As markets, regulations, volatility and exposures change, it is imperative for corporate treasurers to stay ahead of their business to ensure operational efficiency and compliance with new regulations and policies.
As 2020 gets into full swing, below is a checklist of questions to consider with respect to the initiatives of your treasury department this year, according to the team at Bloomberg Treasury:
- Are you SOFR-ready? The market is shifting away from the London Interbank Market Rate (LIBOR), so it is important to start acting on, not just understand the upcoming changes. The real question is, have all the instruments that are calculated on LIBOR been identified? That needs to be checked and double-checked. It is important to ensure that the data provider is building curves with full history and that systems can handle these new instruments based on the Secured Overnight Financing Rate (SOFR) instruments. While the official transition date is not until 2021, the market is expected to move during 2020.
- Are you ready for an uptick in market volatility? In 2020, the practical effects of Brexit will take hold. Trading partners will change. Remember also the US presidential election. All of these factors may see the return of volatility to the FX and rates markets. Underestimating future volatility may have a detrimental effect on a comprehensive hedging strategy.
- Are you ASC 842 and IFRS 16 compliant? Auditable IBR rates need to be sourced and feeding lease accounting software? It is important to have an audit-proof solution that correctly takes into account the appropriate credit and securitisation levels. These standards were adopted in 2019 and auditors are now insisting on compliance.
- Is your risk management policy up to par? Does the policy make sense given the exposure expected by the financial market fluctuations in 2020? Reassess if the currency mix has changed. Simply working with the exposures in 2018 and 2019 or following a legacy policy may not be enough. If exposures to emerging markets have increased, it could require a different approach to hedging.
- Is your treasury taking advantage of the efficiencies of electronic trading for all of your exposures? Examine trading across all asset classes, whether they be FX, rates, money market, or commodities, and determine where inefficiencies may exist. Also consider emerging markets currency exposures deliverable onshore. Finally, is this information being used to perform share of wallet comparisons for relationship banks? A streamlined straight-through-process workflow from pre-trade to post-trade can ensure a more efficient treasury and allow more time for value-add projects and those one-off requests that always tend to arise.