1. Impacts & Regulations:
How do you address the regulatory changes? Do you consider them as threats or opportunities? Is it simply a matter of just making sure your company is compliant?
In my opinion, behind any new financial regulation there is an opportunity. At least the opportunity to revisit existing processes, to reorganize better your tasks and potentially to revamp way of producing reports. At the end of the day, no one could contest the benefit of these regulations. However one could contest the constraints and additional reports to be produced. If it brings better internal controls, it can bring benefits to the treasury. It is also a fantastic opportunity to “sell” internally or to the CFO IT solution investments (e.g. TriOptima-Triresolve for EMIR reporting; security measures for Swift Customer Security Program; a new TMS to comply with IFRS 9; Moody’s RiskCalc to assess credit risk for IFRS 9 and TP; etc…)
How to address it? Simply by checking whether we can compliant at decent or no costs and then to assess types of investments needed and of course by issuing a ROI showing benefits. The qualitative aspect is key to convince managers of investing in regulatory compliance equipment’s. It has to be assess regulation by regulation in order to determine whether or not you need to develop and to invest in a solution or advisory.
Do you see a need for Corporates to change their strategies to cater for the regulatory changes?
Obviously in some cases, it could drive to a change in strategy. It depends on types of changes. If because of EMIR inter-company reporting you stop intercompany hedging or because of hedge accounting you stop hedging affiliates, we have a major problem. If the new strategy is aimed a t simplifying the reporting rather than solving a financial issue, we could have an issue. The idea is to comply without changes in strategy. But BEPS/TP rules can for example give you an opportunity to increase at arm’s length the spreads on affiliates and to optimize a tax situation, because of interest limitation under ATAD DIR, you can reorganize inter-company financing to enable and allow affiliates to deduct interests at maximum possible and to avoid tax noise. We should not place the cart in front of the horses and to distort financial strategies for compliance or accounting purposes.
What are the connections between taxes, legal and treasury? Should tax and treasury be in the same team?
I would say not necessarily. Some companies mix tax and treasury even before the GFC (e.g. Ahold). There are some convergences and common grounds, but not at a stage that requires a fusion of both. It really depends on each corporation. Tax is becoming extremely complex under BEPS guidelines and for example, with the CFC or interest deduction limitation and TP principle and evidences to be produced, it should remain in the hands of specialists. However, joining taxes and treasury (among others) under the CFO umbrella makes sense.
2. Technology response to regulations:
Can systems handle the increased reporting requirements?
That is indeed a key issue. Usually, with all these new requirements and limited time to adapt systems, IT vendors aren’t always ready on time or do not come always with turnkey solution. Therefore, we need to adapt systems, to develop our own solutions or to be creative. In my treasurers’ role, we have opted for an ETL (i.e. Extract-Transform-Load) solution to customize and develop on our own the new required reporting. It is crucial as none of our systems is designed to fit to all issues, unfortunately. And of course EXCEL is the trickiest IT solutions. The XL paradox is also a funny one: the more IT solutions become sophisticated, the more XL is used. It remains the fallback solution, with all its weaknesses and risks. Therefore here again, it depends on which IT systems. Nevertheless, they usually aren’t fit to deliver additional reporting without a minimum of (insourced/outsourced) developments.
PSD2 has come into effect. How will this change the payment infrastructure between corporates and banks?
In my view, what is amazing with PSD2 is that for once a regulation is ahead of technologies. It goes very far and will open banks IT to all API’s. It is a risk for them but probably an opportunity too to collaborate with FinTech companies. PSD2 is one of the catalyst for changes as well as block chain derived technologies. Whatever the future of crypto currencies (providing they are currencies), this technology will revolutionize the landscape in many areas and field in finance. It has forced SWIFT and other stakeholders to eventually move. But the speed could be a killer if these old players are not evolving fast enough. There will be a before and an after PSD2, without any doubt.
In which areas do you expect more regulations? In crypto-currencies? Are they fit for Corporates treasurers?
We can expect more regulations on new currencies and of course the crypto-ones; in terms of IT security and internal controls (regulations from State or imposed rules from market infrastructure players like SWIFT with its CSP); in reference rates like LIBOR or FX fixing; in banking licenses in order to avoid Fintech’s playing on bank fields without banking licenses and financial institutions constraints and eventually in standardization. Regarding crypto-currencies, it is a tough question. They should be more regulated as eventually the initial goal (i.e. to be less depending on States) has been distorted and modified. States would like to keep control on currencies and what was supposed to be transparent finally opened doors to fraudsters and criminal organizations, besides normal and clean users. The future of those currencies will highly depends on the regulation behind. The treasurers could have to use them, in case some of their operations need it for specific purposes. It could be a limited but possible development. Of course, the hedging, the volatility and the liquidity will be the main issues to master.
3. Treasury technology:
How does the technological evolution impact the corporate treasury organizations? In which areas are the game-changing opportunities?
As for all of us and because we are heavy users of IT solutions (the most in finance), we will be highly impacted by new technologies. They are an enabler to be more productive and to perform better. But the sophistication and complexity will become an issue and we will have to hire appropriate profiles and skills to fulfil these new functions around IT treasury. The interoperability of systems and the consolidation of data coming from different sources and on different formats will be a challenge. But it could also offer opportunities to revisit process, to enhance existing solutions, to challenge suppliers, to mitigate risks and limit cyber-criminality. Let’s forget for the moment robots and AI in order to concentrate on how better use algorithms and data analytics to improve treasury management. That’s the immediate challenge.
Do corporates look differently at systems nowadays (i.e. ERP versus full TMRS and add-on tools)?
I don’t think so. Corporates aren’t convinced ERP’s can solve all the problems and serve all the functions. I am convinced we need specialists for specific tasks. Will SAP Hana revolutionize the treasury world? I don’t know. I am still waiting for the ERP tool able to do all required tasks of finance with one single framework and body. The architecture of corporate treasurers are complex and sort of patchworks of solutions because they were built gradually brick after brick and without initial plans. We add solutions, interfaced them and then we change others and re-interface and then we change something else etc… At the end of the day, we never start from scratch and we have to bear the IT system legacy. It would be better to start from a virgin treasury organization and to better think about the whole house. We treasurers build per room a house that can be sometime a bit chaotic and not perfectly organized or ordered.
4. Digital Treasury:
Does / will technology allow corporates to build more in house?
I am not convinced the new technologies will enable treasurers to build more in-house. These new tech’s are complex and not like Meccano’s or tool boxes I’m afraid. They will require expertise and in-house competencies. This is one of the risk for our future: not being able to properly recruit the necessary and required persons to run future treasury operations. Systems aren’t yet fit to fit-for-all and for all needs. The kitchen robots remain a wishful thinking and I do believe the specialization of tools will remain with a layer of interoperability and interface via specific connection tools, like EFT solutions.
How do you look at robotic process automation and artificial intelligence/machine learning? Will treasurers will lose their jobs?
The robots and AI will come and already offer some solutions. I keep thinking that it is evolving fast but not as fast as we thought. When I was young we all thought cars will fly by the year 2000. I do believe algorithms are interesting and can help, for example, in cash-flow forecasting (e.g. Givaudan, French army, in detection of fraudulent behaviors, etc..). For the machines able to manage day-to day treasury without treasurers, we will have to wait a bit. Before automation, we need harmonization and standardization. Think about KYC jungle and payment formats or methods. Consider the fragmentation of formats, standards, technologies and solutions, before imagining a treasury world full of robots and machines But for sure, it will come sooner or later and we need to keep adapting ourselves in a treasury Darwinism and by creating our future role and function and by developing the right needed skills of the future. To automate systems and operations, IT solutions must talk to each other’s. I know that IT vendors and FinTech’s develop payment solution on block chain basis or KYC solutions on distributed ledger technologies and its recently derived developments. But at the end of the day, we remain far from
5. Big Data:
How do you handle the overload of data? Data analytics become an increasingly important topic, isn‘t it?
More than big data, it is the existing flows of data coming under different forms and from different systems that we need to consolidate, to aggregate and to crush in order to produce ad hoc reports and dashboards. That’s the real immediate challenge for treasurers. It is why they are still using XL, despite what they all claim. The treasurers able to handle these data will perform better and those able to give access to the bank and payment data to the business will be the kings of the company. On one side, there are the big data for operations and in order to better sell products and services and on the other hand, the “big treasury data” we need to manage to make something out of it with a certain degree of automation and aggregation. Today, despite the technologies available and because of absence of standards and operability, it is a real challenge to overcome.