Reval: Managing Cash And Risk Together In A Changed World Of Finance
Posted: 20 September 2013 | Source: Reval
With widespread change set in motion in 2008 from spectacular failures on Wall Street, the world of finance would never be the same. Neither would the treasury organizations of multinational corporations everywhere.
Glaringly apparent in every crisis that has followed since the fall of brokerage firm Lehman Brothers, is the interconnected nature of our global financial system and of our corporate financial systems. If transparency, risk mitigation, tools and regulatory compliance would form the foundation of a new, modernized financial system, these same principles would serve as the de facto guide for the inner-workings of corporate treasury. From dynamic global markets to far-reaching regulatory reform to outdated technology, a confluence of external and internal forces continues to highlight the fact that a more fundamental change is necessary to carry corporate treasury organizations forward to the future.
Risk Drivers at the Heart of Change
Like the broader financial system, risk mitigation is at the heart of change for corporate treasury organizations. While treasury’s role has always been to keep a steady course, the global financial crisis changed the scope of what risk means to an organization. “If anything, the crisis in 2008 only exposed hollow lines of credit and shook up stakeholders’ trust. In fact, stakeholders are now demanding greater financial transparency and prudent investment practices, particularly responsible risk management,” says analyst firm Aberdeen Group in its 2013 report, Treasury and Risk Management: Top Financial Risks and Tools to Manage Them. Over half (58.8%) of the respondents Aberdeen surveyed globally across various corporate finance functions cited financial risks as the greatest market pressures they face today.
The breadth of risks within the remit of treasury is now so wide, that the organization can no longer function with a singular focus on cash-related activities or risk-related activities, but with a holistic focus on risk across the corporate enterprise. In essence, Treasury and Risk Management, or TRM, has come to function as two sides of the same coin.