Embracing Innovation and preserving expertise

The Dawn of Digital

The inherent nature of financial risk, coupled with the need for immediate decision making, has positioned treasury at the forefront of innovation. As technology gave us the ability to process risk and information rapidly, treasury needed to adapt and embrace this to continue to provide the vital role within business.

Indeed, banks were the first to embrace this and by the early 1980s, Reuters provided peer-to-peer dealing terminals to augment the earliest versions of information screens, replacing price discovery via telex and paper-based tickers. In an expanding global market environment, following the liberalisation of markets that characterised the early 1980s, having the next-step advantage over one’s competitors in terms of information and price discovery was always a competitive edge.

Technology, risk, and real-time pricing

It was not long before large companies and their treasury operations – traditionally viewed as administrative – began to realise two critical insights:

First, consolidating all financial risk data within a single environment provided a comprehensive view of their risk exposure. Initially, this required extensive manual, paper-based processes involving multiple personnel.

Second, organisations realised the value of technology in achieving price transparency.

The emergence of personal computing and software significantly accelerated processes, enabling faster analysis and more timely decision-making. Access to real-time pricing platforms, allowed companies to reduce the bid-offer spreads imposed by banks, thereby enhancing profitability. Furthermore, the introduction of risk management and reporting software firmly positioned corporate treasury as a leader in technological adoption. The race for quicker, more accurate information was on.

From admin role to strategic hub

The evolution of information technology has driven large corporations towards globalisation and the centralising of risk management. As a result, corporate treasury functions evolved rapidly from primarily administrative roles into strategic centres of excellence. These departments began employing highly skilled professionals with expertise in risk management, to safeguard organisations in an increasingly complex financial environment.

At the forefront of this transformation was the imperative to protect businesses from global market disruptions – whether political or financial. Frequently, the most significant losses stemmed from hidden or poorly understood risks within the business It quickly became apparent that more advanced and responsive information systems were required to manage risk and support both strategic decision making and operational control.

The move from traditional tested telexes to the SWIFT network for fund transfers and the emergence of the internet helped improve data validity and the speed at which data can be processed and analysed, which allowed risks to be highlighted and mitigated. Treasury’s early and initiative-taking adoption of technology positioned it as a key player in managing the entire transaction and risk management lifecycle across the company.

Advancements lead to better risk management

It is therefore unsurprising that treasury management systems became integrated with banking systems as the rapid integration of information technology, machine learning and the need for a global risk perspective shifted from being a luxury to a necessity.

CFOs require accurate data to ensure they can report on accurate liquidity positions, cash flow, and the company’s forecast. Reliable data at their fingertips enables their expert decision making to partner with treasury to provide the best service possible to the business. The link between technology, treasury and data is more important than ever.

The volume of electronic transactions has surged dramatically and continues to grow, making robust security frameworks and the aggregation of data for comprehensive risk analysis indispensable.

In today’s interconnected environment, a group treasurer in London, must be able to identify and report policy breaches in Latin America or a failure in bank connectivity in India in real-time. Speed and resolution are essential.

Treasury management systems are sophisticated, connected, always on and readily embrace innovation.

AI brings a new dimension

The need to use exciting and innovative technologies and the integration of artificial intelligence introduces a complex dilemma: while AI offers operational efficiencies and reduced staffing costs, it also raises concerns about over-reliance on automation at the expense of human judgment and experience. It remains a double-edged sword.

While the automation of processes, such as the extraction of forecasts from multiple internal systems, has significantly enhanced the quality of risk management there are certain caveats.

Machine learning is increasingly embedded within treasury management systems, enabling more granular data analysis and generating forward-looking forecasts based on a combination of historical data and predictive modelling.

The key message is that the adoption of advancements in technology, especially AI, should be strategic and guided by sound governance to maximise benefits while managing risk. A company managing a global foreign exchange risk position within predefined tolerances might be tempted to use automated triggers to close out trades. However, this approach carries inherent risks. “Next available price execution,” has historically automatically transacted based on anomalies such as “spoof prices” and the lack of human judgement caused major losses.

The traditional “middle office” is being redefined by the integration of technology professionals whose mandate is to ensure data accuracy, sound risk decision-making and compliance with the organisation’s risk appetite. The collaboration between these professionals, treasury teams, banking partners and system providers will be pivotal. Retaining experienced treasury professionals and skilled technology has become essential.

At the heart of this transformation is the partnership between the treasury system provider and the treasurer. The most effective systems have continuously adapted to meet the treasurer’s evolving role. The allure of leveraging AI and advanced technologies for competitive advantage is compelling, however it is important that systems are guided by corporate strategy serving as tools to support objectives, not to dictate business practice.

Choose, and use, your system wisely

Looking ahead, treasury management systems are poised to become the central “banking hub” within organisations, offering sophisticated risk management capabilities across products and markets, while also functioning as an internal service provider and strategic enabler. While AI presents vast potential, it is essential to ensure that autonomous decision making is supported by robust testing and human oversight. The ability and agility of TMS platforms to adapt to the needs of the treasurer and the ultimate function of providing data for analysis and support in effective decision making is more important than ever.

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