The deep dive: Treasury risk management

By Puja Sharma

September 08, 2022

Credit Risk Management
Digital Treasury
Europe

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend, or new product. For Prime subscribers only.

How does it work?

An enterprise IT strategy defines a treasury function’s technology landscape based on the broad IT capabilities it needs to support business processes across a wide range of external and internal factors. Within the context of the IT strategy, services, applications, and infrastructure are deployed to support enterprise objectives.

What entails risk management activities:

Foreign exchange risk
Interest rate risk
commodity risk
credit risk
operational risk

Planning for unexpected expenditures is part of Treasury Risk Management. A company’s cash flow objectives are primarily affected by the changing financial environment. Risk management, however, is a very broad term. As risk management has different meanings depending on the context of a company’s operations, it is also useful here to highlight the forms of risk management that fall outside the Treasury’s purview, as per the treasury report.

Who is under the radar?

Preserving liquidity and protecting financial assets are among the core objectives of a treasury organisation. It is essential for these activities to be supported by a flexible technology infrastructure that integrates data and reporting, provides secure connectivity to bank counterparties, and automates inherently manual operational processes. Defining business requirements and understanding external influences (including banking industry regulations) that impact treasury functions are critical to supporting continuous realignment between treasury and IT.

According to the IBS Intelligence propriety data, the expansion of the technology and automotive industries is driving growth in the treasury and risk management markets in North America and Europe. Manufacturing is expanding in the MEA market as a result of government initiatives (such as Saudi Arabia’s vision 2030, Bahrain’s economic vision 2030, Abu Dhabi‘s economic vision 2030, and Dubai’s industrial strategy 2030 in the UAE), leading to growth in treasury and risk management sector.

Why does it matter now?

New and disruptive technologies introduced by financial services technology companies (FinTechs) are changing the way customers and businesses interact. By enhancing automation, robotic process automation (RPA) is changing low-value and repetitive work, while artificial intelligence (AI) allows machines to learn and perform cognitive tasks based on historical data, according to the report by EY.

There is a growing trend for treasury systems to be implemented as SaaS or private clouds using dedicated client databases in the cloud. IT infrastructure and security are being outsourced to vendors because of cost and security considerations, with the prevailing view being that doing so is safer and more efficient than implementing systems in-house.

As it emerges, blockchain holds the promise of eliminating float from trusted financial transactions, reducing settlement processing time and errors in the booking process, as well as supporting real-time global integration between financial and business operations systems.

September 08, 2022