Since the financial crisis, the role of the corporate treasurer has become ever more important, with an increased focus on risk management and centralised, streamlined services. Jacques Levet, EMEA head of transaction banking at BNP Paribas, explains how this market is continuing to evolve in the face of heightened regulation and disruptive digital technologies.
The financial crisis of 2008 may now be in the past; however, there can be no doubt that the ripple effects are still being felt across the banking sector, with the regulatory landscape continuing to evolve and the financial system struggling to regain an even footing.
Corporate transaction banking is no exception. Widely regarded as a 'socially useful' form of banking, it is closely entwined with the global economy, and is therefore seen as critical to future stability; that being said, demands have changed. With regulatory headwinds blowing, the corporate treasury market looks markedly different now to how it did eight years ago.
These changes are perhaps most noticeable for corporate treasurers themselves. Over the past few years, companies have placed a heightened importance on financial risk management and, as such, the role of the treasurer has soared in tandem.
Whereas, in the years before the crisis, the treasurer was typically a supporting position - an offshoot of a company's accountancy department - today it is a primary strategic role, encompassing full balance-sheet responsibilities. Modern global corporate treasurers are nothing less than the primary owners of the transaction banking relationship between the corporate and the bank.
"As Europe suffered two consecutive financial crisis, treasury organisations went through some profound changes. The increased expectations in terms of risk and liquidity monitoring led to an important evolution in the role of the corporate treasurer," explains Jacques Levet, EMEA head of transaction banking at BNP Paribas.
"The treasurer is now responsible for cash management, investments, financial risk, hedging as well as debt financing, and sometimes also manages adjacent activities including trade finance, credit risk or even insurance."
The theory of evolution
Levet, who assumed his current role at the start of 2015, has been with BNP Paribas since 2006, working across various positions in New York, the Middle East, Russia and Paris. As transaction banking has evolved, he has kept a close eye on the consequences for his clients.
"Treasurers are now placing an increased focus on optimisation, improving their infrastructure and making sure their processes are fully streamlined," he says. "This is notably done through standardisation, digitisation and automation. We've also seen a clear move towards centralisation, with all the strategic decision-making now almost fully centralised."
Very specific circumstances aside (for example, they are based in geographies with highly complex regulatory requirements or in countries that drive a significant proportion of growth), local treasury teams are mostly now charged with tactical executions. Their job is to manage transactions within set limits and roll out global processes, rather than undertaking key decisions.
While this shift brings clear advantages, there are challenges too; not least the disparate nature of treasury markets and their varying tax regimes. Factor in the recent upsurge in regulation, and it is clear that corporate treasury teams have tricky times ahead.
"Treasurers have felt the negative impact of the new regulations through their banking relationship, with a lot of resentment," says Levet. "They're suffering from bottlenecks and administrative build up, and there's often a call for banking initiatives to address all those issues at the industry level."
In the meantime, corporates have instigated a number of efficiency initiatives, aimed at making life simpler. For instance, many are exploiting the common ground between their subsidiaries and sister companies, and building shared services centres that all can use. This entails standardised IT systems, with tools such as SWIFTNet providing global visibility of accounts across all business operations.
On the bank side, there is a considerable amount of work being done in data enrichment, which is seen as an important tool for reconciling treasurers' payments.
"Being able to capture companies' specific transaction information, and making it available in standard and customisable formats, is becoming an important request from treasurers," says Levet. "They also look for banks to provide advanced risk management tools, for instance in terms of credit risk assessment or long-term investments risk management advisory. It's therefore crucial that banks structure a true commercial offer around compliance and risk management capabilities."
Increasingly, this applies not just to macroeconomic risk, but also to the threat of cybercrime and cyberfraud. In recent years, it has become clear that traditional transaction banking networks are vulnerable to misuse. Banks are therefore investing more than ever in preventing money laundering and sanction breaches, and the associated regulatory requirements are on the rise.
"Fraud detection has always been a key concern for treasurers, and banks are experts in this field," says Levet. "We also need to support treasurers with systems to help them with anti-money-laundering and sanctions breaches."
With regard to new regulations more broadly - not least the capital liquidity requirements brought in by Basel III - Levet sees the bank's role as twofold.
"First, there's no question that we need to comply with the regulations and make all the necessary investments and organisational changes that are required to do so," he says. "At the same time, we need to ensure transparency to our clients, advise them of the potential impact of regulation on the way they manage their own treasury business and guide them in building the most appropriate structure to master these regulations."
As a globally recognised leader in transaction banking, BNP Paribas is well positioned to help. The bank boasts a far-reaching network extending across 60 countries and four regional platforms (Americas, Asia-Pacific, EMEA and the Gulf), meaning clients can fulfil their transaction banking needs wherever they are, with a limited number of intermediaries.
"Especially in Europe, we have a geographic coverage that's simply second to none," says Levet. "Although our product offering is very much global, it also takes into account the local specificities. We're indeed constantly investing in our systems to offer a harmonised experience across the region, complemented with local knowledge."
All for one
In 2011, the bank launched its One Bank for corporates initiative, which was billed as helping corporates expand seamlessly into new markets. The idea is that clients can receive the same banking services, with consistent quality, no matter what country they are in, while receiving a global view of their treasury operations.
"In terms of banking solutions, we've invested heavily in industrialised and digital platforms. Our ebanking, supply chain financing and cash pooling platforms, to name a few, are completely global," says Levet. "We have also developed a state-of-the-art electronic portal called CENTRIC, where we have grouped all our electronic banking offering under a single sign-on that is extremely user-friendly for our clients. It notably gives treasurers a consolidated view of their operations and liquidity position. We're also developing payment analytics tools that have a very strong appeal."
New products and services of this kind serve an important function, giving BNP Paribas the opportunity to break down silos and offer an enhanced client experience in line with their changing needs. The so-called digital revolution, however, has scope to do far more than merely improving levels of service.
"The impact of the digital revolution is the elephant in the room in every single industry," says Levet. "Digital innovation is exponential, which means that the pace of change is accelerating extremely fast. The automation of the treasury banking system is introducing new paradigms, so the user experience that we're designing is completely new.
"As we realise the disruptive potential of the digital revolution in the transaction banking space, we've created a new team called Transaction Banking 2.0, which, in short, has two objectives - first, to assess how these new technologies and players are going to transform the model of transaction banking for tomorrow and, second, to make sure that we are well prepared for that change."
The technologies in question include big data, artificial intelligence and machine learning, as well as blockchain, which has been hitting the headlines in recent months. Otherwise known as 'distributed ledger technology', this cryptocurrency-based solution has been touted as a way to overhaul outdated back office systems. Developments of this kind are being driven, in part, by the entrance of fintech companies into the transaction banking space, bringing a wealth of new ideas in tow.
Over the next few years, Levet thinks digital change will continue apace, with banks coming to appreciate the value created by disrupter technologies. He also feels we are likely to see some more traditional drivers of change, such as an increase in regulation in certain markets coupled with deregulation in others.
This, in turn, is likely to spur further consolidation in the industry, with banks exiting various businesses and geographies, and an increase in value-added services designed to shield clients from the impact of regulatory changes.
As the corporate treasury market evolves further, it is important to bear in mind that neither banks nor corporates need to go it alone. Levet believes that, in the years ahead, cooperation between the two will prove to be a key factor in their success.
"A collaborative mind-set will be needed to ensure that we devise, and sometimes co-develop, the most appropriate solutions for our clients," says Levet. "Our clients are, rightfully, becoming more demanding when it comes to quality and reliability, and this will also drive change - the need for customisation and tailor-made solutions is going to become more important."