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Maximizing flexibility and continuity in treasury operations

  • amanda breslin headshot

    Authors

    Amanda Breslin

    Managing Director
    Treasury Advisory

    Corporates | Denver, CO

Summary

Business continuity looms large for corporations in today’s market. Treasury teams must preserve liquidity and ensure operational continuity amid shifting priorities. Working with lean teams, companies must avoid operational risk due to key person risk, remote trading, or inefficiency.

Key takeaways

  • Today more than ever, treasury teams serve a critical role in preserving liquidity and ensuring operational continuity.
  • The current market environment presents operational risks, such as key person risk, decentralized or remote trading, and overtaxed teams due to lean staffing.
  • To address this issue and reduce internal risk, treasury teams are planning for potential disruptions and employing both short- and long-term flexible resourcing models to augment their capabilities.

Business continuity has never been more front of mind for corporations, with treasury teams serving a critical role in preserving liquidity and ensuring they maintain daily operations – even when organizational priorities shift. Companies working with lean teams to deliver corporate treasury services cannot afford to introduce operational risk due to key person risk, decentralized or remote trading activities, or inefficient use of limited treasury team resources. In the current environment, many companies are employing flexible resourcing models to bolster their operational capabilities and augment their treasury teams.

Operational continuity

As the COVID-19 pandemic and West Coast wildfires vividly demonstrated, business disruptions can occur with little or no warning. In the same way that corporations develop overall business continuity plans to continue functioning during a disaster, treasury teams must prepare to maintain their front, middle, and back-office operations and workflows. Treasury leaders should consider the impacts that a sudden key-person departure, a major technology disruption, or an unexpected disaster could have on all areas of their operations.

Process documentation

One key area of preparation companies can implement to provide process continuity and enhance controls across remote workspaces is documenting its risk management workflows and processes, including desktop procedures. By developing a comprehensive process map, including how functional roles and processes should shift during specific crisis scenarios, treasury teams can avoid lost time and critical errors.

Personnel transition planning

Whether prompted by temporary leave, internal backfills, role changes, or new team members, timely and complete workflow hand-offs can ensure consistent operations. Determining which internal or external resources you will utilize and then preparing adequate training for personnel in these new roles is a critical component of treasury department continuity.

Financial risk exposure reassessment

Spanning from exposure identification to hedging strategy and execution, recent volatility highlighted gaps in the financial risk management programs for many organizations. For this reason, many treasury organizations are re-assessing these programs to ensure they are still meeting their objectives. If you hedge only a subset of exposures on balance sheet hedges, for example, you may wish to reduce the risk of incomplete data sets and take a deeper dive into your systems to better aggregate data. Conversely, if you hedge most or all of your exposures, you may want to determine whether you can achieve similar outcomes and reduce settlement exposure and forward point costs by optimizing your hedging program to focus on the exposures that most contribute to your risks.

Hedge accounting reassessment

The global response to the pandemic materially impacted companies’ forecasts, from supply chain disruptions to end-customer demand. Increased forecast volatility has led many companies away from simpler hedge accounting approaches such as critical term match and toward more robust and forgiving approaches, including regression. Platforms allowing for automation of the necessary analysis have created even greater streamlining of FX cash flow hedging programs for most firms.

Policy and governance review

Forward-thinking treasurers and CFOs have used today’s volatile environment as an opportunity to review and improve their programs. Even programs outwardly performing well may have cracks in their foundations, and a comprehensive review ensures greater confidence in the program from investors, the board, senior management, and other stakeholders. Reviewing and comparing your organization’s governance and policy documents against leading practices for risk management elevates the level of assurance that treasury can provide to senior management teams.

Ongoing assessment and benchmarking

Continuing to assess your programs across the key functions and benchmark them against peer organizations in your industry can ensure that you follow leading treasury practices and maintain operational continuity.

Operational program support

For organizations seeking to augment their internal resources or obtain an independent, third-party perspective, Chatham Financial provides robust, flexible operational support. We can support front, middle, and back-office functions within your operational hedging program without disrupting your workflows. Our team can fill short- and long-term resource gaps, providing process documentation and treasury personnel training to ensure timely and complete hand-offs of workflows back to your organization once internal roles are filled. You can also partner with us to access transaction preparation, pricing, execution, and analysis for your operational hedging programs, informed by our global daily trading volume. Additionally, we can review and compare your organization’s governance and policy documents against leading practices for risk management, elevating the level of assurance that your treasury team can provide to senior management teams. We can also review and provide benchmarking feedback across the key functions within a program.


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About the author

  • Amanda Breslin

    Managing Director
    Treasury Advisory

    Corporates | Denver, CO


Disclaimers

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.

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