Treasurers: Are you ready for new opportunities in 2017?

The start of January is most definitely the time for bold (or not so bold) predictions for the upcoming year. In the past weeks we have seen predictions suggesting that advanced business intelligence will be the number one priority for CFOs in 2017, predictable analytics will effectively replace hedge fund managers, and that blockchain is ready to emerge as the next coming of the internet for finance – in 2017. None of these things are going to happen – in 2017, or maybe at all.

Additional reading: Keeping your payments safe

To be more realistic for us in corporate treasury, 2017 will present many challenges for treasurers; and equally as many opportunities for treasury teams to add value to their organizations.

Regulation

In 2017, it will be one of those years where we seem to be buried by regulations. While 2016 saw the introduction of regulatory changes such as Money Market Fund reform (in the US), 2017 sees several new areas where regulatory compliance will consume much of our time:

• IFRS 9– Hedge accounting is usually a treasurer’s least favorite topic. Yet, the implementation of IFRS9 at the beginning of 2018 means that treasury and accounting teams must implement solutions in 2017. However, the good news is that IFRS9 (or ASC815 in the US) actually makes hedge accounting easier in some cases. While this is especially the case for commodities, benefits are also seen for FX and Interest Rate options. The net result: there is an opportunity to hedge more effectively with less back office complexity.
• Lease accounting– IFRS 16 / ASC842 may not be fully in effect until the start of 2019, but that does not absolve corporates from ignoring it until the end of next year. Leases held in 2017 will need to be reported on, which means that understanding the lease provisions and potential effects on future reporting and accounting are important. Some organizations may choose to change the types of leases they use to minimize effects of future compliance, meaning that some of this decision making will have to occur in 2017. This is a good opportunity to have a seat at the board room table in order to discuss the most strategic approach to avoiding lease accounting issues in 2018 and beyond.  
• PSD2– The Revised Payment Services Directive isn’t in effect until Jan 1, 2018; yet the preparation to comply with the new regulations will consume much of 2017. While banks and payment service providers are those burdened with compliance, the effects (such as required two-factor authentication) will be felt by corporates. In theory, the result of PSD2 will be more secure payments with more transparency and a lower cost. It sounds great when phrased like that, at least.
• GPII– While SWIFT’s Global Payment Innovation Initiative isn’t technically a regulation, it is an opportunity to increase transparency of payment tracking and quicken the settlement of cross-border payments. As more corporates adopt SWIFTNet for some or all of their global payments, these are welcomed benefits that will begin to be realized later in the year.
• Greater effects of Basel III– while Basel III doesn’t affect corporates directly, banks must comply, and thus have begun to refine their services in order to optimize their balance sheets. This means that banks will continue being more selective about which deposits they want (i.e. operational cash) and will tighten the extension of credit, increasing the cost to borrow. The opportunity for treasurers is to more efficiently pool and mobilize internal cash to better predict borrowing requirements; and similarly identify more diverse, low-risk investment opportunities that don’t rely on leaving operational cash in the bank.

Additional reading: Managing risk with effective policies and technology

Interest Rates

While interest rates remain low in North America and Europe, we are starting to see a divergence in monetary policy between the US and other countries. Stimulated by post-election financial optimism, US markets continue to perform well, which has led to one – with the expectation of more – interest rate hikes. Relatively higher US interest rates and interest rate hike speculation drives FX volatility, creating more challenges for corporates who are underhedged.  

At the same time, in the US especially, there is an opportunity to gain more yield as even incredibly safe investments will return slightly more interest. Those that chose SMAs as a means to escape prime money market funds last year will see greater returns; and it is conceivable that the attraction of higher returns from prime funds will be a carrot too big to ignore for those who are completely invested in government funds or have left money sitting in bank accounts.

Fraud and Cybercrime

I wish 2017 was the year that we could stop talking about fraud and cybercrime. It is not, however. In fact, we should be preparing more across the financial operations of the organization because cybercriminals are continuing to invest in their own efforts to steal money and information. Banks continued their investments in preventing fraud and cybercrime in 2016, which may unfortunately make corporates appear as the low hanging fruit. Thus far, corporates have been exposed to the relatively obvious (in hindsight, of course) imposter fraud schemes. That said, there are more sophisticated hacking examples we saw in the banking community last year that most corporates are ill-prepared for.

Two thousand and seventeen should be a year of convergence between treasury controls and the rest of their organization’s information security policies. It is when treasury’s protections differ from the CIO’s policy that problems will arise. Collaboration is the key opportunity for treasury to lead the organization along with the CIO to defend against fraud and cybercrime attempts. 

Additional reading: Reducing the risk of fraud with Kyriba

eBAM

After everyone has stopped rolling their eyes, they will see that there is actually some potential promise on the horizon. Many banks – including large tier institutions in the US – have made progress in providing eBAM within their own bank portals. While a large corporate with many banking relationships justifiably would say “so what,” banks are starting to look to corporate TMS providers to link with their eBAM services directly – as they do with bank reporting or payments.

While the promise of an eBAM central utility is still theoretically possible, the reality is that most large institutions already have mechanisms in place for host-to-host connections and these banks are also investing in new technologies to increase the efficiency of this communication. Believe it or not, we may actually see progress in multi-bank eBAM in 2017!

Treasury technology disruption

In 2016, we saw intriguing consolidation in the treasury management space, causing further angst for TMS users that didn’t wish to be a customer of a multi-TMS holding company.

In 2017, we will see the fallout from that and prior consolidation, which means that treasury systems will fall squarely into two categories:

1)      Growing and evolving – treasury systems that benefit from a high percentage of revenues and new capital directed to the technology, enabling many new features and modules for treasury end users

2)      Profit taking – investment will flat line or even decrease, as system owners look to protect bottom line margins to help repay acquisition loans or prepare for their own exit from the market

Identifying where your TMS provider fits requires more than just listening to the sales people (who always wish for scenario #1, but themselves may not even be aware of the true strategy).

Will 2017 be a great year?

Yes, 2017 will undoubtedly be an interesting year for corporate treasurers. For those treasury teams that successfully collaborate internally, proactively plan for changes in market conditions, and think ahead about the impacts of regulatory compliance – 2017 will be a great year!