Strategic Treasury

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Ready or Not, Change is Gonna Come Accommodations to comply with upcoming regulatory requirements around SEPA, Dodd-Frank and EMIR, and IFRS 13 are underway - but not all treasury organisations are changing at the same pace or leveraging the opportunities change can bring.

Ready or Not, Change is Gonna Come

by Günther Peer, Regional Vice President Solution Consulting EMEA

Accommodations to comply with upcoming regulatory requirements around SEPA, Dodd-Frank and EMIR, and IFRS 13 are underway, but not all treasury organisations are changing at the same pace or leveraging the opportunities change can bring.

Companies on both sides of the proverbial pond are feeling growing pains from the global regulatory environment, causing a reassessment of processes and systems. Most industry reports cite regulatory compliance as a key challenge for treasury, including research firm Aberdeen Group, which recently reported that 50% of companies view it as such. With growth in new markets, mergers and acquisitions, and other challenges adding to the regulatory pain, one thing is certain: Many treasuries are putting in place the processes and systems that will enable them to meet these challenges head on today and in the future. However, statistics prove that while the hard work of treasury change is underway, so much more work lies ahead.

In a year fraught with regulatory uncertainty, it might be worth taking a step back to look at some key requirements, how far some corporates have come to date, and how these regulations are expected to impact the treasury organisation. First, the new definition of fair value under accounting standard IFRS 13 Fair Value Measurement became effective for all financial periods commencing on or after 1 January 2013. This standard significantly impacts corporate treasuries as new methodologies for fair value calculation lead to greater income statement volatility and, potentially, to increased hedge ineffectiveness. The need to incorporate credit risk, either your own or your counterparty’s, has far reaching consequences from a system and operational perspective. However, a Reval poll from February showed that 33% are struggling to understand IFRS 13 and another 52% don’t know how to implement it – a daunting position to be in as many companies near year-end reporting.

Second, SEPA regulation will enable growth through easier access to new markets, reduce float and payment fees, and harmonise file formats and payment instruments. Many companies have made progress in terms of planning, but many others are still slow to implement as the 1 February 2014 deadline for SEPA migration rapidly approaches. More than half of treasurers in the SEPA zone had no action plan, according to last year’s EuroFinance survey, and by the summer of 2013, more than half of respondents in a Reval poll still had not started their implementation projects. This means that many project managers will have to adapt existing payment processes on a very tight schedule. For those companies still on the sidelines, failing to act immediately could leave them with a lack of available resources and expertise to complete projects in time.

Third, a series of new rules from the European Market Infrastructure Regulation (EMIR) and its US counterpart, the Dodd-Frank Wall Street Reform and Consumer Protection Act, will fundamentally affect the structure of the entire over-the-counter (OTC) derivatives markets. In general, reporting to trade repositories could be handled either internally or externally through a third party. According to one Reval poll, only 12% of respondents had registered their General Entity Identifier (GEI) code, used to clearly identify each company for regulatory reporting and one of the first steps towards EMIR compliance.

Each set of regulations has particular effects on the organisation and respective action steps to take. However, at a high level, companies should move forward with the following guidelines in mind:

1. Stay informed on new regulations

Aside from using the regulatory bodies´ official sources, treasurers can exchange information with peers and strategic partners such as associations, auditors, consultants, banks and system providers.

2. Understand the new requirements

It is important to understand the impact new rules will have on structures and financial outcomes. This will involve assessing your people, processes and systems to fulfill new requirements. Seek out strategic partners in technology vendors and industry consultants. When looking at the latest technology, make sure that you consider how flexibility and responsiveness factors into the changes that you may be facing, not just for today, but for change that will constantly challenge the status quo.

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