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Global liquidity challenges and the ever-changing demands that treasurers are faced with

The last 12 months have seen the biggest shift for treasurers to assess their current working practices as a number of compelling factors have come together to drive change. In today’s climate, treasury professionals require greater insight and control into understanding their present and forecasted liquidity position.

Many retail banks have been on a digital drive over the last 10 years to transform the way in which they interact with their customers or members. We as account holders have embraced the change from the traditional bricks and mortar branch network to a self-service world. Treasury has, to date, been a step behind the retail division - hindered by complexity; legacy applications; human interaction; and processes underpinned by spreadsheets and instinct based on what has gone before.

Although there have been good examples of home working enabled by technology, there are many instances where people have had to be in the office due to tech limitations. Over the years, many banking firms have prioritised investing in front-office operations, rather than transforming functions like treasury, therefore, there are still a large number of firms running and using siloed, legacy applications. Often the legacy applications have been the wrong tool for the job in the modern world, lacking insight and functionality, and working off batch data extracts with databases unable to scale. Cash management tools extended in scope beyond architecture comfort levels, unable to size, scale and perform Vs modern scalable real-time platforms built with the functionality and job requirements in mind. Custom-built wrappers have often been seen as a way around this, but they become extremely costly to build, support and manage with additional layers in the architecture with custom code and lengthy upgrade paths.

The consequence of not working in real-time brings a huge element of risk, reacting after the event as opposed to forecasting what might happen and the ability to act as it happens to minimise exposure. The wrong liquidity tools for the job often bring multiple UI’s requiring cut and paste from system users, adding risk from human error and generating questions upon review from local regulators.

The regulator on a local and regional basis is asking for more real-time insight and control where liquidity and stress testing is concerned, but also control over inventory where a high ratio of collateral is held. With regulators asking treasury for more insight, the inflexible nature of proprietary systems means they are unable to keep up with the demands required of a single real-time view across liquidity and collateral.

The biggest challenges facing treasury IT departments in 2021 is going to be the need for cloud-based computing and the latest technology architecture enables this flexibility for change, remote working, scalability with the need for real-time granular detail allowing users to carry out data analysis in an instance. In 2020, we saw a significant increase in firms opting for the cloud as opposed to traditional on-premise deployments - with 75% choosing cloud Vs 25% in 2019. The race to the cloud in Treasury has well underway.

With the lowest interest rates in modern history, some central banks in Europe are charging banks that hold liquidity over a certain threshold on an account. Banks in the Middle East have seen overnight changes in liquidity positions hit due to the recent volatility in the oil market prices. Many that viewed themselves as liquid-rich firms are now facing a liquidity challenge trying to work out where the liquidity sits within the bank, a position that 12 months ago seemed unthinkable.

In a rapidly evolving world where liquidity control, insight, risk mitigation and the ability to work in volatile markets creating stressed scenarios, it is liquidity reserve buffers that are ever increasingly becoming overly used assets to the treasury team. Big opportunities are being missed when it could be used as working capital due to the lack of real-time insight. The need to transition towards modern architecture to gain greater control in the last 12 months has accelerated and firms of all sizes are realising the need for change.

2021 brings with it one of the biggest changes to participants on the SWIFT network as the transition to ISO 20020 is made. While the changeover from MT to MX is a positive step forward for all in the payments value chain, it does bring its own obstacles. In particular, the significant differences mean the switch requires banks to undertake a substantial amount of alignment work, and potentially implement some temporary workarounds until their own migration is completed. 

In closing, the last 12 months have accelerated the need for greater liquidity insight. Various factors can create extreme volatility on a treasury’s liquidity position and regulators are asking more and more for firms to demonstrate greater control and insight. Having the right application for the job will ensure that risks can be minimised both here and now, yet also allow organisations to futureproof the treasury department for years to come.



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Tim Page

Tim Page

Global Head of Sales


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26 Jan 2021



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