The role of treasury has changed a great deal over the past decade with treasury professionals now established as key decision makers in larger organisations. Their role is no longer just firefighting but increasingly strategic. Over the next three years, there are likely to be many opportunities to prove the value of the department to boards and stakeholders.
This is likely to be a result of not only continuing market volatility but also the introduction of a swathe of international regulatory legislation. Ensuring that a flexible risk strategy policy is in place to cover all eventualities will be an essential part of the revision of treasury policy during the years ahead.
One area to keep an eye on is a stricter credit environment. The economic growth in the US is raising concerns about interest rate hikes from the Fed, despite the government’s claims that they are unnecessary. The tightening of bank credit around the world is a direct result of these concerns and is already beginning to impact corporate plans for expansion and new market exploration. This is sure to be a major challenge in the years ahead.
Treasurers will have to constantly re-assess capital market strategies in the face of potential changes in central bank rates, either going long, short or opting for a floating policy. During the coming period, different opportunities will present themselves and treasury will earn its keep by accessing these windows at the appropriate time. Constantly challenging internal departments and taking on board as much advice as possible will help to develop the requisite policy.
Interest rate fluctuations are also clearly going to have a major influence on foreign exchange markets in the immediate future. Although everyone is Brexited-out, the potential of a no-deal scenario looms on the horizon, despite both sides claiming they do not want to see it. Continuing economic growth in the US is also set to impact on the markets as outlined above.
Companies with major exposure to this market will need to keep a close eye on their holdings and potential investments. This uncertainty will also have an influence on the commodities market, with the potential for trade wars also leading to dramatic movement in prices. Again, the policies of the US administration, which have been unpredictable to say the least in 2018, are likely to have a major effect.
We need to add to this the other potential knock-on effect of geopolitical issues on the economy. The continuing turmoil in the Middle East and oil price fluctuation resulting from increased output in some countries, the impact on energy supplies, the Paris Agreement and its effect on transportation costs and the rise in cybercrime highlighting treasury’s responsibility to respond to any breaches, suggest a complex economic future.
As if this was not enough to make treasurers lose sleep at night, the impending changes to international taxation law mean that the years ahead are going to be even busier.
Over many years tax changes have been gradually introduced allowing treasury departments to adapt functions accordingly. There are a plethora of changes imminent, many of which have a potentially detrimental effect on treasury functions and keeping up-to-date with them will be challenging.
The OECD Base Erosion and Profit Shifting (BEPS) programme reaches worldwide and has an impact on transfer-pricing of financing transactions. It also influences interest deductions, new tests for access to tax treaties and introduces rules on one-sided tax deductions. The Multilateral Instrument in BEPS is effectively a new tax treaty involving many countries and was ratified by Australia due to come into effect on 1 Jan 2019, placing limitations on bi-lateral tax arrangements affecting subsidiaries based in favourable jurisdictions.
The EU Anti-Tax Avoidance Directive also impacts on some countries reporting obligations. Add in the US tax reforms enacted this year, which cover investment into and out of the US and treasury departments will have to look closely at how they interact with overseas territories.
Added to all the above, technological advances provide their own challenges in the taxation landscape. Have you created a tax presence in another jurisdiction simply by approving a transaction even if you are working remotely? Does dealing in a crypto-currency impact taxation? These are matters which fall within the ambit of treasury responsibility.
For treasurers, these are going to be challenging times in the markets, but a sound department will see the next couple of years as an era of opportunity not only for their organisations, but also in terms of establishing their roles within their industry.
Simon Lynch is the owner of Treasury Talent.
Treasury Talent is a specialist treasury talent, recruitment and search provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact firstname.lastname@example.org