Strategic Treasury

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World Café: A Shared Experience The World Café sessions at the EACT Summit were an excellent forum for discussion of key issues facing treasurers today, such as regulation and how best to encourage treasury talent.

World Café: A Shared ExperienceWorld Café: A Shared Experience 

By Helen Sanders, Editor

 

The World Café sessions at the EACT Summit were an excellent opportunity for participants to engage with their peers to discuss informally some of the key issues facing treasurers today. 

Regulation – Is it Necessary, or Necessarily Bad?

Participants agreed that it was important for corporate treasurers to manage their risk, and stringent regulations provided reassurance that they have strong, reliable banking partners. However, while there may previously have been too much power centred on the banks that were ‘too big to fail’, has this been transferred to the regulators instead: what is the impact of this, and who is regulating the regulators? Where is the mechanism to assess how effectively they're achieving the objectives they have set out, and how can over-regulation be avoided?

Participants also discussed the problem of ‘indirect consequences’, where corporate treasurers are impacted by regulations that are not intended specifically for them, and do not take into account the broader industrial context. Regulators are not necessarily aware of the impact on systems and processes for industrial (i.e., non-financial) corporations and the effect on the wider business. While financial institutions can make commercial decisions that balance the cost of compliance with their business activities, this is far more difficult for corporate treasurers to achieve.

 While there can be negative consequences of regulation, these may also be positive – for example, treasurers have become better at producing data that is required for regulatory purposes, which also offers wider value to the organisation. However, some participants noted that with such a large amount of data sent to the regulators, there was not always clarity over the use of this data, and how it was stored or secured. 

In conclusion, these sessions emphasised the importance of engaging with regulators, banks and technology companies to keep corporate treasury interests on the regulatory agenda, and that they have the tools available to achieve compliance. The EACT plays an essential role in representing the voice of corporate treasury with regulators and other organisations, a role that was universally welcomed and supported by participants. 

Tax Rules: a Substantial Change 

The second World Café session focused more specifically on tax regulations, such as BEPS (base erosion and profit sharing), and the impact on treasurers’ role, activities and decision-making. For example, participants noted that treasury is now far more involved in intercompany transactions, including transfer pricing documentation and contracts, which are becoming more complex. Business models that were tax efficient in the past are becoming less sustainable, and entities need to demonstrate substance, not only in the number of people employed, but also the role these people are fulfilling. Under BEPS rules, companies will be subject to ‘country by country’ reporting, and will need to prove their operations in each case. In some cases, this will impact on regional or group treasury centres.

As a result, many companies are introducing new organisational structures and business models which create new invoicing flows. This affects cash flow and liquidity, so treasurers need to determine how best to access and ideally centralise cash. Cash management techniques such as payments on behalf of (POBO) and collections on behalf of (COBO) are playing a growing role in this.

Participants also discussed the interest predictability rules. Authorities are becoming harsher in deduction of interest, which affects the effective tax rate and ultimately shareholder value. While in the past, corporations often generated interest in locations in which they did not have taxable operations, the opportunities to do this are more limited both for intercompany and external interest.

One of the main takeaways from these discussions was the increasing importance of the interaction between treasury and tax departments. In some cases, these departments are now part of the same overall business function to ensure that treasury and tax decisions are closely aligned.

Fintechs: Technology for the New Generation?

The first point of discussion during the fintech World Café sessions was how to define ‘fintechs’. While most participants considered fintechs to be the new, typically small companies that are developing new technologies that challenge or ‘disrupt’ existing business models or ways of thinking, others noted that there has always been new technology in treasury, from treasury management systems through to dealing portals and bank connectivity; in this respect, new players are no different from existing technology companies. Overall, the conclusion was that it was less the company and more the solution or idea that marks a fintech today, and in particular the ability to tackle an existing problem or opportunity in a new way. 

Participants agreed that it is important to understand and be ready to react to new technology opportunities. Some said, for example, that they regularly invite fintechs to present their solutions, in order to understand these opportunities better. However, this interest and responsiveness is not yet translating into adoption in most cases. The exception is hi-tech industries that are more likely to have the infrastructure and appetite to integrate newer solutions.

 

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