The banking world has been turbulent over the last couple of weeks with the well-documented collapse of both Silicon Valley Bank and Credit Suisse; the latter particularly shocking due to its size placing it as an institution of systemic importance to the global economy.
This news is likely to have caused a significant amount of uncertainty and potentially sleepless nights for those who were holding funds within either of these banks. In addition, the collapse of both an American and European bank does not bode well for the global economy with many worried about a knock-on effect for other financial institutions. The news that HSBC would be buying the UK arm of Silicon Valley Bank and the sale of Credit Suisse to UBS will have no doubt helped relieve immediate concerns but should serve as a potent reminder of the importance of proactive treasury management.
It is easy to become complacent in relation to the security of cash deposits and companies often keep significant cash balances in single financial institutions. The size and complexity of a business will determine the degree to which you require a treasury risk management framework, but all companies should be proactively considering and managing their risk in this area.
A good starting point is to ensure that your organisation has a documented treasury policy in place. This is a document that should be reviewed and updated regularly by the board, making clear how responsibilities in relation to treasury and cash management have been delegated within an organisation.
A treasury policy will typically outline the roles and responsibilities in relation to treasury management, provide an overview of the overall investment strategy, outline the reporting framework for reporting treasury balances and transactions and detail what key controls are in place, for example, how are duties appropriately segregated and what levels of authorisation are required for different types and quantum of transactions. In certain industries there be may regulatory requirements that should be included, and more complex organisations may need to outline their strategies and policies in relation to foreign exchange management and the use of financial instruments and debt.
A treasury policy should be clear what appetite there is for risk within an organisation and strike the appropriate balance between risk and return. It should make clear how and where any surplus cash can be invested and will often include limits to the amounts that can be invested, and for what duration, in any particular financial institutions. Credit ratings will often form part of this framework.
A good treasury policy should govern the framework of how all banking transactions are controlled, for example who has different levels of authority within online banking platforms as well as who is on the bank mandates. This should be well communicated to relevant employees and will help minimise the increasing risks of fraud and phishing attempts.
Naturally, there will be an increased focus on risk management at the moment, but in a higher interest rate environment it may be appropriate to have also have a greater focus on the returns available. This should always however be within an agreed risk framework.
A treasury policy should always be tailored to your individual needs and may also need to include any relevant tax or accounting implications.
If you would like to discuss further or have any questions in relation to treasury management, please don’t hesitate to contact a member of our business advisory team or your usual Mercer & Hole contact. We would be happy to assist you further.