Treasury Management Policies

Having a robust, up to date and clear treasury management policy is fundamental to any company or organisation which utilises debt and derivatives or undertakes investments. Such a policy should identify and define the key risks faced across different areas of treasury activity as well as the potential consequences of a failure to manage them. These will usually begin with internal controls and processes around operational treasury matters, including documentation, responsibility and delegations for key treasury decisions between different levels of governance within the organisation, dealing and payment limits, permissions and mandates, authorised signatories, documentation and record keeping and use of systems. A treasury management policy (depending upon the industry in question) may also address wider treasury related risks which may arise from external changes beyond the company’s immediate control such as:

  • Liquidity risk relates to the ability of a corporate treasury to meet its funding obligations and liabilities in a timely fashion, including net operating cash outflows, contractual obligations and interest and principal repayment on debt or other treasury instruments. The policy might also focus on the ability to exit investments which may be held for liquidity purposes.
  • Counterparty risk arising primarily from banks and financial institutions with which the company might enter into borrowing, investment or hedging contracts and which may give rise now, or at some point in the future, to a quantifiable financial exposure.
  • Interest rate risk where the company or organisation is exposed to changes in interest rates which might impact its income (e.g. from investments) or costs associated with borrowings or where interest rates might otherwise impact its cashflows
  • Currency risk where a company has operations, borrowings and investments across different currencies which result in exposures to relative movements in the value of these currencies and commodity risk.
  • Commodity, energy, or other input costs or pricing risk, where a company relies on key inputs to its business model which are subject to wide fluctuations which would have a material impact on its costs, operating margins, sales or business performance.
  • Legal & Regulatory risk where a company monitors its own legal and constitutional powers as well as those of its counterparties to enter into financing contracts, as well as (where relevant) any regulatory (financial and/or industry specific) or political risks and reporting requirements which might impact its treasury position.

The policy should set out appropriate and easily monitored safeguards as a means of mitigating these risks as well as remedial and reporting actions in the event of a breach of the policy and disaster recovery arrangements.

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George Karalis

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