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Treasury Outsourcing in Practice

by Heinz Bahni, Group Treasurer, SGS

A new treasury organisation

When I joined SGS’ treasury department in 2002, the group treasury function was still in the early stages of its development, with FX, cash and treasury management activities managed autonomously by individual business units. Following a management change, however, the decision was made to centralise cash, treasury and risk management activities to achieve greater visibility and control over cash and risk, and enhance operational and financial efficiency. As part of this initiative, we made the decision to outsource many of our treasury activities to a third party provider. This article explores some of the factors that contributed to our decision to outsource treasury management at SGS, and our experience of doing so.

The decision to outsource

The decision to outsource many of our treasury activities at SGS was not a difficult one at the time, for a variety of reasons:

Firstly, both the CEO and I already had experience of treasury outsourcing in previous roles, and recognised the benefits.

Secondly, we did not have the personnel in group treasury required to manage treasury activities on behalf of the group. It is not always easy to attract high calibre staff into corporate treasury departments, particularly in an organisation with relatively simple requirements and a conservative attitude to risk. Furthermore, while it is important to employ a minimum number of front- and back-office staff to maintain appropriate segregation of responsibilities, we did not have the scale or complexity to justify this.

Thirdly, we would have needed to set up a full technology infrastructure, including business unit connectivity, transaction management, reporting and risk management. We wanted to focus our treasury team on meeting the financial needs of the group rather than managing technology, so outsourcing enabled us to do this.

Based on the experiences I had had with a previous employer, we recognised that there were different types of outsourcing provider operating in the market. For example, agency treasuries effectively act as a transaction execution function, based on instructions given by the client’s treasury team. Application service providers enable access to a technology infrastructure, but the client manages their treasury transactions and reporting themselves. A business service provider delivers a combination of the two, but added to this, they often have greater decision-making freedom given to them by their clients. We made the decision to appoint a business service provider who would have some decision-making capability (within policies and procedures defined and monitored by SGS) together with transaction execution and reporting, and management of the systems environment.

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