CFOs are increasingly calling on the leaders of their treasury departments to provide greater strategic support around risk management – and treasurers are keen to step up to the challenge, a survey conducted by HSBC and FT Remark has found.
The survey also highlighted that more than half of all CFOs believe FX is a risk their company is least well-placed to deal with amidst increasing volatility in currencies, with the majority saying their company suffered reduced earnings in the last two years due to avoidable, unhedged FX risk.
While 73% of CFOs said the risk management role of their treasurer has grown, 57% do not yet have complete confidence in their treasury having the required skills to step up to that new role. The task is made even more demanding for treasurers by the need to manage new challenges, with 53% saying changes in FX regulation will have a material impact on their risk management strategy in the next three years.
We spoke exclusively to Holger Zeuner, director of thought leadership for Europe, HSBC to better understand the treasurer’s role in risk management.
The survey highlighted that 57% do not have complete confidence in their treasury to have the required skills to step into a more strategic role. What do you feel is preventing them from gaining these skills?
“I think it will largely be a matter of time. Treasurers’ responsibilities are growing at a time when a) many companies have increased their international footprint from organic growth or M&A, and are consequently taking new risk factors into their portfolio; and b) the external risk environment is becoming more complex, and more unpredictable, which really compounds the challenge of stepping up to a bigger role.
“It’s nothing that should ultimately prevent them from gaining more strategic skills, if they manage the transition from the historic “core” and locally-focussed responsibilities of liquidity and transactional FX risk management, towards a more holistic approach that considers group-wide effects.”
How do you feel digitalization will benefit risk management strategies for treasurers?
“There are two parts to the digitalization story.
“On the one hand, we see a range of new applications arising within treasury IT. From specialized treasury management software (TMS) – automating standard processes from plan data over hedging rules to hedge accounting – over further macro predictive tools in cash flow forecasting, to complex analytics that consolidate and process disparate data across the whole organization.
“Secondly, digital initiatives from banks are also helping, in areas like liquidity management, working capital solutions, FX hedge execution and recently even financing platforms. Some companies have already outsourced standardized and automated processes into specialist units, again freeing up time for the core treasury team to focus on more complex and valuable tasks while reducing operational risk.”
For those treasurers looking to make the step up in providing strategic support and developing their skills, what advice would you give to them?
“It is clearly a daunting time to be taking on a bigger risk management role, but treasurers should be encouraged by some of the trends revealed in this survey.
“A good relationship between CFO and treasurer is crucial. That means open two-way communication and it means engendering strong mutual trust. Treasurers should increasingly play the role of strategic partner to their CFO, rather than a subordinate advisor.
“Treasurers should feel confident to demand the resources they need to increase their risk management abilities and expertise, which a majority plan to do.”
Risk management expertise
The survey of 200 CFOs and nearly 300 treasurers highlights a shortage of training resources – while 57% of treasurers do want to increase risk management expertise in their teams, only 32% of CFOs have increased resources for their treasuries in the last two years. It also found that as treasury responsibilities are expanding, there is a need for treasurers’ skills to evolve, particularly towards data analysis and insight generation.
While 57% of treasurers do want to increase risk management expertise in their teams, only 32% of CFOs have increased resources for their treasuries in the last two years
There is optimism that treasurers’ call for extra resources is being heard, with two-thirds of CFOs expecting to provide more support to their treasuries in the next two years.
Of the 296 treasurers questioned, 59% said digitalization is expected to have a significant impact on risk management strategy in the next three years.
“The survey shows the importance of corporates having robust risk management frameworks in place given the financial risks of not getting it right,” said Frederic Boillereau, Head of Global FX & Commodities and Head of Global Markets Corporate Services at HSBC.
A summary of the survey is available here.