Seven signs you’ve outgrown your treasury management system – revisited

By HERVE DE LAFORCADE | 13 May 2019

We first published this piece in 2015 as a kind of checklist for those bank treasuries trying to achieve everything demanded of them but struggling to do so efficiently. The ‘seven signs’ were indicators of where fragmented, legacy treasury management systems may be letting them down as they tried to meet new demands.

If anything, the role of the bank treasury is even more challenging today; the solutions required to support it even more sophisticated.

So, four years on, we thought it was time to revisit the ‘seven signs’.

1. Too many solutions; none that address all needs

In 2015, there were many cases of banks using a patchwork of legacy systems to manage treasury and other functions. This was complex, time-intensive, costly and distracted staff from the core business.

With multiple systems, it was difficult to get a real-time, single view across the banking, trading and investment books –an essential factor in meeting more complex demands such as monitoring and managing liquidity, funding, hedging, stress testing and behavioural scenario analysis across assets and liabilities.

A lack of integration made compliance with new regulations more difficult, while fragmented systems made it almost impossible to achieve high levels of STP: too many breaks in the flow; too much manual intervention; and the need to duplicate data entry.

Fast forward to 2019 and ‘too many solutions’ remains an issue. Local and regional banks particularly can still struggle to consolidate the information they need, frequently having to resort to spreadsheets to pull all the data together from siloed legacy systems.

2. Expanding from cash into new asset classes

We noted in 2015 that banks were hedging and managing a wider range of derivative instruments to maximize returns and reduce risk exposure. That trend continues today, with banks in emerging markets also beginning to use derivatives for hedging, leading to pricing and operational complexity.

To trade successfully in derivatives requires a consistent picture of your risk and return. Having your exposures on one system while hedging on another poses a major problem: you can’t automate hedging or calculate your basis risk in real-time.

And with counterparty risk more in focus than ever, banks active in money markets and derivatives need to be able to show counterparty exposure and the collateral used to mitigate it on a single system.

3. New regulatory demands

In the wake of the 2008 financial crisis new regulations rained down on banks in the period leading up to 2015 (Dodd-Frank in the US, Mifid II/Mifir, Emir in Europe), driving the need for more sophisticated solutions to enable compliance.

Regulatory demands continue, compounded by pressure on banks from some regional authorities and central banks to improve risk management.

Liquidity reporting is now very much in focus, with a raft of new requirements, for example:

  • Liquidity coverage ratio (LCR)
  • Net stable funding ratio (NSFR)
  • Intraday liquidity management: BCBS 248
  • Interest rate risk in the banking book (IRRBB)

These have major implications for a bank’s business models, operations, data and technology. Access to real-time data is essential and this data needs to be consolidated in a single database, so a constant flow of integrated information is available. Sophisticated analytics capabilities are also required including scenario modelling, stress testing, behavioural assumptions and reporting.

4. Lack of a single source of truth

The point made in 2015 was that while the functional boundaries between back, middle and front-office had become blurred, legacy back-office systems often remained in place, poorly equipped to provide the real-time information required to make informed decisions about funding, liquidity and risk management.

Given today’s heightened focus on risk and liquidity management, it is even more important for bank treasuries to work from a single source of truth: to have a single view across, banking, trading and investment books, with everyone working from the same information.

5. Lack of real-time data

Ready access to real-time data is crucial, whether banks are moving beyond cash into new instruments or simply need to assess and monitor their own operations in a changing marketplace. And of course, any bank engaged in trading requires real-time data for pre- and post-trade risk analytics and financial liquidity analytics.

Difficulty in accessing real-time data was an issue in many cases in 2015, and this remains a concern for some bank treasuries today. Real-time data is essential to produce, consume and store the analytics they need - whether for liquidity reporting or to calculate pricing and sensitivities.

6. Reliance on spreadsheets

In 2015 there was a reliance on spreadsheets by some bank treasuries to aggregate and manage the information they needed – even for compliance.

The need for intraday limit monitoring and compliance reporting is, if anything, greater today than it was four years ago. But using spreadsheets to pull together the information needed is both time-consuming and risky.

Plus, if you use spreadsheets for regulatory reporting, you have no way of tracking changes made so there is no audit trail; no transparency.

7. Liquidity buffer requirements and stress testing

We noted in 2015 that liquidity requirements set by the Basel Committee had become as great a challenge for banks as capital requirements. To meet this challenge, banks need a simultaneous view of liquidity and capital on a single platform.

Four years on, ever-more sophisticated analytical tools are required to enable compliance with the new liquidity reporting requirements mentioned earlier, such as LCR and NSFR. As these requirements combine elements of bank-specific liquidity and market-wide stress, to help calculate liquidity buffers, your treasury system must support scenario-modelling, stress testing and behavioural assumptions.

Are the ‘seven signs’ still relevant?

Anecdotal feedback suggests they are, albeit with different nuances in some cases. But we want to understand fully where Treasury requirements may have outgrown the solutions in place.

So, we have launched a survey in partnership with bobsguide that asks:

What would the ideal treasury system look like?
This survey aims to shed light on the number and type of systems required by today’s bank Treasurers to get an increasingly complex job done. We invite you to take part in this survey. As Treasury and IT practitioners your views will help reveal the whole picture and provide an understanding of where technology could help.

Help us to gain that understanding.

Take the survey

And if you are struggling with any of the ‘seven signs’ outlined above, contact Calypso to see how we can help on solutions@calypso.com

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