TMS Feature Part 2: How should treasurers deal with new challenges?

By Nicole Miskelly | 21 August 2015

Last week our treasury experts explained how installing a TMS enables treasurers to streamline day-to-day operations, empowers them to answer strategic questions and better manage financial risk. They also identified that the current treasury landscape is particularly challenging in the areas of regulatory compliance and cyber security risks. But how should treasurers’ deal with these new challenges? This week our experts explore ways in which CFOs should handle cyber security and what they expect the treasury landscape to look like in the future. 

Bob Stark, VP Strategy, Kyriba believes that that in order to deal with cyber security risks, CFOs must first appreciate that their organisations are being researched by cyber criminals to learn about the effectiveness of their financial controls. “The CFOs mandate is to guard financial assets – and the cyber criminals’ objective is to get at those assets.  Hackers target not only systems, but also exploit weaknesses and inconsistencies in financial workflows – such as payments. CFOs need to ensure their processes are standardised and their systems are secure from both internal and external threats.”

Jeff Diorio, Principal at Treasury Strategies, Inc. says that CFOs can better manage cyber security risk by following these steps: 1) Assess entire payment processes from request to authorisation to bank processing in order to validate the security protocols in place and ensure data at rest and data in transit are secure, 2) Review controls and processes to be sure everyone in the organisation is fully apprised and aware of potential threats e.g., the email from the “CFO”  requesting a wire and 3) Partner with your IT department, banks, and consultants to get advice on best practices.

According to Bruce C. Lynn, Managing Partner, The Financial Executives Consulting Group LLC, IT staff should be trained to know the business. “Train IT people to know your business – While IT maybe best when it comes to employing highly technical systems they need to understand business. Example: theft of consumer card information  at several firms came from outsiders posing as vendors, gaining access to AP systems then burrowing across into other systems. Perhaps not all systems should be connected to everything, an approach favoured by IT?”

Lynn also believes that the best defence against cyber risks is to hire enough, good people that have a holistic view of risk and these good people should be encouraged to remain at a company because high turnover in certain departments prevents good teamwork. “Large companies over time become complex which requires teams to work closely together outside of their silos to prevent cyber ‘holes’ which can be exploited. (i.e. do not click on a link that promises ‘free’ anything then allow malware to roam outside of email systems?),” he says.

Lynn also says that having a faster reaction time can help. “Many companies are still stuck in a monthly close cycle which means it maybe 30 days or longer before management is even aware of an attack.”

Diorio says that today, treasurers are charged with compliance to a growing number of regulations, some of which have a direct personal impact on the treasurer and CFO. “In a recent TSI/Reval survey, regulatory compliance was noted as among the top issues Treasurers are facing today. TMS vendors have been scrambling to update their TMS platforms to help clients comply with these regulations.”

The Axletree Treasury Experts Team consisting of Mohan Murali, CEO; Andrew O’Garro, VP Product Management, Treasury Systems and Drew Strawbridge, Director of Sales, believe that treasurers should “increase scrutiny on the manner in which data is being transmitted both internally and externally, ensure that they are regular security reviews to ensure that potential security breaches are mitigated and in collaboration with IT groups ensuring that there are adequate safeguards against potential security breaches.”

Overall, Mark O'Toole, Vice President Commodities & Treasury Solutions at OpenLink has been noticing the impact that regulatory changes are having inside corporations and says that part of the challenge has been not only keeping up with the changes, but having the right system to be able to handle these changes to create accurate reporting. “Typically traditional treasury solutions have been built to purpose and don’t handle anything that may change or fall outside that purpose very well. Having the right treasury system that grows and provides a solution as your business grows and changes with regulation is a smart way to go, it certainly will relieve a lot of those pressure points.”

Diorio says that regulations such as Dodd-Frank and EMIR have necessitated the expansion of derivatives tracking, increasing the amount of data that needs to be stored and then reported to authorities. “For multi-national clients, TMS vendors have had to beef up their bank account administration modules to accommodate FBAR reporting.  This involves things like tracking the citizenship/status of signatories, and reporting the maximum balance in each account during a reporting period.  The additional challenge for the TMS vendors is that while legislation may have been passed, the specific rules for implementation have yet to be finalised in many cases.”

There has also been an increase in money laundering and fraud which has forced treasury departments to tighten controls. “We have definitely seen an increase in the instances of payments fraud in all sectors.  As well, industries like insurance are now being required to comply with anti-money laundering regulations and know-your-customer requirements that had previously only applied to banks,” says Diorio.

However, he believes that technology can help to combat this. “Technology can absolutely help combat fraud and money laundering by adding controls around system access and the payments process - TMS vendors, banks, and service bureaus all have initiatives underway to continue to improve controls. Strong policies and a well-informed treasury staff are key components of a fraud prevention program.”

Stark believes that treasurers will continue to invest in technology, which gives vendors an opportunity to provide clients with innovative solutions. “Treasury technology providers have a tremendous opportunity to evolve into more intelligent solutions, driven by the needs of their clients. The evolution of the cloud combined with the onset of technologies such as blockchain and distributed processing opens the door for treasury technology providers to move beyond what a TMS has traditionally done.”

Stark also says that, “traditional TMS vendors with old school business models will either evolve and rise to the occasion - or lose prominence, facing either acquisition or potential exit from the market.”

The Axletree Treasury Experts Team say that over the next few years there will continue to be a trend towards Cloud / SaaS delivery with lower costs and faster implementation time and more treasury operations leveraging SWIFT as a streamlined bank communications channel to reduce costs and improve efficiencies.

According to Diorio, in the last 30 to 40 years, treasury has shifted its focus from operational treasury management to becoming a value-added financial nerve centre within the organisation and that “a more unified solutions approach providing enhanced visibility and controls for global cash, banking, counterparty and financial exposures is replacing the use of disparate systems for operational management of banking, capital markets and foreign exchange risk management.”

Lynn says that in the future, treasurers should be looking for the ability to determine “best” use of cash which will be the hallmark of a “perfect” treasury, and with investors seeking return of value (i.e. stock buybacks) treasurers will need to consider how much should be paid out or retained so that demands for cash can be matched to its uses.

Lynn also believes that a key area for treasury will be in developing more “after tax skills” then coupling them with better forecasting abilities. “As companies expand globally they will have to become more aware that the need for liquidity and an optimum exposure to the markets in the future is as important as today’s lower tax rate,” he says.

In conclusion, the experts believe that technology will continue to play a vital role in how treasurers conduct their day-to-day tasks and according to Lynn, in the future treasurers will be focusing on planning more than processing. “The mantra for treasury in the future will be ‘less processing, more planning’."

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