Security in Finance for 2024 in a Transformed Banking Landscape
This article is written by Cobase As the corporate finance landscape undergoes rapid transformation in 2024, businesses find themselves at the intersection of innovation and vulnerability. The dispersed banking model, characterized by digital transactions and decentralized operations, poses unique security challenges that necessitate a forward-thinking approach. This shift, while primarily driven by digitalization, also sees Payment Service Providers (PSPs) playing an increasingly supportive role in facilitating seamless financial operations. This blog post delves into the critical security considerations for corporates in this new era, offering insights into maintaining robust security postures amidst evolving risks. The Evolution into 2024: A Dispersed Banking Landscape The transition towards digital banking was significantly accelerated by the global events of 2020-2023, leading to a dispersed banking model characterized by remote operations, digital transactions, and the integration of fintech solutions. A report by the Federal Reserve highlighted a 200% increase in mobile banking traffic and a 150% surge in online account registrations during the initial phase of the pandemic, setting a precedent for the future of banking. The Security Imperatives in 2024 With this digital transformation, the security risks for corporates have evolved, necessitating a reevaluation of traditional security frameworks. Phishing attacks, ransomware, and data breaches are on the rise, with IBM’s Cost of a Data Breach Report 2023 indicating the average cost of a data breach reaching $4.35 million, a stark reminder of the financial and reputational stakes involved. Key Security Considerations for Corporates The Role of Regulatory Bodies and Standards As corporates adapt to the dispersed banking model of 2024, the emphasis on security must be integral to their operational strategy. This involves not just adopting advanced technological solutions but also fostering a holistic approach to security that encompasses regulatory compliance, employee education, and strategic partnerships. Conclusion The journey through 2024 and beyond will be characterized by a delicate balance between embracing the efficiencies of the digital banking landscape and mitigating the inherent security risks. For corporates, the path forward involves a comprehensive security strategy that integrates technological, regulatory, and human elements. By doing so, they can navigate the complexities of this new era with confidence, ensuring the security and integrity of their financial operations in the face of evolving threats. Corporates must take a proactive stance in enhancing their security measures, staying abreast of regulatory changes, and fostering a culture of continuous improvement and vigilance in cybersecurity practices. By doing so, they can protect their assets, maintain customer trust, and thrive in the dynamic world of finance in 2024 and beyond. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Franklin
The Risks of Not Adopting a Treasury Management System
This article is written by Kyriba When evaluating the implementation of a treasury management system (TMS), there will always be the inevitable question of why? Each company has processes in place that have worked up until now, so why should we fix what isn’t broken today? Although current processes have worked in the past, there are many risks associated with maintaining manual and disparate treasury practices that can impact the company’s reputation and bottom line. In this blog, which is part of our Value Engineering series, we explore some of the top risks that are often overlooked when evaluating the status quo versus the future state of a TMS. Lack of Insights into Global Liquidity CFOs face daily decisions that can impact the financial stability and longevity of their organization. They require access to timely and reliable insights into the company’s global liquidity position to ensure effectiveness and alignment with strategic objectives. Ever-changing economic, political, and social factors create volatile conditions, often resulting in small windows for decision-making. The treasurer must be able to provide updated insights at a moment’s notice and have confidence that the information is complete and accurate. Without a TMS in place, data is often stale, or market conditions may have changed by the time it reaches the CFO. This can result in a strategic business opportunity no longer being available. In addition to the risk of delayed insights, there is also a heightened risk of human error. Keying mistakes, formula errors, and file corruptions are all risks that could halt a treasurer’s ability to operate efficiently without impacting an organization’s bottom line or its reputation. As a former practitioner, I worked at an organization that closely monitored the release of payments to ensure compliance with quarterly debt covenants. Before the adoption of a TMS, this required labor-intensive and manual review, selection, and release of payments each month, end, or quarter. Although policies and procedures were in place to ensure that only approved payments were processed, it came down to the wire with emails requesting the urgent holding or release of payments. In one instance, this practice resulted in a $2.5 million payment being sent without a division CFO’s approval. A TMS with systematic analysis of available liquidity and payment controls would have prevented the release of this payment, saving the company and the treasurer’s career. Business Continuity Businesses with an antiquated treasury process are unable to optimize human capital, often resulting in reduced employee satisfaction, elevated turnover, and an inability to develop and grow talent. The cost associated with ongoing staff training, as well as reduced operational efficiency due to turnover, needs to be evaluated. Additionally, the potential for increased overhead must also be assessed when analyzing how the current structure would be able to support continued growth and expansion. How will the organization manage operations with a 10%, 20% or 30% growth trajectory with the current team structure? Automating processes through treasury software enables a strategic competitive advantage with talent retention and development, reducing the risk of employee turnover, as well as the organizational risk associated with overreliance on subject matter experts. Heavy Reliance on IT for Maintenance & Support IT departments may be stretched thin and often struggle to provide adequate and timely support across the organization for various projects and executive-level initiatives. In addition, the constant threat of the newest cyberattacks means that IT must constantly ensure that its policies, procedures, and safeguards are up-to-date. Unfortunately, competing demands can mean delays in Treasury maintenance to make sure that all bank-to-ERP connections are encrypted, maintained, and supported for change management. Bank connectivity is one of the most complicated and time-consuming demands a Treasury department can ask of IT. When a new relationship or account is formed and an ERP connection needs to be established, internal IT departments can spend up to 1,500 hours developing, testing, and then deploying bank files in coordination with the bank’s implementation teams for just one format. During this transitionary period, Treasury departments are forced to create workarounds, struggling to do so without operational disruptions. Business operation disruptions have a reputational impact on the organization. During my time as a Treasury Manager, our bank-to-ERP connection failed and suddenly, payment files were not being processed. Payment timing was essential to keeping the just-in-time manufacturing lines of our customers going. This file failure put one of our customers at risk of shutting down production due to a lack of payment, which would have caused us to lose preferred supplier status and could have destroyed our reputation in the industry. A TMS with a global support staff that constantly monitors and maintains connections and proactively alerts organizations if there are any issues would have solved these problems. Compliance & Controls Regulatory and compliance requirements continue to evolve, putting considerable pressure on the treasurer to verify that their treasury processes and procedures are up-to-date. Ensuring that all reporting obligations (OFAC, J-SOX, FBAR, KYC, internal/external audit, etc.) are met is a laborious task. If not constantly monitored and maintained, it can have detrimental financial and reputational impacts on the organization. With a TMS in place, all reporting and systematic audit trails are in a centralized location. Payment validation through a TMS ensures that all payments are legitimate and meet the most recent regulatory requirements. This protects the company from the release of any transaction that does not meet policy or regulatory guidelines. Standardizing controls and supporting compliance reporting enable treasurers and CFOs to focus their energy on more strategic concerns. Next Steps Evaluating the risk associated with the status quo can be a painful process. Change is scary and no one wants to acknowledge pitfalls in their current processes. Although certain situations or consequences may not have occurred, with manual and disparate practices, it is a matter of when something will break and how the company can protect itself and recover when it does. Since we are often blinded to the possibility of the potential impact of our current treasury processes, many organizations choose to seek external help in assessing the risks associated with their status…
Key market trends impacting treasurers
Corporate treasurers are facing another complex market environment this year. The pandemic has created significant economic uncertainties, which have been compounded by geopolitical tensions, supply chain disruptions, and changing regulatory regimes, resulting in high inflation. In this article, we will explore some of the key market trends that are likely to impact corporate treasurers in the coming years. In 2022, according to Reuters, major central banks hiked rates at the fastest pace (and by the largest amount) in more than 20 years. The U.S. The Federal Reserve hiked 7 times, totaling 425 bps for the year, while the Bank of England (BoE) hiked 350 bps across 9 hikes and the European Central Bank (ECB) hiked 250 bps across 4 consecutive hikes. 2023 has already seen several hikes, and the year is far from over! All of these in order to fight against inflation. “One might wonder whether the end justifies the means.” However, with recent news, one might wonder whether the end justifies the means… We are all glad that the financial system is much more resilient compared to the 2008 financial crisis, after the numerous reforms banks had to go through, allowing them to have high levels of capital today to pass the ongoing storms with a shaky banking environment and market turmoil. In my view, what is going on is a good (and necessary) refreshing cure that yes, banks can still go bust, and counterparty risk is still all around us. “A good (and necessary) refreshing cure” As cheap/zero-cost money came to a brutal end after more than a decade of free money, corporate treasurers have (again) had to adapt to this new situation. The current environment results in a tighter debt market, with foreign exchange hedging getting more expensive. The recession risk, together with uncertainty, puts higher focus on cash forecasting (like if it weren’t already priority #1) For companies not too leveraged (i.e., not too reliant on debt to fund their activities), this shock can be absorbed, while SMEs struggle with inflation and stricter access to funding combined with higher borrowing costs. “High interest rates are not only a consequence of rate hikes by the central banks to fight inflation.” Treasurers need much more active management of cash, both on the borrowing side and the investment side. As a result, money market fund providers are getting a lot more attention, and requests for short-term deposits are increasing all over the place. The duration of investments has changed as well (impacted by the speed of rate hikes, and the uncertainty). However, there’s no free lunch: high interest rates are not only a consequence of rate hikes by the central banks to fight inflation. On the horizon are also higher counterparty risks and, maybe, a liquidity shortage. Therefore, treasurers will need to find the right balance between a risk-adjusted return on their excess cash and simply benefiting from almost “risk-free” returns. “Expect volatility to persist in the short term.” In conclusion, Corporate treasurers need to consider implementing and updating their hedging strategies to mitigate the impact of currency fluctuations, closely monitor interest rates and counterparty risk to ensure that they are managing their cash and debt portfolios effectively, and in good household manner, so that they can position their companies for success in the coming years. They will need to stay vigilant and adapt to changing market conditions, and expect volatility to persist in the short term. Read more from Benjamin Defays Join our Treasury Community Treasury Mastermind is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Benjamin Defays
Getting to Know the Animal of your Corporate FX Risk
This article is written by GPS Capital Markets Over history, people have developed systems for measuring time and keeping track of information. From cataloging the patterns in the night sky—like constellations—to creating educational anecdotes to pass on wisdom about life, love, or economics—like fables or parables—many of these metaphorical systems have featured animals. Like in Aesop’s fable “The Crow and the Pitcher,” when the bird puts pebbles in the pitcher, it raises the level of water until he can drink. The tale helps pass knowledge on about how to make steady progress working through problems. GPS approaches FX exposure analysis in the same methodical way. As we enter the Year of the Dragon, we can look at the categories of FX exposure and ways to approach hedging them by comparing them to the Chinese zodiac. Are you approaching your balance sheet exposure with the patience of an ox or the cunning of a snake? Are you ready to channel the luck of the dragon to push your company forward this year? Read through our list to learn more about knowing the animal of your corporate FX risk and taking inspiration from the positive qualities ascribed to it to respond to risks. The Pig: Transaction Exposure If the financial services industry had a mascot, a pig would be a great choice. With its long association with reliability, it’s no wonder kids learn to save using piggie banks. In the Chinese zodiac, people born in the year of the pig are good in business dealings. There’s even a story about a pig and chicken who want to start a business: The chicken says she will contribute her eggs and expects the pig to hand over the bacon. The pig in this story is the business partner with the most to lose and a life-and-death commitment to getting the business to succeed, whereas the chicken is a fair-weather partner who will likely cut and run when things get rough. Transaction exposure is the day-to-day risk associated with invoices and contracts. A pig-like approach to foreign exchange is what we at GPS Capital Markets provide. Each of a client’s risks is assessed, documented, and hedging strategies put in place to save and optimize practices over time, day by day, invoice by invoice. With the reporting and analytics capabilities of FXpert, regularity and dependability in your FX trading and hedging strategies improves steadily. The Rat: Translation Exposure One of the main types of FX exposure is Translation Exposure or Exchange Rate Exposure. This exposure takes place when financial statements (balance sheet, profit and loss) must be translated from a subsidiary’s local currency into the parent company’s currency. The consolidation necessary to assess the company’s accounts reflects the ethos of the Chinese zodiac rat. Rats, like squirrels and other rodents, scavenge, consolidate, and guard resources. Consolidation gives confidence to investors and board members. As the translation of funds occurs, it’s worth leaning into the positive aspects of the Chinese rat, being meticulous in accounting for exposure risk before it becomes a real problem on your balance sheet, and putting plans into place to mitigate losses as a result. Learn more about hedging. The Ox: Economic (or Operating) Exposure Every seasoned business owner has faced years when nothing seems to go right. Even when your books are balanced and the leadership is making good decision after good decision, larger market forces have flattened strong companies and entire economies. Economic exposure is the risk inherent in fluctuating currency markets on a broader scale. In terms of macroeconomics, there’s still ways to predict and model these dynamics; however, one of the most important ways to brace for variability in markets is to take the ox as inspiration. Oxen symbolize hard work. Whenever populations moved or tamed territory through history, oxen were present to pull carts and plows. To face wide exposure, you must be strong, independent, and supportive of the rest of your treasury team. Even when a client has thousands of pending invoices, at GPS we move forward like a stubborn ox until the client has a clean shop and fully functioning accounting practices in place. The Dragon: Mitigating Corporate FX Risk In February 2024, we ushered in the year of the dragon. An ancient symbol of China and associated with luck, the dragon also symbolizes powerful, energetic, and visionary leaders. When it comes to an overarching metaphor for corporate leadership tackling exposure risk, there’s no better image than the dragon. When you consider expanding into new markets, business leaders need a good measure of courage and luck to set up subsidiaries and deal with exposure as it arises. Another aspect of the dragon is that it’s a giver of abundance and longevity. At GPS, we provide the extra help treasury department and C Suite leaders need to grow their businesses across national boundaries and foster success far into the future. Because our individualized customer service is coupled with the leading FX rates and technology, we have long-term clients who trust us to help lead their companies forward with the spirit of the 2024 dragon. ALSO READ Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Introducing Article Sharing on Treasury Mastermind
How to Post your own article Here is a step-by-step guide on how to post your own article: Step 1: First, ensure you are a registered member and logged in, then click on the profile icon at the top right and a drop-down menu will appear. Step 2: When the drop-down menu comes up, click on “my blog” to be taken to where you can write an article Step 3: On the article edition page, put the title of your article on the “Post Title” section Step 4: Add the content of your article to the “Post Content” section. Step 5: Add a short excerpt to your article to highlight what your content talks about (although this is optional) Step 6: Upload an image you want to be associated with your article. Step 7: Check a category you feel your content is best associated with. Step 8: Click on the tags you want linked to your article (this step is also optional). Step 9: Finally, you can submit your content when you are done. Please note: All submissions are subject to admin approval to make sure they conform to forum rules. So, there you have it. Do not miss out on the opportunity to share articles that might be useful to other treasurers.Go to the forum to share your article at any time.
Treasury Technology Trends in 2024: How APIs, AI, and RPA Change the Treasury Landscape?
This article is written by Nomentia Treasury technology trends are developing at a rapid pace and like in other industries, the names of new emerging technologies are popping up here and there. It’s only natural, though. For the last decade, we have been talking about digital transformation and Treasury has truly embraced the idea of digitalizing and automating processes. Still today, the evolution of treasury continues. If someone wasn’t convinced about digitalization five years ago, they’re now witnessing development occurring at an accelerated pace. Treasury teams are now evaluating which processes require improvement. While some companies are just starting to implement treasury management systems to improve their ways of working, others are always frontrunners in adapting exciting new technologies, and they are paving the way for others. While working with clients, we often come across treasury teams that are ready to provide us with new ideas to develop our solution further, so they could be among the first to implement something new that would benefit them but also benefit the rest of the treasury community. A while back, our clients helped us develop a rule-based fraud detection engine to catch anomalies in outgoing payments, while today, we hear from clients that some of them are developing business cases for using AI in cash flow forecasting. But before going through the trending technologies like APIs, RPA, or AI, we’ll take a look at how treasury management systems have developed over the years and where they are today. Treasury today: moving from on-premise solutions to the cloud One of the most significant developments of the last decade has been that solution providers have started to move from providing on-premise solutions to hosting everything on cloud platforms (like Microsoft Azure or AWS), offering their services as software-as-a-service. The change has been massive: it meant that solutions could be taken into use much more rapidly than before with less support from IT, the solutions were more secure and highly available, and monthly updates and major releases were available for all users once published. Cloud-based TMS solutions have enabled treasury teams to build their roadmaps differently As vendors have started to offer cloud-based treasury management software, treasury teams have more opportunities: they could plan the treasury roadmap using a best-of-breed approach. The best-of-breed approach means that it’s possible to implement solutions at one’s own pace or even take solutions from several vendors. Earlier, a company could have implemented the best TMS on the market, yet the TMS could have lacked certain functionalities that they needed. With a modular approach, it’s still common that the Treasury team implements a robust TMS, but at the same time, the team could find a solution from another vendor that would have better possibilities and functionalities and could be integrated with the TMS, ERP, and banks to ensure that the processes work seamlessly. This has been a huge step forward, as Treasury teams could start selecting the solutions that best fit their challenges and needs, instead of settling for a single solution that may not fully satisfy all their requirements. Integration, bank connectivity, and process automation are essential in treasury Integrations have also played an important role in how Treasury teams have developed their technology stack. Building integrations between different cash and treasury system solutions has become the new norm. Perhaps, still, the biggest priority is setting up the integration with the primary and secondary ERP systems, as the reliance on real-time information is even more important when multiple solutions are relying on accurate data. Bank connectivity is also a solution that treasury teams are seeking, especially when the business is starting to grow. One can manage one or two connections internally, but the moment treasury needs to handle global operations, investing in a bank connectivity solution is a must. Now, after we have gone through the basics that have been shaping the Treasury of today, it’s time to look at the technologies that could shape the Treasury in the upcoming decade. Treasury Technology Trends that are shaping the future of Treasury APIs, AI, RPA, ML, Blockchain, Big Data, Data Analytics… you have been hearing these terms all over the internet in different contexts. Consultants and analysts are pushing these topics daily as the next big thing. These are the Treasury technology trends shaping the future of treasury and we’ll take a look at how API, RPA, and AI could be shaping how you work daily in treasury and finance. APIs will change how we connect systems APIs (application programming interfaces) are a set of definitions and protocols for integrating software solutions. With the help of APIs, the products you are using can communicate with each other. Usually, developers implement APIs to ensure they offer simplicity in connection, flexibility, and thus serve as an excellent starting point for innovation – whether you aim to automate processes or access real-time information from a specific source. Perhaps one of the biggest use cases is to connect different treasury and financial software using APIs. Modern SaaS solutions usually offer built-in API connections and the faster you can connect your technology stack, the faster you will be able to automate different tasks or obtain data from various sources. Banks have been investing heavily in API development over the years and most banks offer Premium APIs for treasury and finance teams to facilitate automation between your banks and your financial systems. We recommend that you familiarize yourself with the different offerings of your banks to know what’s possible with APIs and how you could utilize them in your daily work. Robotic Process Automation (RPA) could be the answer to repetitive tasks Robotic process automation (RPA) is a technology solution that relies on using robots or “bots” to automate simple, repetitive, or rule-based business processes. The tasks are often manual, time-consuming, and error-prone. The robots are mimicking human interactions with software, systems, or applications, and they perform tasks such as data entry, data extraction, calculations, or other similar routine operations. RPA relies on pre-defined workflows, data manipulations, and solution-making decisions based…