Forget the dusty image of a treasurer just counting cash. If you think that is all there is to it, you are missing the whole wild ride. In today’s rollercoaster world, where change is constant, treasury management has grown past simple cash handling and become a high-stakes balancing act.
Well, how hard can it be? At the core, treasury management still revolves around cash management, but imagine trying to keep your head above water while juggling a dozen incoming meteorites like fluctuating exchange rates, regulatory pressures, trade wars, and disrupted supply chains.
Let’s dissect a couple of these issues to grasp the full picture of what modern corporate treasurers are facing today.
Read more: Financial vs. Treasury Management: Unpacking Key Differences
Macroeconomic pressures and market volatility
Upside-down economics makes even the most seasoned corporate treasurers frown. From fluctuating interest rates to foreign exchange risk, or worse, geopolitical conflicts, there is no shortage of surprising events for modern businesses.
– Fluctuating interest rates lead to unpredictable borrowing costs for existing debts and risks, deterring businesses from anticipating the optimal time to invest surplus cash. This directly impacts working capital, funding strategies, and the cost of debt.
– Unfavourable exchange rates erode profits, impact cash flows from international transactions, and devalue foreign-denominated assets and liabilities on balance sheets.
– Trade wars, sanctions, political unrest, or regional conflicts can disrupt both local and international supply chains and a whole lot of other issues.
Should treasurers just cross their fingers and hope for the best? Certainly not that! Modern treasurers need to factor these unpredictable events into their risk assessments and contingency planning and adopt new strategies fast to handle this complex environment.
KYC and AML complexities
Know Your Customer (KYC) and Anti-Money Laundering (AML) might sound like dry, bureaucratic jargon, but they are highly crucial regulatory frameworks. They are established to safeguard businesses’ valuable assets against financial crime, such as money laundering, terrorist financing, fraud, and corruption.
Read more:What to Look for in a Treasury Management Solution
Do you think that banks are becoming stricter and asking for a bunch of verification procedures, both online and in person? This is why. While banks are typically responsible for KYC/AML compliance, corporate treasurers are increasingly involved as they are the primary contact point with these financial institutions.
Let’s be honest, KYC/AML verification is lengthy and tedious, and doing it manually is certainly inefficient. This once again emphasises the importance of employing automation to help treasurers at least centralise data, streamline workflows, and strengthen security when handling large volumes of transactions.
Tax and financial reporting changes
Staying on top of the latest regulatory changes is no easy job; it becomes worse when there are international factors involved. Navigating the maze of financial reporting and taxation, driven by global efforts to enhance transparency, minimise fraud, and address emerging concerns like sustainability, requires meticulous attention, continuous learning and adaptation, and ultimately, significant investment in systems and training.
Which regulation frameworks and standards must treasurers be fluent in or at least aware of?
1. Sarbanes-Oxley Act (SOX): SOX requires companies to establish and maintain robust internal controls over financial reporting. For treasury, this means carefully documenting and testing everything from cash management and bank reconciliations to payment processing, debt management, and even foreign exchange hedging. It is also about making sure no single person has too much power – i.e., separating who initiates a payment from who approves and reconciles it.
2. Foreign Account Tax Compliance Act (FATCA): While FATCA primarily targets banks, global companies can get caught in FATCA’s net, too, with their own reporting duties.
3. OFAC Sanctions Program: Every cross-border payment processed by the treasury needs to be screened against OFAC’s Specially Designated Nationals (SDN) List and other sanctions lists. For companies doing a lot of cross-border business, this is a real-time operational challenge.
4. Basel III/IV: While primarily for banks, these global banking regulations indirectly impact corporate treasury by influencing bank lending practices, capital costs, and the availability of credit.
5. IFRS 9 / ASC 815 (Derivatives and Hedging): Treasurers must ensure that their hedging strategies meet the stringent requirements for hedge accounting to avoid earnings volatility. This requires meticulous documentation and ongoing effectiveness testing.
6. ESG Reporting Frameworks: Emerging Environmental, Social, and Governance (ESG) reporting standards are gaining popularity. Treasurers might find themselves tracking and reporting financial data for the company’s “green” story.
And the list goes on.
Read more:IFRS 17 Overview: What Is It For? Who Is Affected? Why Should You Care?
The evolving regulatory landscape is not just another administrative task for the treasury department; it is a fundamental aspect of risk management, operational efficiency, and strategic decision-making.
Treasurers must keep themselves up to date on these complex rules, invest in robust technology, foster a culture of compliance, and continuously adapt to the ever-changing demands to protect the company’s financial health and reputation.
Internal fraud and employee misconduct
Both human action and financial losses are devastating for businesses. Internal fraud means that the company has flaws in their system access, which go undetected for too long, making it the prime target for attacks.
The risks are higher for treasury functions, as they are often the ones that physically and directly handle company funds. When internal controls are weak or non-existent, they create opportunities that perpetrators exploit.
Read more:How to protect your data when employees leave
Third-party and vendor fraud
The growing concern for security threats from external partners is primarily due to the interconnected landscape of global supply chains and financial ecosystems today. While internal fraud is a persistent risk, sophisticated external lawbreakers, often organised criminal groups, are constantly developing new tricks to take advantage of vulnerabilities between companies and suppliers, vendors, or third parties.
These specific tactics represent the most common forms of external fraud targeting treasury departments:
– Fake invoices (invoice fraud): They might exploit a lack of stringent “three-way matching” (matching purchase order, goods receipt, and invoice), automated invoice processing, or simply a lack of sufficient verification.
– Vendor impersonation/ payment diversion fraud): Fraudsters intercept or gain access to legitimate invoices (or mimic a legitimate vendor’s communication channels) and then send a seemingly innocuous request to the treasury department to “update” the vendor’s banking details.
Read more:Spear-phishing vs Phishing – What Are They & How to Avoid Them?
Once the details are changed in the system, all subsequent legitimate payments to that vendor are diverted to the fraudster’s account. This can go undetected for weeks or months until the real vendor enquires about non-payment.
Given these formidable threats, a robust treasury management strategy must integrate comprehensive vendor risk management.
The push for digital transformation
Digital transformation has become essential for modern treasury operations. It represents a strategic necessity rather than a simple technological upgrade.
Artificial Intelligence (AI) leads many of the treasury breakthroughs and creates value in cash forecasting by:
– Analysing historical data with current information and external factors
– Identifying seasonal cash flow patterns and payment behaviours
– Creating more precise and detailed projections than traditional methods
Real-time treasury operations mark a fundamental change in financial information processing and use.
Additionally, APIs (application programming interfaces) provide the resilient infrastructure to:
– Maintain a smooth data flow through different business systems, providing real-time information.
– Monitor financial performance in multiple accounts and currencies instantly, rather than waiting for next-day updates.
– Automate routine transactions, which reduces manual errors and speeds up processing.
– Integrate with banks streamlines reconciliation processes previously stymied by isolated systems.
Treasury management evolves through these technological advances. It moves from reactive reporting to proactive strategy, driven by up-to-the-minute data analysis and predictive capabilities that boost decision-making throughout the enterprise.
This once again emphasises that the corporate treasurer’s role is no longer limited to cash management. These professionals now act as strategic advisors who balance risk control with finding opportunities in multiple areas.
Successful treasury departments know that the mix of economic uncertainty, complex regulations, cybersecurity threats, and digital transformation needs, while intimidating, offers ways to gain competitive edges through better financial visibility and control.
Treasury teams can benefit when they work with experienced solution providers who know modern treasury’s challenges inside out. TRG International shows how mixing the right expertise with technology can turn treasury operations from reactive cost centres into proactive value creators.
Curious how we can help you and your business accelerate not just your treasury function but also the entire financial management department? Let’s talk!
