Keeping all the Plates Spinning

15 Critical Regulatory Changes for European Treasurers

Much like the sound of thunder follows a fork of lightning, financial regulation tends to follow a crisis. With European treasurers still adjusting to the post-Covid reality coupled with war in Ukraine, the volume of regulatory updates to understand and implement could be daunting. Fortunately, a new project from the European Association of Corporate Treasurers aims to bring clarity and direction to thinking in this space.

Corporate treasurers are well used to adopting new ways of working in light of changing financial regulations. Which is fortunate because the first half of this year alone has seen an extensive list of rules coming through the pipeline as authorities wrestle with a host of challenges as well as increased digitalisation. Keeping track of myriad new and amended regulations will require plenty of plate spinning.

François Masquelier, Chair, European Association of Corporate Treasurers (EACT), reflects: “After a major crisis, even a health-related event like the pandemic, it is not unusual to see authorities reconsidering the regulations in place – to either strengthen existing rules, if needed, or to issue new regulations. Their goal is to limit the effects or even prevent the next crisis and make the financial system more resistant and resilient. But sometimes these [regulations] can overstep or create unintended consequences. As treasurers, we must ensure that changes, even when justified, do not have too great an impact on our activities and are not disproportionate to the events they intend to correct.”

Gaining clarity

The EACT and its Financial Regulation Advisory Group (FRAG) have recently completed a piece of work that aims to make it easier for treasurers to identify the regulations that will impact their businesses, along with some priority actions for responding to specific rules. The research highlights 15 regulatory changes for corporate treasurers to track this year (see fig. 1 below).

Fig 1 - 15 regulatory changes in the pipeline

“One of our roles at the EACT level is to identify which regulations might have an impact and then cover all the regulations being considered, even if not all of them require specific action,” explains Masquelier. “The list we have compiled combines information and action – when required. We need to apply a strategy to focus on the most immediate measures we can still influence and those with the most impact. While this list is long, treasurers can rightly assume that it is not exhaustive, as new rules are always being added.”

The EACT monitors and identifies any measure that could impact its members and those where it may be necessary to intervene. This latest piece of work is essentially a roadmap to determine the time priorities and the deadlines for responses to be produced, comments to be made, or actions to be taken. Consultation can take many weeks and national associations can be a useful relay mechanism for treasurers. The next step is to rank and prioritise the actions required according to the importance of the potential impacts.

“In terms of current priorities, I would highlight the Capital Requirements Regulation and the Credit Requirements Directive [CRR/CRD], the MMF reform proposals, the integration of Basel III rules through the Basel IV regulation, the review of the European Market Infrastructure Regulation [EMIR], and the revised Payment Services Directive [PSD2], among other measures,” says Masquelier.

Fig 2 - EACT priority actions

The role of FRAG

Established by the EACT in 2013, the FRAG has played a vital role in ensuring that the voice of European corporate treasurers is heard in the development of financial regulation. The corporate members of the FRAG represent eight of the largest multinational corporations across Europe.

“As the FRAG is composed of very large companies, the experience of the members and the knowledge of the businesses enables technical debates at a high level,” points out Masquelier. “This enables us to determine what may considerably impact our activities. It is similar to a laboratory in that respect.”

The FRAG supports the European treasury community by working on files, proposals, discussion papers, and consultations, with the support of a prominent advocacy firm in Brussels. The relatively small size of the committee allows for interaction and agility. It aims to ensure that, however laudable an objective is, measures do not become so restrictive that they are counterproductive, overbearing, or impractical for treasurers to manage.

Masquelier comments: “If EMIR had not permitted the exemption of collateral, one could imagine situations where a company would no longer have hedged an FX risk because of the costs of such a hedge – clearly this would have been a ridiculous situation!

“The EACT, through the FRAG, is a kind of oracle that aims to defend the best interests of its members. A small, motivated and experienced group makes it possible to better co-ordinate and define actions to achieve our goals.”

As well as advising corporate treasury practitioners, the FRAG also plays a role in informing and educating European regulators which, quite naturally, may not know precisely what treasurers are working on and why. Sometimes this can involve coordinating efforts with other stakeholders.

“When considering where treasury interests align with those of other stakeholders, the reform of MMFs provides a current example,” continues Masquelier. “This is crucial for treasurers and also for fund managers and the Institutional Money Market Funds Association [IMMFA] that represents them. The revisions to the Markets in Financial Instruments Regulation [MiFIR] and Markets in Financial Instruments Directive [MiFID] also affect derivatives. I’d also highlight that the adoption of Basel IV could drastically impact companies active in trade finance, in terms of issuing guarantees, and also penalise them by increasing costs and limiting credit lines.”

Integrating regulatory reforms

Corporate treasurers are always busy, and those in Europe have emerged from pandemic lockdowns only to face war raging in the east of the continent, a factor that has impacted many business operations and financial markets. Keeping abreast of the latest regulatory updates against this backdrop is challenging.

“Treasurers often do not have the spirit or the desire to spend time scanning the upcoming regulations and anticipating their potential impacts,” reflects Masquelier. “This is, therefore, a role that falls to the treasury associations that defend their interests. For those treasurers who are part of one of the EACT’s member associations – from both long-established to brand-new members – they have our publications and alerts to read, consultations and surveys to respond to, and views of dedicated internal committees to understand and from which to learn.”

When a wave of new regulations is in the pipeline, as is the case today, it can be prescient to use specialists to ensure members are au fait with developments. By being assisted to properly categorise and filter the most impactful and relevant regulatory proposals, treasurers are then equipped to understand what might be required to change, and when, in an efficient manner.

“Financial regulations will continue to be issued and reviewed, and our work remains ongoing,” concludes Masquelier. “I don’t think that regulators will stop producing new rules. We must ensure that we protect the interests of our members as best we can, and that’s what we’re working on.”