The past decade has been a rollercoaster for Treasury firms. We’ve seen new technology shake up the industry, regulations shift the ground beneath our feet, and the geopolitical environment has turned ‘business as usual’ into a distant memory. These changes have created some exciting opportunities, but they’ve also brought along some serious risks.

This is a revised blog first written in 2022. In this updated version, we will focus on the immediate risks your organization might be facing.

1. The Big Six: Types of Risks in Treasury

Treasury firms face several key types of risks. Let’s break them down:

Economic Risks: These are the financial impacts that can come from external or internal factors. Think about missing out on new business because your tech is outdated, price fluctuations, trading fines, or unexpected changes in Straight Through Processing (STP) bases.
Legal Risks: These pop up around service agreements with investors. They include restrictive fallback provisions, outdated templates, or delays in preparing agreements due to a lack of consensus.
Technical Risks: This is all about making sure your systems perform as stakeholders expect. If they don’t, you could be in trouble.
Operational Risks: These risks come from resource contention and the drivers for change. It’s about giving operations the resources they need, scheduling system updates, ensuring models are tested thoroughly, and supporting products adequately.
Reputational Risks: These arise when your firm can’t respond quickly to new regulatory deadlines or client demands. It’s also about how counterparties perceive your handling of regulatory changes (McKinsey, 2020).
Geopolitical Risks: Social fragmentation and nationalism could lead to conflicts that affect financial markets. The pandemic has widened the gap between emerging and industrialized nations, making this risk more pronounced.

2. Where Can Risks Occur?

Let’s zoom in on some key areas where these risks might pop up in your operations:

Technology Stability: With the shift to remote work, vulnerabilities have increased. For example, during the high trading volatility of March 2020, several market participants and software vendors experienced failures and delays.
Information Security: The abrupt shift to remote operations during the pandemic opened doors for cybercriminals. Over 60% of firms reported ransomware attacks in the past year, and few were prepared, said KPMG.
Operational Resilience: The FCA urged firms to make their critical business processes more robust in 2018, but it took a pandemic for many to see the value. Now, operational resilience is a top priority.
Technology Transition: Many firms found their risk infrastructures lacking during the pandemic. Spreadsheets and problem statements aren’t cutting it anymore. According to Deloitte, you need a proper transformation roadmap.
Data Aggregation: More data from more sources means more risks. The more you gather, the more vulnerable you might be, said PwC.
Consolidation: Mergers and acquisitions can lead to concentration risks as service options narrow (EY, 2019).
Regulation: Post-Brexit changes, like the LIBOR decommissioning and transition to risk-free rates, have required significant resources.

Visual 1: The sources of risks in treasury operations

3. Mitigating Risks in Treasury Operations

Dealing with operational risks in treasury can be really challenging. These risks often come from things like not having enough resources or the constant need for updates and testing. To keep these risks in check, make sure your operations team has everything they need, and always prioritize system updates and testing. Properly supporting your products can really make a difference.

In the next post, we will explore how to identify and assess risk levels from a treasury efficiency perspective.

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