The key role of treasury in funding the transition to net zero
Find out more about the future of treasury and cloud adoption
It’s easy to underestimate the importance of a fully-enabled treasury function on your firm’s profitability: just holding sufficient liquidity and funding, charging the costs to your business lines and making sure your regulators are satisfied seems just fine. For the past decade, transformation resources in treasury were indeed driven by regulatory requirements and management was making sure buffers are built up to meet the metrics across the globe.
The Future of Treasury is about becoming aware of the profitability potential that lays therein and tapping into it by
Understanding where potential lies in treasury is good but giving it a price tag is even better. A global systemically important bank typically pays between USD 5 million and USD 15 million of costs for each percentage point of liquidity coverage ratio, depending on various circumstances. Managing economic resources alongside all applicable constraints is a complex undertaking that calls for a close risk/finance integration. Every capability that helps a firm manage its liquidity and funding closer to targets, while still being resilient in times of stress, can yield a significant P&L impact. While keeping processes in treasury efficient, L&F management is often where the biggest levers are hidden. Saving the increase of 1% of LCR for only two days with better knowledge of the liquidity situation can easily equal an employee’s full year salary at a large bank. Given that liquidity costs are to large parts independent of the overall interest rate level, there’s no excuse in waiting to step into the Future of Treasury.
For us, bringing treasury to the next level is an undertaking that requires centring the function’s very purpose around business partnering. Building up better capabilities to act as a strong business partner is a technology-driven undertaking that must be managed in a holistic way. The Future of Treasury sees a setup that follows 7 principles:
The treasury setup must be directed towards tapping into P&L-relevant potential. Enabling the firm to manage its liquidity and funding close to defined targets is a key driver for this. The reduction of buffers that address timeliness and accuracy gaps is an ongoing goal that the function should not become tired to pursue, especially in a non-profit centre setup.
A powerful cloud architecture that is embedded into the firm’s overall data strategy is a key enabler for a timely view on the firm’s L&F situation, for predictive analytics to be run and for fast feedback to the business. A group-wide data strategy with strategic partners facilitates a closer risk/finance integration that allows treasury to build its tools on a harmonised and holistic data basis that serves multiple purposes.
The cloud architecture enables running powerful analytics that helps with understanding the complex interconnectedness of economic resources. Predictive analysis moves processing from ‘end’ to ‘intra’ and helps steer these sources closer to the target values. However, especially with AI in (intraday) liquidity, funding and capital there are challenges to be prepared for to transform it from buzzwords into a business tool.
Global financial firms face a growing complexity of constraints in various dimensions. A highly accurate and timely funds transfer pricing setup enables a pricing and thus business steering that takes a business’s true contribution to the constraint set into account. In a technology-driven Future of Treasury, business partners use cloud-integrated business intelligence solutions to understand ex-ante how they will use economic resources and how their usage affects profitability on a trade-by-trade level.
Edge technology such as DLT can hold promising use cases for treasury and the risk/finance integration… or not. It’s vital for treasury to explore such use cases and to understand the meaning of industry developments such as blockchain-based trading for treasury and asset liability management. Being at a crossroads of data from finance, trading, risk and the market, treasuries at large firms often deal with a complex and fragmented system landscape. Private blockchains can play an important role to increase the accuracy of data arriving in treasury in follow-the-sun L&F management across the globe.
Taking the next step towards the Future of Treasury requires significant transformation efforts and often also overcoming old thinking habits. A coached, agile delivery approach with strong stakeholder buy-in plus collaboration in line with the group-wide data strategy as well as a modular build-up are key success factors.
Treasury operations and transactions have a significant tax impact in a global financial services firm, especially related to funds transfer pricing. The tax implications of debt issuances, cash pool pricing, short- and long-term provisions of funds within an entity and liquidity premia are an important factor to consider and to be diligent about. Tax investigations can take up to one or two years to resolve and then require a significant amount of data.
PwC is your strategic partner on your road to the Future of Treasury. While we have dedicated services that address the single capabilities in the approach, our value as a global network comes from combining the expertise and learnings from the industry across the various elements. Digital leaders in financial services benefit from combining their technical and business knowledge in an agile manner and so do we. PwC helps you choose and collaborate with a strategic data partner to build the technical basis for the Future of Treasury and ensure it is put to the best use for your treasury’s own management and business partnering. We stand out by having started to think early beyond the regulatory-driven changes that treasury departments had to go through in the past decade and we focus on the profitability contributions that treasury departments can make to their firms’ bottom lines.
Partner, Financial Services Markets Leader, PwC Switzerland
Tel: +41 58 792 25 19