Treasurers at risk of unidentified FX exposures


Kimberley Long
Published on:

The complexity of ERP and remote systems could leave treasurers exposed to FX risks. As automated systems look to fill this gap, there are still benefits from having a wide understanding of the whole business.

Corporate treasurers' greatest concerns, particularly that of a lack of visibility around FX exposures and the reliability of forecasts, still haven't been addressed since the Deloitte 2016 Global Foreign Exchange Survey identified the risks, as cited by 56% of respondents.

Manual exposure identification and capture processes were notable worries, too, for 48% of the treasurers surveyed.

However, the market is now pushing towards further automation of the FX process to resolve the issues. 


Roger Fleischmann,

Roger Fleischmann, head of MNC, EMEA, at JPMorgan global corporate bank, says this has been a long-term issue for treasurers as they update their internal systems.

“Over the past 10 years, we’ve seen more and more clients adopt technological solutions to forensically investigate their enterprise resource planning (ERP) systems to identify previously unknown exposures that could be contributing to volatility in earnings or perhaps driving a less than optimal hedging strategy,” he says.

Sudhesh Giriyan, COO of global money transfer company Xpress Money, says he has seen the speed with which decisions are made fall to just a few seconds.

“There is a fair amount of automation," he says. "Treasurers have access to real-time movement of currencies thanks to the latest technologies available. They monitor currency fluctuations by the minute. 

"Though the final decision to buy or sell currencies could be manual, all the tools required to arrive at that decision are readily available – putting them in a position of advantage at any point in time.”

There are undoubtedly advantages to automation. 

Jonathan Tinker,
Deutsche Bank

Jonathan Tinker, global co-head of FX at Deutsche Bank, says this can become apparent before execution. 

He explains that not having a full overview of all the issues can stretch the timescale from identifying a risk to hedging it out into a lengthy period. 

"A lack of transparency around risk can lead to a host of problems," he says. "For instance, operational errors in a regional treasury centre can go unnoticed for long periods of time. In fact, head office may never know the full extent or impact of those mistakes.

“It is not uncommon for a risk to exist within a corporate for many months before it is hedged. In that time frame, the amount of money that can be lost is hundreds of times the typical execution spread. The challenge of seeing accurate, timely risk is much more important than pure transaction costs.”  

In his view, starting the automation process as early as possible can mitigate these risks.

“Many people are familiar with the operational efficiencies that result from automating execution," he says. "However, fewer are familiar with the similar benefits that can be found by automating the preceding workflow. 

"It is a common misconception that automating this step leads to a loss of control. But, in fact, automation – with appropriate four-eye checks – is a very effective way to add a layer of governance which reduces operational mishaps and prevents unwanted discretionary decisions.”

Fabio Madar,
Deutsche Bank

Fabio Madar, global head of FX coverage at Deutsche Bank, says the bank has launched its FX app Maestro on its Autobahn platform, which allows for even greater system automation. The app automates processes including portfolio hedging and FX funding flows. 

"The reality is that treasury can easily become buried under performing mundane tasks,” he says. "Automation tools free treasurers' time and give more space for deeper issues to be dealt with such as Brexit and onshore regulations.”

While such changes speed up many processes, some caution that automation cannot replace every element of FX, especially at a time when the role of the treasurer is evolving to become more central to business.

Having a thorough understanding of a company’s entire operating model is not something that can easily be replicated through automated platforms. 

JPMorgan’s Fleischmann says: “Applying new technology, such as API’s linked to pricing or purchasing platforms, or specific software designed to identify FX exposures to address risk forecasting and identification, can’t substitute for a solid grounding in what’s driving the underlying business. 

"What bubbles up to treasury through whatever system, be it APIs, FireApps or even manual Excel spreadsheet, can be reconciled against what’s truly going on in the business.”  

Sudhesh Giriyan,
Xpress Money

Xpress Money’s Giriyan adds that market knowledge is not to be undervalued.

“Treasurers must ensure that they always have expertise on hand for trend analysis on currencies and access to the tools available to track market movements," he says. 

"For a treasurer, not having an oversight on market trends and macro-economic changes is not an option. Even the smallest slip can lead to serious business consequences.”

Fleischmann says that the role of the treasurer as part of the risk team has to be recognized.

“The treasury team needs to collaborate with colleagues in financial planning and analysis, and business operations to understand and stay current on commercial dynamics affecting the business," he says.

"There are a number of ways for treasury to foster these communications channels, from attendance at periodic strategic business reviews, ongoing dialogue with the business and periodic outreach to reinforce treasury’s role in mitigating risk on behalf of the business.”