How to Write a Robust Treasury Policy and Limit Unwanted Outcomes

Treasury policy is the executive mandate to the treasurer, as custodian of financial risk. Clearly stating the aims of treasury – and covering core components such as hedging strategy – it should deliver more predictable outcomes and buy-in from other stakeholders. This in-depth yet accessible guide explains how to get it right.

When engaging with new clients, the first document I will ask for is the treasury policy because this gives me an understanding of what treasury is expected to achieve and what it cares about.

Unfortunately, it is often an effort for treasury to even locate this document. Also when presented, it frequently comes with an apologetic note about being outdated, with revisions long overdue. Sometimes I receive treasury policies that are clearly copied from another organisation, as a ‘find/replace’ action had not found all references to the source organisation, with document properties sometimes still including the names of individuals at the source organisation.

My first enquiries typically zoom in on hedge policy details. Why is a hedge limit at a certain level and not x% higher or lower? Does the inaccuracy of the exposure forecast justify the stated hedge requirements? Some treasurers seem to have difficulties explaining these policy details, declaring them simply to be ’industry standard’.

In order for me to gain a better understanding of the timing of hedges, I ask about the gap between the moment an exposure is created by the underlying business, and when these exposures get hedged. Typically, treasurers are well aware of this discrepancy without being able to put a fair number on it. More often than not, they believe that complexity of core business processes makes extracting more accurate exposure information unfeasible.

This anecdotal experience suggests that treasury policies are not necessarily the ‘North Star’ for treasury practices that they are supposed to be. The effort put into an outdated policy that is not used as a reference document is wasted. It is also a missed opportunity for communicating to internal and external stakeholders:

• The impact of financial risks on business sustainability
• The relevance, role, and responsibility of treasury in managing the impact of financial risks
• The relevance, role, and responsibility of stakeholders in supporting treasury achieving its objective to manage financial risks

I wrote this guide with the intention to help you create a fit-for-purpose treasury policy and implement the necessary processes to ensure compliance.

Bas Rebel
Independent Treasury Consultant