Over the past decade the needs of Bank Treasury Management have evolved due to the financial system’s ever evolving landscape. Timely adaptations to prudential, regulatory and technological obligations are typically onerous due to an institutions’ existing systems, data quality and resource constrains. This article provides an overview of the key considerations to ensure the Treasury Management System you invest in can deliver saleable growth, optimise prudential reporting and risk management as well as meet the expectations of the regulator or audit committees.
2024 year end surveys conducted by EY and Deloitte highlight a continued reliance on spreadsheets and a lack of integration across the treasury departments. Most often a myriad of vendor solution models, proprietary built models and spreadsheets are implemented within the same Bank for the purposes of capturing market data, deal capture, valuations, risk metric calculations, monitoring of limits, stress testing, reporting and planning/forecasting. The incumbent is inefficient in the long run due to high and unforeseen costs of maintenance, update, manual work arounds and time-intensive data analysis, with most banks also foregoing areas of significant value due to technical challenges.
Prior year financial results show strong profitability and growth for most institutions, however, headwinds of margin compression and increased competition for funding, alongside changing customer needs are likely to pose challenging for the years ahead, exacerbated by the aforementioned business challenges. Adopting a Treasury Management System which has been built to accommodate bespoke bank treasury operations is therefore an area for competitive advantage, allowing organisations to accommodate and automate the integrated processes within this malleable domain.
Implementation and upgrade timelines are one of the major determents when deciding what system(s) to adopt. Treasury personnel resource spent on implementing/upgrading systems or manual spreadsheets continues to trend upwards at the detriment of time spent analysing exposures and protecting the Bank’s economic position.
By partnering with SaaS providers on a subscription model, FINTECHs are encouraged to ensure continued customer success. The resultant is a hands-on implementation process with project management lead by the supplier and a commitment to timely completion. The providers should have integrated solutions for importing data along with comprehensive reporting to streamline reconciliations. New version releases are also offered frequently, containing improved functionality to avoid migration resistance and are designed to minimise testing resource from the Bank’s side due to modern testing approaches such as integration, automation and regression tests. The potential ROI on these solutions is truly exponential, leaving treasury teams to focus on their day-to-day activities.
Integration with real-time market data and payment systems have seen marked improvements in recent times. The sourcing of yield curves, market prices and FX rates has historically been a double edged sword. Most treasury management systems can integrate with 3rd parties such as Bloomberg or Refinitive to provide real-time market data, however, this comes at an extortionate cost due to the additional licence requirements and multiple sources required. The alternative has been a provision of this data from smaller providers but this solution lacks the timeliness needed to gauge the competitiveness of trades at the point of the transaction. Swap counterparties, for example, will look to maximise returns on these trades. Actual trade prices reflect the true consensus value of forward rates at the point of trade, incorporating all available market information and the real balance of supply and demand. The fair value is therefore a truer representation of market conditions and how competitive swap prices actually are.
Nevertheless, the TMS market consists of providers that can balance this double act, providing integrated API’s that source data from live markets and construct prices or yield curves in a cost effective manner rather than passing on the burden to the Bank. This can save the Bank hundreds of thousands on licensing costs as well as provide the tools required to maximise net interest margin by ensuring counterparties remain competitive and minimise the hedged rate.
Accommodation of all treasury products and transactions is another challenge due to the sophistication and variability of terms from counterparty to counterparty. To be truly scalable, and to ensure cash positions can be anticipated precisely, Treasury Management Systems need to cater for the bespoke market conventions used throughout the industry.
In truth, these conventions differ counterparty by counterparty and may require manual adjustments or regular reconciliations to identify gaps that are not fully understood. As an example, the SONIA linked collateral swap agreements offered by HSBC, Lloyds, Natwest and Barclays differ based on whether and how often they compound along with the rounding of the rate used to calculate interest settlements. Furthermore, over-the-counter swap agreements can vary on lags or shifts. These simple examples show the intricacies involved with even small discrepancies causing regular headaches in cash projections, settlement reconciliations or GL postings. A TMS built on industry feedback will accommodate for these idiosyncrasies, removing the operational challenges involved and providing treasury departments with true clarity.
Flexible reporting can now accommodate no-code solutions. Out of the box reports can be customised per user/institution without the need for downstream spreadsheet transformations or complex report writer functionality befitting of skillsets held out with the user’s domain. Desired changes to report structures/calculations frequent regularly and legacy systems or spreadsheets do not possess the adaptability to give Finance Directors or Treasurers the positions they want to see on a timely basis.
In conclusion, selecting the right Treasury Management System is pivotal for modern bank treasury operations. The evolving financial landscape demands systems that not only ensure compliance with regulatory standards but also offer robust risk management and prudential reporting capabilities. Traditional reliance on spreadsheets and disparate vendor solutions is increasingly seen as inefficient and costly. Therefore, a TMS that integrates and automates complex processes can provide significant competitive advantages. Ultimately, the right TMS not only addresses current operational challenges but also positions banks for sustainable growth and adaptability in a dynamic financial environment. Investing in a modern, integrated TMS is not just a technical upgrade but a strategic imperative for any institution aiming to thrive in today’s competitive landscape.
About the Author
Luke Di Rollo , Chief Product Officer, is a seasoned professional in the banking industry with nearly a decade of experience specialising in Asset and Liability Management (ALM) and Interest Rate Risk in the Banking Book (IRRBB). Throughout his career, he has developed and implemented several widely adopted models within the UK banking sector. Luke holds a CertBALM qualification and is a member of the Association of Corporate Treasurers (ACT), underscoring his expertise and commitment to the field.
ALMIS® International has a team of experts in bank Asset Liability Management, Regulatory Reporting, Hedge Accounting and Treasury Management supporting over 65 Financial Institutions. Please get in touch to learn more about how we can help.
