Corporate Finance, DeFi, Blockchain, Web3 News
Fintech, DeFi, Blockchain, Web3 Daily News by Finyear

Are treasurers taking the opportunity provided by regulatory compliance?

By Bob Stark. Friday October 25, 2013. Source:

Regulatory compliance is a headache for every treasurer and CFO. The Financial Times reported earlier this year that there is a new financial regulation every 22 days. Thomson Reuters more recently cited that there are 60 new financial rules every business day across the globe. While not every rule or regulation affects corporates, unquestionably there is a lot to pay attention to. As a result, treasurers often focus on the compliance itself, rather than the opportunities that meeting such regulations offers.


With less than four months to go, the deadline for SEPA migration is just around the corner. There is no shortage of warnings about the work required to meet that deadline and presumably good understanding as to the consequences of not being SEPA compliant with one’s payment programs. Yet, compliance has only been achieved so far by an estimated 30 percent of organizations for credit transfers and less than 15 percent for direct debits. These numbers are telling, but not as an indication of procrastination (suggestions that a third of corporates may not meet the deadline tells that story). These numbers indicate that a minority of organizations are in a position to grasp the opportunities offered by SEPA.

The largest opportunity SEPA provides is an excuse to standardize and centralize payment processes. The steps to harmonize formats, IBANs, BICs, and mandates alone suggests that a single repository of information – rather than multiple systems – yields benefits for initial compliance and ongoing maintenance of payment data. Centralizing internal workflows so that treasury and accounting collaborate on the touchpoints, approvals, and procedures to initiate, approve, and transmit payments improves operational risk management by delivering greater visibility and improved control of payments. This increases responsiveness, reduces fraud, and improves cash and liquidity planning across the organization. While these benefits are well understood, they remain a missed opportunity for Treasurers and CFOs.

Another significant opportunity clearly overlooked by treasurers is the use of direct debits. While two-thirds of corporates are expected to meet the February 1st deadline for credit transfers, many fewer will meet that same deadline for direct debits. There are two reasonable explanations for this, of course: 1) direct debits are less of a priority than outgoing payments and 2) there may be work required to comply. Both of these statements are true of course. But it is the reason why direct debits are a lower priority that presents the opportunity.

Direct debits offer an opportunity to improve control of cash collections. Once set up, they are an inexpensive way to improve the speed of and visibility into customer receipts. ‘Once set up’, that is. There is effort to collaborate internally, generate the appropriate documentation, track information internally, coordinate with customers to receive permission (i.e. mandates), and of course partner with one’s banking partners to execute the actual debit transactions. And, yes, all this work must be re-done to comply with the SEPA Direct Debit initiative anyway. Especially for those organizations that already have direct debits in place, whatever technology solution and business process used to achieve compliance for existing direct debit scenarios can be employed for customers that do not currently participate. Doing this now is an opportunity to decrease average costs to onboard customers on direct debit and simultaneously improve cash management and working capital. For those not there yet, it clearly is a missed opportunity.

EMIR and Dodd-Frank

European Market Infrastructure Regulation (EMIR) and its American cousin, Dodd-Frank, are both proving to be a compliance headache for banks and for corporate CFOs. While full appreciation of the requirements is still evolving, it is clear that there is a multitude of information reporting needs that must be satisfied. Meeting such requirements will tick the compliance box, so to speak. Stopping there, however, is another missed opportunity.

For example, if one looks at a relatively minor requirement of Dodd-Frank in the United States where corporates are asked to report the mid-point pricing of the trade, in addition to the actual contracted rate – the Treasurer is given a valuable tool. They now have a benchmark to compare with their peers to understand how effective their FX pricing is.

Another example is around assessing one’s own trading policies, as a result of better financial reporting. EMIR reporting requirements mandate more detailed reporting, retaining of longer transaction histories, and in some cases demand for risk mitigation (especially for non-clearing trades). This offers valuable information for the treasurer and CFO to evaluate their own risk position, benchmark trades against peers and industry norms, and evaluate the effectiveness of internal trading policies. While not required in every case, requests for pre-trade scenario analysis may be made by the counterparty – offering yet another opportunity to formalize pre-trade analysis procedures that are rarely employed by the majority of corporate finance teams.

Hedge Accounting

Regulations to support hedge accounting – formerly FAS133 and IAS39 – are not new and although migration to IFRS offers some differences, the objective of these regulations are not new. And nor is the opportunity. Yet, in many cases, hedging programs remain unsophisticated and focused on meeting the reporting and accounting requirements. Those corporates that have seized the chance to adapt the exposures they hedge and, more importantly, the tools and analysis used to economically hedge such exposures and protect the organization’s financial assets – they have worked both their financial and intellectual capital, helping both the company’s bottom line as well as their own star within the organization or industry. For most, hedge accounting has successfully pushed organizations away from overhedging, the pendulum swung a bit too far in the other direction where many CFOs will underhedge their exposures, putting corporate assets at risk. With all the data required by IFRS/FAS/IAS, both now and in prior cycles, there is ample information to assess the true effectiveness of a firm’s hedging programs and meet the original objective of hedging – protect shareholder value.

In summary, there are many regulations that can keep CFOs and treasurers awake at night. The sheer number of responsibilities does make it difficult to see the forest instead of just the trees. But every significant regulation that affects corporate finance and treasury has offered an opportunity to improve the effectiveness of the treasury operations and programs. It may be difficult sometimes, but it is worth it – for the company and for your own career path.

A version of this post originally appeared on on February 25, 2013.

Mercredi 4 Décembre 2013