meaningful changes in the bank/corporate relationship. It is now possible for corporate treasury to have access to the same market pricing information as the banks – something that was never previously possible. In addition to this, trade details are publicly available for treasurers where they were previously only available to the banks. There is no doubt that corporates have been the true beneficiary of this increased market transparency, with tighter dealing spreads and access to greater liquidity information. This does, however, add to the lengthy list of responsibilities within the corporate treasury group as corporations take on roles the banks used to play.
As it relates to credit, a monumental shift has taken place due to Basel III. Banks’ appetite for financing – and ability to provide the same level of financing as in the past – has reduced significantly in recent years. This, coupled with an increased sophistication within corporate treasury and increased technology tools, has translated to widespread adoption of credit monitoring analysis by corporate treasurers – a role once reserved for credit departments within a bank. It is now possible for corporate treasurers to calculate CVA and DVA and consider this in your choice of counterparty with which to trade.
Outside factors including the constantly changing FX markets and general market volatility only add to the pressures felt by the corporate treasurer. As treasury’s top priorities are liquidity, efficiency and controllership, this group has a true understanding of how standardization and centralization of the treasury group can lead to automation, which ultimately saves treasurers -and the company – both time and money. As treasurers are asked for more in-depth analytics and monitoring of cash and risk management, technology is helping this group adapt to all of these regulatory and external pressures.
Where do we go from here?
While there is no magic ball to tell the future, all signs point to a corporate treasurer of the future with even more responsibilities and costs. One example of this is when we will soon see banks charging for all asset class research, due to unbundling rules that are being implemented as part of MiFID II. The effect on corporate treasury will be that they either pay for research – increasing costs – or conduct the research themselves.
Conducting proper research internally is only a realistic option at the largest of corporates who have in-house economist departments – but where does this leave the vast majority of other corporate treasury departments? A careful combination of technology and human intelligence can help corporations remain on the front foot as the role of the corporate treasurer continues to evolve even further.