Shape Treasury Strategy to be Affected by Pandemic Risk in Medium Term

• Top drivers of strategic change in 2020 are changes to internal company strategy (27%) and new regulatory requirements (26%)
• The replacement of LIBOR[1] is the most challenging regulatory initiative for treasurers
• There is a growing reliance on technology to address treasury challenges, with 74% of treasurers having identified the use of new technologies in order to improve KYC processes 78% of respondents are very or somewhat concerned about the quality of the data they are working with

A new report was written by The Economist Intelligence Unit (EIU) “The resilient treasury: Optimising strategy in the face of COVID-19” explores the forces that will shape and define the corporate treasury function and the priorities of the future.

It identifies the macro and financial risks that impact strategy as drivers of strategic change, the regulatory initiatives that are currently top of mind and the technologies and the skills that the function requires. The research, supported by Deutsche Bank, is based on a global survey of 300 corporate treasury executives (conducted between April and May 2020).

The pandemic risk will have the most impact on corporate treasury in the short term (43%) and medium-term (27%). Other risks, notably concerns over global economic growth (31%) and geopolitical risks (25%) are also high on the list over the medium-term. In response, treasurers plan to increase investments in long-term instruments (55%), bank deposits (48%) and local investment products (48%) over the next 12-24 months.

But the pandemic has eclipsed other risks that were previously high on the corporate agenda: environmental, weather and climate risks were only treasurers’ sixth most pressing risk for 2020.

Regulatory challenges remain very much top of mind. Respondents indicate that the replacement of the LIBOR, and other Interbank Offered Rates (IBORs), is the most challenging regulatory initiative for treasury (38%), followed by GDPR (32%), the OECD’s initiative against BEPs[2] ( 31%) and MiFID II[3] (30%). The regulatory burden will continue to affect different parts of the treasury function and could lead to structural adjustments. The functions most affected by regulatory actions and initiatives in 2020 are funding strategies (25%), overall operating model (25%) and cash/liquidity investment policies (24%).

Treasurers have become increasingly reliant upon new technologies and data for their day-to-day activities. However, close to 80% of respondents are either very or somewhat concerned about the quality of data available within the business (a noticeable increase from last year’s survey, at 69%).

Having the correct skills within the treasury function to take advantage of new technologies is critical, and their efforts to upgrade their tech and data skills are starting to bear fruit: almost 30% of respondents say they have all the skills necessary to meet new challenges posed by technological change (compared to 22% in 2018).

Looking ahead, the utmost priorities on the treasury agenda in 2020 are managing relationships with banks and suppliers (32%) and collaborating with other functions in the business (32%). Looking ahead, the data-driven approach of treasury will allow the function to become an even more supportive and proactive partner to the rest of the business.

Melanie Noronha, the editor of the report, said: “The covid-19 pandemic has drastically altered business plans in 2020. It has placed a certain level of strain on treasury processes, but the challenge it presents has been managed by traditional treasury skills. It is clear that pandemic risk will be on the treasury checklist for years to come, but it is one of many risks the department faces and will continue to manage.”