Abu Dhabi: Is 2024 the Year for a Regional Treasury Centre in the Capital of Capital?

Published: January 16, 2024

As treasury departments increasingly become strategic guardians of financial resilience, the need for regional treasury centres (RTCs) is back in the spotlight. Beyond pure geographical considerations, multinational corporations often select their RTC location based on factors such as access to liquidity, talent availability, the technology ecosystem, and the banking infrastructure. Here, Zanders explores why Abu Dhabi Global Market (ADGM) in the UAE could be an ideal RTC location, citing its strategic position, strong tech focus, and supportive business environment.

Treasury functions have changed dramatically over the past decade, evolving from a transactional head-office function to a truly strategic advisory partner to the business and the group CFO.

Two key observations linked to this development include:

1. The increasing remit of the function, moving from traditional core treasury activities to now encompassing topics such as commercial payments and collections, working capital, counterparty risk, ESG, digital currencies and online channel payments among others.
2. The growing importance of the treasury as the guardian of financial resilience, understanding, monitoring and modelling uncertainty in (financial) markets and ensuring continuity of the business by providing sufficient liquidity at the right time and right place.

These factors create the need for closer interaction between the treasury and the business and create a strong case for having regional treasury centres (RTCs) alongside the HQ treasury to enable local business partnering and access to liquidity. Typical RTC activities include:

• Providing IHB services to subsidiaries, such as POBO/COBO, cashless settlement of inter-company payments, intra-group funding and cash centralisation
• Financial risk management for the region, covering FX, interest rate, commodity and credit risk
• Trade finance
• Fulfilling a business partnering role providing specialist treasury and financial risk management knowledge into core business processes
• Financial transaction reporting and accounting
• Bank relationship management
• Corporate finance/debt capital markets activities

Key requirements for an RTC location

To provide a range of tailor-made services for regional business partners, multinational corporations have their group treasury functions supported by a number of RTCs. The number of RTCs depends on the business’s geographical footprint and the region’s complexity. With RTCs in different time zones, corporations can apply the ‘follow the sun’ principle to have access to liquidity. This window to access liquidity is now key in choosing the location of the RTC. Next to liquidity windows, being closer to the business, there are a number of other key factors when considering the location of an RTC:

• Availability of talent: The required set of competencies in corporate treasury has changed significantly over the years. In addition to core treasury knowledge on capital markets, banking and financial instruments, we now see treasury teams looking for technology, business partners, process improvement, data analytics and other skills.
• Technology ecosystem: Technology has become ever-important in corporate treasury, both on ‘traditional’ TMS and payment solutions as well as exponential technologies such as AI/ML, RPA, and DLT. An RTC location should offer a strong ecosystem of solution providers and local support.
• A strong banking ecosystem: Broad availability of cash management banking partners, counterparty banks and availability of leading-edge cash management services (e.g. virtual accounts, real-time payments, API connectivity).
• Access to capital markets and liquidity in both major and local currencies.
• Regulation and standards: An efficient and transparent tax and legal framework.
• Infrastructure and accessibility: A suitable time zone to support treasury operations in the region, easy accessibility.
• Resilience: A stable business environment.

Why choose the Capital of Capital as an RTC location?

The UAE, and Abu Dhabi Global Market (ADGM) specifically, are well positioned to meet the aforementioned requirements. An RTC established in ADGM can provide a unique liquidity window for Asia, Africa and Europe. Particularly to support business operations in Africa’s growth economies, the UAE enjoys a unique position compared with other treasury locations. In addition, the treasury community is developing at pace in the region, and more specifically in the UAE and ADGM, and there is an unparalleled focus and investment in fintech.

Conclusion

Treasuries have a central and strategic position in any corporation and are key to ensuring the financial resilience of the organisation. To fulfil this role and to be a strong business partner, an efficient operating model is required, which is likely to include RTCs.

The UAE, and ADGM, specifically is an excellent location to establish an RTC or corporate IHB. There is a strong and developing treasury ecosystem, good access to treasury talent, a strong banking and technology ecosystem, good access to liquidity and an easy and transparent legal, tax and business environment.