31 August 2018

From risk management to strategic partner: rethinking the treasury function

CFOs and corporate treasurers agree there’s significant upside to equipping treasury with the tools and resources to move beyond its traditional risk management role. Treasury can and must provide greater strategic support to the organization.

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Several key themes are shaping the evolving role of treasury, including the need to:

  • Support the skills and tools to enable best-in-class risk management capabilities
  • Put long-term strategic thinking at the core of the department
  • Leverage new technologies to better manage risk and bridge potential gaps between organizational resources and expectations

The need for best-in-class risk management strategies

A recent survey of 200 CFOs and 296 corporate treasurers from leading multinationals identified that managing risk is a top concern for finance leaders, taking up the largest portion of their time. Seventy per cent of CFOs said their company has been hit over the past two years by unhedged foreign exchange exposures, and many also noted lower earnings due to unhedged interest rate and commodity positions.

Geopolitical factors – including rising protectionism – are having a far-reaching impact on risk management strategies, and there’s increasing pressure to stay on top of changes in foreign exchange regulations and regimes.

The fast-pace of change underlines the critical need for best-in-class risk management strategies and policies that allow treasurers to manage risk through well-defined processes rather than on a reactive basis. This gives CEOs and other corporate leaders the confidence that key risks are being managed in line with their organization’s capital structure, strategic objectives and risk management approach.

Here's an infographic on the top trends and practices in treasury risk management. (PDF, 183KB)

Taking a strategic, long-term view

Since the financial crisis, the treasury function has played an increasingly important strategic role within the organization. While traditional risk management responsibilities are as important as ever, treasury teams face a range of added responsibilities including working capital allocation, providing analysis and strategic insights to the C-suite, overseeing group financing, managing cash flows and looking after short-term investments.

Many organizations have centralized their treasury teams to make it easier for them to work in step with senior leaders to provide data, analysis and counsel.

Safeguarding financial statements remains high on the agenda. Many treasurers are taking a longer-term approach to hedging, with hedging against medium- and long-term business risks becoming more prevalent.

Investing in new technologies

With growing pressure on treasury teams to do more with limited resources, digital technologies are playing a larger role in bridging potential gaps between organizational resources and expectations. Investing in automated forecasting tools, for example, enables better and earlier risk recognition, which correlates to the ability of treasury teams to take a more strategic approach.

Over half of treasurers surveyed said they’d like to see their teams increase their expertise in IT systems and tools. Other areas of expertise that treasurers would like to see enhanced include capabilities in risk management, cash and liquidity management (including the use of cryptocurrencies), regulation, tax and hedge accounting, and financing alternatives (including blockchain settlements).

Explore the key findings of a survey on how corporate finance leaders are managing treasury risks. (PDF, 699KB)

Five takeaways

Our Rethinking treasury report highlights five key takeaways for organizations that want to shift the treasury function to an increasingly strategic role:

  1. Recognize the challenge: Acknowledge the need for partnership to deliver more effective and efficient risk management.
  2. Raise your voice: Articulate the need for skill development – from technology-minded skill profiles to the ability to adjust hedging ratios and instruments with greater flexibility.
  3. Focus on policy: Develop a flexible policy to establish clear and agreed parameters across a range of treasury responsibilities.
  4. Organize for success: Embrace collaboration and build outward-looking relationships with the rest of the organization.
  5. Think about today, act for tomorrow: Balance the demands of day-to-day treasury management with long-term strategic objectives.

If you would like to receive the full report, please email us at hsbc.risk.management.survey@hsbc.com with your first name, last name, job title and company name.

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