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Holistic review of risk: top priority for corporate treasurers.

One of the key attractions in treasury is the ever-changing environment in which a treasurer operates. Not a year goes by without the passage of a new regulation or an economic crisis in some part of the world that could severely impact a company's liquidity and profitability. Globalization further complicates the treasurer's role, as considerations for foreign exchange and counterparty risk need to be made.

The results of a recent SunGard survey of senior treasury professionals reveals that gaining a holistic view of risk across the enterprise is a top priority in this rapidly changing environment. Although heavily weighted toward risk, Not a year goes the surveyed executives said of a new regulate, their other priorities include, streamlining bank communications and consolidating payment flows.

Gaining a Holistic View of Risk

Today, a growing number of companies of all sizes are becoming global, resulting in many risk implications, especially when it comes to FX, interest rate, commodity and operational risk. For example, when a company buys or sells anything from outside its home country, and the transaction is denominated in a currency other than its base currency, the company books an expected payment based on the exchange rate that day.

Any changes in the exchange rate between invoice and actual payment present risk. The further out in time the payable or receivable is expected, the greater the risk given the time effect on changes in the markets. Those who regularly monitor the currency markets notice that exchange rates change roughly two to three times a second.

Similarly, the treasurer must cope with the risk associated with borrowing cash and investing surplus cash, as well as the price of commodities in the global marketplace.

Increasingly important among global companies is a treasury solution, specifically designed to identify manage, test and report on the risks associated with doing business in a global environment. A treasury solution at its most basic level is a consolidation tool to retrieve and aggregate data from the multiple banks for which it holds accounts. This information is pulled through direct connectivity to banks or manually downloaded as a file that is then compiled into a cash position. aver onto that the known financial events of the day and a treasurer can obtain a good idea of what will need to be borrowed or invested globally--not just today, but in the months and years ahead.

Bank Communications and Payment Flow Consolidation

To pull together information in a timely and usable fashion, a treasury department must rely on efficient bank communications. Typically, this connectivity has been provided by the banks themselves, but in the event a corporation has a sizeable number of bank relationships and accounts, maintaining the many links to the banks is no small task.

Banks have offered consolidation services to report on other banks' data, but of course that comes at a cost.

The growth in other non-through the passage bank networks has been sign or an economic significant in recent years. The primary provider in the bank communication world is the Society for Worldwide Inter-bank Financial Telecommunication (SWIFT).

SWIFT is open to corporate membership through its SCORE program and provides corporations access to services from multiple banks via a single point of connectivity. Il provides portability and as close to real-time cash reporting as possible, along with the capability of transmitting payments across an incredibly robust and resilient network.

Enhancing the capabilities of treasury solutions and taking the workflow and volume capacities to higher levels is typically the domain of payment factories, which operate by importing payment data in multiple formats and normalizing that data into a format that can be transmitted to the payment banks. These may be localized or standard SWIFT message types transmittable to banks directly or through SWIFT interfaces.

They add the ability to handle very large volumes of data, to normalize and report on exceptions easily and to feed that information to multiple systems for cash positioning and reporting. The major benefits accruing from a payment factory include routing payments through the lowest-cost means of payment, removal of the need for local bank payment platforms and fraud reduction.

The priorities of corporate treasurers, as noted in the Sun-Gard survey, reflect prevailing wisdom and trends regarding treasury departments today. Fortunately, technology providers are rising to the occasion when it comes to managing financial risk, bank communications and payment flows.


Paul Bramwell ( is senior vice president of treasury solutions for SunGard's AvantCarcL He is based in Hartford Conn.
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Title Annotation:TREASURY
Author:Bramwell, Paul
Publication:Financial Executive
Article Type:Survey
Geographic Code:1USA
Date:Mar 1, 2012
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