Pro-active and sound business balance sheet treasury risk management is paramount to building a sustainable business. Managing treasury and financial risk is complex. To minimise compromised cash flow, insufficient liquidity, increased regulatory scrutiny and risk access to capital markets, a holistic approach to treasury risk management is required.
When implementing treasury risk management decisions, complex investment, borrowing, and treasury hedging transactions may need to be executed. Rapid changes in treasury and financial reporting technology can make it difficult for businesses to keep up-to-date with operational, technical, and regulatory requirements.
Creating value for your treasury function
Businesses and organisations seeking to drive a robust balance sheet and transform their treasury management approach are taking proactive measures to manage their financial market and regulatory exposures. Utilising existing treasury technology management tools and architecture remains a focus as treasury management functions continue to evolve.
Implementing an integrated treasury management transformation program can improve risk identification and reduce cost to help businesses effectively manage cash flows, banking, money market and capital market transactions.
As an example, treasury management transformation may be driven by a Treasury Management System (TMS) renewal, revised operating model, risk governance and framework uplift or improved processes and controls.
Development or uplift of treasury data analytics & governance, along with stress testing of capabilities and performance of treasury functions can support a robust treasury function of the future.
How treasury risk management can help business outcomes
Treasury risk management helps businesses to effectively manage liquidity, identify exposure to risk and maximise its use of resources.
KPMG’s treasury risk management specialists can assist financial institutions, corporations, and businesses manage their treasury function and balance sheet risk through a range of treasury services and treasury risk technology platforms.
Industry specialists
Our financial market traders, treasury regulatory specialists, treasury business analysts and data/technologists can help you review and transform your treasury function.
Fully outsourced approach
As an Australian Financial Services License (AFSL) holder, KPMG can provide a fully outsourced treasury management approach, including the ability to transact Treasury transactions with financial markets counterparty providers directly on behalf of clients.
Treasury managed services
KPMG can provide outsourced treasury managed service solutions as well as financial and treasury risk management advice to organisations without inhouse expertise.
Our treasury risk services
Treasury advisory services
Preparing your treasury and financial markets functions for the future is complex. To help with increased transparency and assistance with the transformation of treasury finance function, KPMG can help:
- Funding and liquidity risk
- Capital measurement & management
- Interest rate risk in the banking book
- Treasury market risk
- Recovery and resolution planning for treasury management transformation or uplift
- Data, platforms and analytics for treasury management
- Regulatory change management
- Development and implementation of a sound treasury risk management strategy
- Long term capital and liquidity strategy development and refinement
- Establishment of appropriate treasury risk governance and compliance processes
- Transaction banking strategy review
- Treasury technology-enabled operating model reviews for treasury and corporate finance functions
- ESG initiatives and support, including treasury strategy for carbon price risk management (ACCU’s (Australian Carbon Credit Unit’s)), and design of carbon risk management policies and management procedures.
Treasury-as-a-service
KPMG in one of the leading providers of facilitated treasury services. Using KPMG’s Managed Treasury Services, businesses gain access to a treasury system managed by experienced treasury industry professionals which can introduce immediate and significant long term cost savings, ultimately reducing treasury operational risk and improving operational efficiencies. By outsourcing your treasury management function, a business can benefit from:
- Access to extensive treasury and financial markets expertise.
- Full Treasury-as-a-Service approach, including treasury market risk deal execution and treasury accounting for treasury derivative transactions.
- Access to a leading treasury management system (TMS).
- Economy of scale for licensed financial products
- Immediate cost savings for:
- front office: treasury transactions
- middle office: review and confirmation of treasury transactions undertaken
- back office: treasury derivative hedge effectiveness testing and hedge accounting and treasury enablement services
Contact KPMG's Treasury Services team
Related treasury risk support information
Services, insights, thought leadership and research related to treasury and financial markets
Treasury management and financial market risk FAQs
What is treasury management?
Treasury management within a business organisation supports the management of all financial activities that contribute to outcomes associated with performance and financial risk management objectives. Treasury management considers a number of key business activities which fall into six broad categories:
- treasury framework and governance
- financial risk
- funding risk
- liquidity and cash risk
- treasury operational risk
- treasury reporting.
Why is treasury management important?
Within a business organisation, treasury management seeks to identify financial market and operational risk to the financial performance of a business, then align a group of risk mitigation strategies to effectively manage the outcomes. Adverse financial market or operational risk can have an impact to financial performance when measured against the strategic and forecast financial objectives of the business. Treasury management seeks to smooth variances in expected financial results by managing the fluctuations.
Can treasury management improve business performance?
Treasury management can improve business performance and financial results when aligned to both the strategic objectives of the business, and the risk appetite and risk tolerance communicated to management from its Board or Risk oversight committee. Equally, a poor treasury management strategy executed in isolation can have adverse financial outcomes to an organisation. For effective treasury risk management purposes, it is important to align both business strategy and treasury management strategy.
How can I improve my treasury management operations?
Treasury management operations represent the core defence mechanism for a business’s financial wellbeing for treasury related risk management activities. Under approved treasury or financial risk management policy directives representing a business’s Board or Risk oversight committee, Treasury management operations ensure that treasury risk management activities are undertaken within the guidelines set. This provides a high level of governance oversight for the business’s financial market risk management and operational risk activities.
Financial risk management terminology is often interchangeable with treasury risk management. Both terms reference how a business responds to the management of financial risks associated with running a business.
The financial wellbeing of a business is at the core of treasury risk management e.g. does the business have enough cash or liquidity to pay its financial obligations to employees, creditors, suppliers and have profit left over to pay a return its stakeholders or shareholders at financial year end? Once it has been determined that a business is operating as an ongoing viable entity then a treasury professional can start deep dive analysis into the business operations to determine where broad risks are for the business.
For example:
- Where a business imports or exports goods and/or services overseas from its home location, the value of those items are influenced by changes in foreign currency exchange (FX or Forex) rates applicable at the time. Treasury management for FX risk may be undertaken by various financial market risk management products to manage or fix the FX rate in a way that supports reducing variability to the foreign currency exposure being assessed.
- Similarly, changes in interest rates may be managed in a process called Interest Rate Risk Management (IRRM) by treasury management when assessing a business’s exposure to increasing or decreasing cost of capital. i.e. capital being a representation of available funding and liquidity that supports a business’s operation, where a change in that value impacts business profitability.
Again, there are a number of financial market derivative products that may be used or considered for use when considering a strategy to hedge interest rate risk. - Commodity risk management is another risk that falls under treasury risk management and involves business’s that have an underlying risk to movement in market prices for various input items.
For example, iron ore input for the manufacture of steel which is then used in construction of building materials or as an input to motor vehicle manufacture.
In this example, any business in the value chain may consider using commodity risk management via financial market products to mitigate its risk to changes in prices either up or down. An iron ore producer has a risk to lower ore prices and a steel mill has a risk to higher iron ore prices as its cost to produce finished steel rises which then erode profit margins. A motor vehicle manufacturer may have a competitive disadvantage if its cost to produce a vehicle rises because of a rise in iron ore cost and steel pricing inputs versus a competitor vehicle manufacturer producing a similar type of vehicle.
In this example illustration, where one manufacturer is utilising treasury risk management techniques to hedge their commodity price risk and the other business is not, there is a risk that a significant change in value of the underlying financial market commodity involved in the input ‘cost of production of goods to sell’ could render one business uncompetitive against a peer business.
This illustration is a small representation of part of a broader treasury risk assessment deep dive process that businesses undertake to consider the need to manage treasury risk.