Risk Management
Published  7 MIN READ
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Head2Head: Risky Business

by Bruce Meuli, Global Business Solutions executive, and Jonathon Traer-Clark, Head of Strategy, Global Transaction Services, Bank of America Merrill Lynch

Jonathon Traer-ClarkJTC If there’s one thing that’s certain in business, it’s that uncertainty is set to remain for the foreseeable future. Over recent years – and in particular in the UK, over recent months – we’ve experienced unprecedented levels of change and volatility that have significantly impacted on treasury. Today, treasurers are constantly tasked with managing so-called ‘risk events’. So how can the treasurer mitigate the impact and steer the business through these, whilst at the same time deliver on the expectations of the board and the wider business?

Bruce MeuliBM Indeed, recent political, business and market events have certainly been anything but ‘normal’ and in many cases, the news hitting the headlines signals significant shifts in the way that treasury operates. For example, treasurers have had to manage FX volatility which has been driven by unpredictable political outcomes in Europe. Not only has this required ‘transactional’ risk management responses to significant volatility, but these events also have the ability to over time, fundamentally change a business and will therefore require treasurers to review their operations and strategic models. For example, where do they locate treasury operations? Is their liquidity structure appropriate and fit for purpose? Treasurers are not only responding to risk events, but also managing fundamental changes in the business environment, which is somewhat outside the core definition of treasury risk management.

JTC It’s not just the range of events impacting on treasury, but also the pace of change. The speed at which information is distributed these days has accelerated and can mean that treasurers feel that their responses to events need to be more immediate than in the past. We have recently seen the costs of underestimating the probability of events occurring and the impact of not preparing for a range of outcomes. The recent EU Referendum outcome certainly caught some market and political participants by surprise.

BM So, as ever, the treasurer has to do more with less, but rather than focusing on cost, the problem is less time to anticipate and respond to change. This means treasury might want to redefine its role in the organisation and fundamentally review its ability to ensure the stability of operations and ‘business as usual’ within new levels of uncertainty. What should a treasury team do now? For me, there are three key questions to focus on: What could happen? What are the likely impacts? What would be an effective response?