Strategic Treasury

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Shifting Shades of Grey We all firmly believe that the treasurer’s job has changed over these last five years. However it looks as if we are moving into a new phase of change and evolution for the job, a phase tinged with shades of grey.

Shifting Shades of Grey

Shifting Shades of Grey

by François Masquelier, Head of Corporate Finance and Treasury, RTL Group, and Honorary Chairman of the European Association of Corporate Treasurers

We all firmly believe that the treasurer’s job has changed over these last five years. However it looks as if we are moving into a new phase of change and evolution for the job, a phase tinged with shades of grey. Transactions are becoming more complex and processes more burdensome because of the new regulations. Treasurers are battling to comply with these regulations and no longer have time to devote to tasks with a higher value added. This perhaps is the biggest challenge in the immediate future, not the regulations themselves.

Moving to a new era for the treasurer’s job

We can expect 2013 to be the year of the plethora of regulations, even if many of them apply mostly in 2014, some of them even later. These new regulations will once again disrupt treasurers’ lives, change their organisational structure and divert them from their day-to-day work, preventing them from devoting their valuable time to tasks with a high(er) added value content. The example of EMIR and IAS 39 (soon to be replaced), which we will mention several times in this article, are good illustrations of these forthcoming gradual but profound changes. We have moved into a new era for treasury management. I would say that this job is taking on shades of grey because of the constraints and burdens weighing down upon it. Some jobs are pretty static and change little, other than from the point of view of their IT platforms. The treasurer’s job, by contrast, is relatively recent and keeps on changing by stealth, and not always for the better.

Chart 1

From the needle at ‘empty’ to the needle at ‘full’

Over the last dozen years or so we have moved from zero reporting to reporting everything in full. We used to disclose nothing and now everything has to be disclosed in the annual or even the quarterly accounts. The volatility of financial products has switched from being non-existent to now being total and being recognised in the accounts, unless we adopt hedge accounting at heavy administrative cost. The idea of collateral was unthinkable only 10 years ago but has now become almost mandatory (in spite of the relative exemption under EMIR – yet to be confirmed by the EU CRD IV Directive adopting Basel 111). From an operational structure made up of around 80% front-office (against 20% back-office), we have moved to a fifty-fifty split, with half of our job now made up of proliferating back-office tasks. Who can tell whether tomorrow administrative tasks will outweigh the operational work? Quite likely they will! From few or no controls, other than that of internal audit from time to time, we have now moved to hyper-control – internal audit, Audit Committee, external auditors, ‘stock-market policeman’ (e.g., FREP, SEC, FSA, COB), etc. Internal procedures and policies have become ever more numerous and strict. This amounts to a huge funnel of rules which increasingly restricts freedom of action, for risk mitigation reasons or through failings in the new regulations. Treasurers or at least CFOs become totally risk averse. They no longer manage at all in fact, they just administer and report. The job is changing gradually and is taking on shades of grey, with ever more restrictive reporting and disclosures.

Chart 2

This also explains why, after starting as profit centres, the majority of treasury management units have moved to become service centres and then on to cost centres, with the latter constantly on the increase. Complying with diverse and varied regulations costs companies dear and reduces their productivity. Fortunately TRMS (treasury risk management systems) are developing continuously making it possible to fully automate some manual or semi-automatic operations. Technology has come to our rescue even if right now the ever-changing patchwork of regulations means that suppliers have to spend more time waiting than offering solutions. The current regulatory environment in no way makes it easy for SaaS software or IT solution providers to develop solutions and provide customer service.

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