Some tips for treasury managers from the EuroFinance’s May conference on International Cash and Treasury Management held in Miami.
EuroFinance got together a great group of speakers to discuss how treasury organizations can manage in times of disruption. The main theme of the conference was that the big challenge in today’s marketplace was not change but the compound effect of many changes happening at the same time. In this environment, treasury organizations need to find a way to quickly adapt to the disruptive changes in innovation and regulation while still making progress on the operational best-practices front.
As mentioned in a recent iTreasurer.com article, treasury managers should use short-term objectives as stepping stones to achieve the long-term vision of the treasury organization. Complicating matters is that in the current environment, that long-term vision is evolving quickly, thus treasurers must be more vigilant than ever in how all the pieces can work together.
Here is a summary of some topics discussed in the conference:
Disruptive technology – Big data and cyber-crime are just the tip of the iceberg
The world creates immense amounts of data every day, and as Mr. Ed Dumbill of Silicon Valley Data Science put it during the conference’s opening session, “data is a business matter.” As Mr. Dumbill indicated, the decreasing cost of processing data is opening new doors for business to understand their clients and find trends or patterns that were just impossible to unearth before. These new capabilities are bringing about major advances in medicine and other industries, as presented by many speakers. On the treasury side, these capabilities are already being leveraged for trade finance, where understanding complex trade flows allows businesses to put in place better structures to support them. As cost of processing data continues to go down, big data has an incredible potential to enable to automate cash forecasting as patterns that before were “tribal knowledge” needed for forecasting could finally identified in the mist of all the cash flows.
The cyber security session was an eye-opening discussion. Josh Goldfarb from FireEye showed surprising data on how ineffective corporates and banks are in combating cyber-crime. As he put it, the days when firewalls were sufficient protection are over – and companies need to stop “planning for last war.” Hackers are more versatile and adaptive as ever, he said, trying to go get on the inside through people.
Other very relevant points brought up during the conference included the future of banking, artificial intelligence and the rise of cryptocurrencies. But what was clear from the discussion was that treasury managers should, beyond their day-to-day, keep up with what is going on in their industries and try to anticipate disruptions. One simple innovation either downstream or upstream in the supply chain could end up transforming an industry, forcing consolidation or eliminating the purpose of certain companies with obvious consequences for the treasury operations.
Disruptive regulation – OECD’s BEPS initiative and Basel III
As if changes coming from innovation were not enough to handle, banks and corporates now face a wave of significant changes in regulations and taxes. Some of the changes have already affected treasury operations and some are expected to in the very near future. They include SEPA, MIFID II, Dodd-Frank, EMIR, Basel III and Organization for Economic Co‑operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) plan.
The OECD’s BEPS initiative will be one of the larger challenges. The plan aims to eliminate any tax arbitrage opportunities arising from differences in various countries’ tax laws. Although the OECD cannot impose changes in regulations upon any country, the initiative is a signal of the change in mentality regarding taxes; and some countries have already started making changes in their regulations in advance of the OECD’s recommendations. As Ernst & Young speakers at the conference pointed out, this could have a dramatic effect on inter-company lending, liquidity structures and other treasury activities.
Another important change will be the effects of Basel III on the long-term relevance of banks as a critical part of the economy. This is a regulation that was meant to create stability in the financial systems, but that is basically reducing financial intermediation, having significant implications for banks and corporates.