Managing Risk and Opportunity through Uncertainty

FX Policy review continues to be a high priority amongst our global clients’ senior management, but with an opportunity now to incorporate a more holistic approach through the onset of emerging solutions and technologies. Treasury objectives remain broadly unchanged and the aspiration for most continues to be the concentration of cash and risk through constructs such as in-house banks. The emergence of new technologies now offers alternatives in how those efficient constructs are established with some now commencing their journey to full automation of operational treasury. • Risk management practices vary significantly by region, particularly around objectives, the emphasis placed on types of exposures, and the approaches used by corporates to hedge risks • FX risk management policies continue to be reviewed regularly. However, there is a recognition by senior management that a more holistic approach is required given the need to integrate all forms of risk originating from the business • Over half of the companies surveyed do not differentiate between emerging market (EM) and developed market (DM) transactional hedging practices. Costs, market liquidity, and local regulatory considerations were cited as the primary concerns when managing EM currency risk • While reducing earnings volatility remains a priority, the number of corporates actively taking measures to mitigate FX volatility in earnings is relatively low • Almost half of the survey participants indicate the use of FX options as a means to better mitigate exposure uncertainty and cost • The utilization of constructs such as in-house banks and shared service centers in order to establish processing hubs on a global or regional basis, is the aspiration for most • The role of treasury in working capital management differs by company with over 80% involved in some capacity. However, less than a third of treasuries are fully accountable for company-wide working capital management • Corporations continue to deploy various constructs to achieve greater centralization and more effectively manage risk, however, natural risk management techniques, such as netting, appear to be a missed opportunity among a number of companies • Most corporations focus on leveraging cash management processes, such as pooling and cash flow forecasting, to improve the effectiveness of their risk management programs • Despite the increasing recognition of technology as an important enabler to meeting risk management objectives, over half of survey participants reported that their treasury management system (TMS) does not support financial risk management processes • Nearly two-thirds of survey respondents confirmed that their organizations are now looking at opportunities emerging across both the core business and the treasury function as a result of emerging technologies. 25% of respondents are specifically looking at how these technologies can transform the treasury function • For those organizations where a digital strategy is in place, the top area of focus is the automation of manual tasks, enhancing customer experience and mitigating the cybersecurity threat EXECUTIVE SUMMARY Financial Risk Management Operational Risk Management Treasury Technology KEY FINDINGS AND INSIGHTS 5