Sixth Sense

EACT Summit Highlights the ‘Essential and Central’ Spirit of Treasury 

As the sixth annual EACT Summit got underway in La Hulpe, Belgium, the belief that every member has a key role to play in shaping the profession for the greater good was never far from the surface. The plenary sessions cast a determined light on current thinking, with much to take away.

Sometimes you just know when an event is going to deliver. As a platform for sharing best practices without borders, EACT’s annual summit, held this year on 11 and 12 April, brought together some of treasury’s brightest thinkers and doers. But more than just demonstrating how much each knows about their respective subjects, there was a genuine willingness to share the intelligence, build upon the collective experience of all who attended, and take the profession forward in the midst of unstable times.

In his Summit notes, François Masquelier, Chair, EACT, focused on how far EACT has come in its recognised role “as a key player and defender of the interests of the profession”. This event, he proposed, was to be an opportunity to review the impact of great changes and global tumult on the financial world.

Day one: hot topics

In his opening statement as Chair, Masquelier suggested 2024 reminded treasurers that they face a “non-binary” economic reality. Referencing the now-legendary speech of former US Secretary of Defence Donald Rumsfeld, he warned of a trading environment characterised by many “unknown unknowns”. In a world where seemingly “almost anything can happen”, he warned of “a new treasury reality that requires rethinking”.

But even in a year when governmental elections will impact almost 50% of the global population, with political change possibly heralding a new regulatory barrage for business, he restated EACT’s unwavering position as “a strong advocate for the voice of treasury”. It is, he declared, so fundamental to the cause that “even if the current global phase of poly-crisis turns to permacrisis, the treasurer will remain a lighthouse in a stormy sea”.

As the sessions got underway, that assertion of treasury resilience was validated many times over. In the panel discussion Sharing trends on B2B payments and their impact on corporate treasurers Emmanuelle François, Head of Axepta Europe, BNP Paribas, noted that even though consumers are still waiting for truly real-time, frictionless, mobile payments, the post-Covid push for digitalisation has seen mobile become the dominant payment mechanism in this space. This, she believes, creates inevitable demand in B2B, and is driving businesses to offer as many payment types as possible to customers, all of which need to be integrated within treasury’s world.

For Michel Verholen, Assistant Treasurer, Zoetis, there are still three key payments challenges to address for many firms. First, commercial models are “increasingly diverse”, with many businesses moving from product sales to a product-plus-service model. Second, a harmonised approach to cross-border payments is needed for scalability. And third, there has to be a technological evolution within functions such as collections and reconciliations for the benefits of 24/7 processing to become a reality.

Regulation within the payments space is a key concern for Christiaan van der Valk, Vice President of Strategy and Regulatory, Sovos, and Vice Chair, Global Exchange Network Association (GENA). The counterpart of every B2B payment is an invoice, and for him, as mandatory e-invoicing gains ground, “from now on, invoicing will be a regulated activity”.

Van der Valk explained that posting real-time invoice data has been demanded by government tax administrators in Chile since 2001, but that it is increasingly on the agenda elsewhere.

While Chile’s approach was initially seen as too intrusive for some jurisdictions – Europe and the US, for instance – events such as the global financial crisis of 2008, and even Brexit, have forced a rethink. With more governments now wanting to see structured invoice data in real-time, as a “pre-approval” measure, he said it would introduce them as “a third trading partner”.

Governments will need to open up private networks, such as EDI, to achieve the necessary interoperability with public standards. The goal, suggested van der Valk, will be a global ‘connect once’ network of networks, enabling companies to see their entire supply chain at a granular level. Real-time accessibility of data by government also means that VAT and corporate income tax, for example, no longer need to be regularly reported.

However, he cautioned, posted real-time data will be shared among many more government departments, facilitating immediate insight into every business. “And it’s starting now, with mandatory e-invoicing. Ten years from now, the whole world will have this.”

The move to real-time payments does not have an obvious treasury benefit from Verholen’s perspective. He wondered how the payment experience would be tied to e-invoicing, suggesting that while it would be good for customers, companies “still don’t know when funds will hit their bank accounts”.

And as taxation moves into the real-time age, Lirka Bibezic, Global Head of Product Management, Receivables, Cash Management Competence Centre, BNP Paribas, echoed François’ thoughts, having identified the need to integrate diverse payment methods with invoicing systems, “complementing e-invoicing flows with payment mechanisms across all geographies”.

A panel of technical experts convened for the discussion AI - The Robots are Coming. A straw poll showed that already around 35% of delegate respondents were using generative AI (GenAI) for work purposes, such as writing treasury policy.

Uwe Reinemer, Head of Treasury Operations, Merck, explained that his firm’s initial use for AI was simply to automate a range of manual tasks but that the power of this technology is now revealing itself. The next steps will set it on a course of process enhancement and pattern recognition, with possible use cases in areas such as fraud detection. However, with 40 operational ERPs and three TMS platforms providing source data, he admitted the challenge now is to “get the data right and bring it all together”.

AI adoption is increasing, noted Su Yang, Head of AI, Transaction Banking, BNP Paribas, the bank “working with clients to develop use cases”. While most projects target operational, day-to-day efficiency drives, BNP Paribas is also leveraging AI’s power within KYC and fraud detection.

Words of caution were provided by Darryl Claret, COO and Treasurer, African Sun Holdings, who said close attention needs to be paid to criminal capacity “to feed in and corrupt data for their own purposes”. “All new technologies bring new opportunities but also new vectors of attack,” he warned.

Citing a new wave of “collaborative criminals”, where sharing expertise enhances such attacks, he advised that cyber-defence “has to be key”. Claret counselled also that as AI is “not bound by any moral position” it needs controls and regulations to ensure its actions remain within the constraints of acceptable behaviour when, for instance, trading.

The panel provided a case study, with Jeroen van Hulten, Product Lead Analytics & Data Science, ASML, outlining the firm’s EACT award-winning use of AI to improve FX exposure forecasting accuracy. Using an open source algorithm, the team blended treasury and data science knowledge to improve its metrics from 70% to more than 96%.

When establishing a business case for AI, Claret advised finding a business challenge first, rather than starting with a system and seeing what it can fix. He advised explorers to always be mindful of data quality. “It has been called the ‘new oil’. But I’ve also heard it described as the ‘new sand’: it’s everywhere and while it can be extremely useful, it can also be useless, depending on how it’s used.”

Yang agreed, and pointed out that “knowledge is from data not the model”. It is, he said, “extremely important to make sure data is relevant to business cases, clean and secure”. This may require the attention of a specialist who can grasp both business and technological points of view. However, as van Hulten was quick to remind delegates, “don’t hide behind having poor data as a reason not to do it.”

To this end, Claret added that “strong governance is really important” in any AI application. Without it, the risk is of simply “using it to get the answers you want”. He urged users to engage with “a reality check, to see if the model is working correctly, with a fallback to challenge it where necessary”.

The panel agreed that the adoption of AI needs “creators, curious minds, and diverse perspectives”. Upskilling internal talent may be sufficient but hiring in expertise, especially a data scientist, may be necessary. Other potential downsides were observed. AI may induce laziness in some, but worse is the risk of a business placing too much trust in its output. Indeed, a key danger noted by van Hulten is unquestioningly revering it as an inscrutable “black box”. Challenge its results, he implored, “otherwise you risk falling asleep at the wheel”.

That said, van Hulten suggested that most AI critics probably think nothing of using long-established labour-saving devices such as dishwashers and vacuum cleaners. One day, AI will be seen in the same familiar light. But while businesses “would be crazy not to use AI”, he insisted “it needs a vision, with ownership and a champion” to carry it safely and successfully.

In his keynote speech, José Manuel Campa, Chair, European Banking Authority, joined the conference virtually to highlight an ongoing EU policy workstream on AI. On the prudential side, he said a large number of provisions already exist for banks deploying it.

He acknowledged the need to continually identify new use cases and upgrade broad-based regulatory guidance, especially around data protection in banking. This was part of the EU’s recent AI Act, and is key to the forthcoming Digital Operational Resilience Act, applicable to all authorised European financial entities from January 2025.

Campa also noted the importance of IBAN-Name Check as a tool to foster the growth of instant payments in Europe, with potential to extend this to any payment type. “One of its intentions is to reinforce security,” he explained, “but balancing this with the convenience of the instant system.”

With ESG’s increasing impact on borrowing, Campa mentioned that the EU is moving rapidly for banks under Pillar 3. This will ensure stakeholders have sufficient information about institutions’ ESG exposures, risks, and strategies to make informed decisions. The number one concern here, he stated, is still the lack of appropriate data.

The need to make sure banks “identify, measure, and manage the risk in terms of financing conditions” is now an essential component, each being compelled to “understand their own exposures, and comply with the rules”.

At Campa’s conclusion, Masquelier commented that EACT is “ready to keep open the dialogue, from the real-economy perspective”.

In the panel session Refinancing Treasury, the perspective on global economic outlook remains “nuanced”, commented Yasmina Serghini, Managing Director, Moody’s Investors Service. There is “light at the end of tunnel into 2025”, with G20 growth forecast at circa 2.5%, less volatility in the US, and “a general trend in the right direction” across most sectors.

Inflation and interest rates are expected to fall in Q2. While the market has already priced in some of this, Serghini believes central banks still want to see inflation under greater control. She therefore predicts more stress for lower-rated firms. And with the predicted debt maturity wall set to hurt many, the depth of pain will depend on how individual capital structures have been managed.

Bruno Lawaree, Group Treasurer, Ferrero, revealed the firm as both private and unrated. With growth largely via M&A, financing has necessarily come from a mix of sources, including some US and European private placements (USPP and Schuldschein respectively). While a lack of rating was not an issue for either market, he admitted that complexity had been a challenge, with almost 50 investors to manage.

Despite the potential for some administrative pain, Benoît Usciati, Head of Negotiable Debt Securities, Banque de France, suggested that, in the current environment, some diversification of funding is vital. He put forward commercial paper (CP) as “a valuable tool for financing the real economy”.

The market is international and carries many major MMFs among its investors. It is also flexible for issuers, he remarked. Ceilings are modifiable, one issue is able to cover multiple currencies, and maturities are variable. It is also a transparent market, he added, Banque de France publishing detailed trackable data for stakeholders.

However, Usciati accepted that diversification with CP could come at a cost, with a rating usually needed to issue, hence it is mostly larger companies that use it. “Issuers also tend to keep backstop credit lines in place,” he added.

In the experience of Karen Van den Driessche, former Group Treasurer, Ontex, M&A at the company had created a level of debt that was fully bank financed. The RCF had been refinanced, but going forward, the company did not want to rely fully on its banks. For this reason, she explained, Ontex accessed the capital markets, and managed to secure “good rates”.

In the meantime, Ontex’s strategy had changed, the business refocusing on its core EU/US markets and selling off its outliers. This saw the company rating downgraded, which inevitably affected its financing structure. While Van den Driessche noted that it can be hard for companies to demonstrate improvements to ratings agencies, she felt diversification was one way to help recover a rating.

Serghini confirmed that agencies are seeing more companies coming to the bond markets to rebalance financing structures as they move away from bank debt. Regional variance is observable here though, with the bank-versus-bond split around 70/30 in the EU, and 50/50 in the US. She emphasised the risk of having only one funding source, noting that more companies are indeed shifting away from relying on a single bank or a small group of banks, towards larger pools of providers. “It supports the view that it is good to diversify,” she commented.

When aiming for diversification, Lawaree explained that it is important to manage consistency across every option, in terms of covenants, for example. For Van den Driessche, the key for any company seeking financial diversification is to ensure broad communication and understanding of long-term business requirements, as this will inform strategy on capital structure. When it comes to options, she urged selectiveness, using only the most appropriate funding sources.

Whichever way diversification is achieved, Serghini advised that rating agencies typically want to see firms set out timings for refinancing well ahead of maturity. “We want to understand your plans and contingencies.”

Some of the key bodies impacting treasury stepped up to explain current activities in the session EACT in Action: Roundtable on Latest Industry Developments.

Veronica Iommi, Secretary General, Institutional Money Market Funds Association (IMMFA), noted the value of close co-operation with EACT in its objective of promoting and supporting the integrity and development of the short-term MMF industry. She spoke of how the two key fund types in Europe, stable and variable net asset value (NAV), have shown “strong, steady growth” in the past decade which “demonstrates very much investor confidence and the continued utility of the product”.

MMFs have absorbed the shock of events such as Russia’s invasion of Ukraine in February 2022, the sharp rise in inflation and the unprecedented series of interest rate hikes, and the collapse of Silicon Valley Bank in March 2023. Nonetheless, market reforms continue.

One area where the regulation did not work as intended was the link between minimum liquidity thresholds and the possible imposition of fees and gates, noted Iommi. IMMFA was first to recommend de-linking. “However, we argued against [proposed] significant increases in liquidity, mandatory public debt holdings, and most importantly, we strongly oppose removal of the stable NAV.”

The US has adopted reforms including substantial increases in liquidity levels, de-linking and the redemption fee structure. The European Commission’s review of existing regulations “were largely positive”, with “no proposed revisions to legislation at this stage”. In the UK, the Financial Conduct Authority (FCA) also proposes de-linking, suggesting that each fund should have at least one liquidity management tool to be used at the discretion of the manager. IMMFA agrees.

Corporate treasurers should be aware that reforms may continue, with possible increased liquidity levels impacting investor yields. The EU’s look at opening up regulation still poses a threat to the existence of low volatility net asset value (LVNAV), despite it being safe for now. If it were to go, Iommi said investors who prefer stable NAV would be limited to public debt constant net asset value (CNAV), viable only in USD. Others would face a forcible move to variable net asset value (VNAV), with “costs and consequences” in terms of systems, reporting, processes, and accounting treatment, including implications for cash and cash equivalents. The earliest for any changes would probably be 2026 or 2027.

“The battle is not over yet,” Iommi stated. “We will need to continue to encourage investors and issuers to make their voices heard to ensure their regulatory changes are targeted, proportionate, and work for you.”

The evolution of the legal entity identifier (LEI), in part as a means of fighting financial crime, was scrutinised by Clare Rowley, Head of Business Operations, Global Legal Entity Identifier Foundation (GLEIF). The publication of two important independent guidance documents last October yielded the same two conclusions regarding the LEI and party transparency. First was the equivalency of the LEI and the business identifier code (BIC) for the financial institutions. Second was the LEI’s potential to replace and remove errors around the originator and beneficiary’s (often incorrectly entered) name and address in a payment message.

“In Europe, the legislative framework for the use of LEIs in payments is 90% there,” remarked Rowley. With this framework, she suggested treasurers should begin leveraging it, starting by discovering how many of their organisation’s suppliers already have an LEI, and what it would take to acquire the updated data and start building out an ecosystem.

The second action is to discuss LEIs with vendors and FIs, the actions they are taking to incorporate the LEI as a data element within their services. The final call to action is to engage with public consultations – such as around Financial Action Task Force (FATF) Recommendation 16 and PSD3 – where opportunities are presented to demonstrate the value of transparent counterparty party identification not only in reducing fraud, but also in enhancing and streamlining STP.

The future of trade requires open and common interoperable systems, and the LEI will be a foundational part of that, noted Chris Southworth, Secretary General, International Chamber of Commerce (ICC) United Kingdom. He described the existing fragmented system as “not fit for purpose”. Throwing down the gauntlet, he suggested that while banks are currently not asking for LEIs, “maybe it would help uptake if they did”.

Southworth explained his own organisation’s position on the future of trade with a view that governments are “finally latching onto the agenda for digitisation”, with “more progress made in last three years than in the previous 20”.

As the push for paperless trade gathers momentum, Southworth cited United Nations Commission on International Trade Law (UNCITRAL) progress towards a “comprehensive interoperable digital framework”.

A major change has been the adoption into English legislation of UNCITRAL’s Model Law on Electronic Transferable Records (MLETR), giving legal standing to digital trade documents. Southworth noted that Singapore has already adopted MLETR, and other jurisdictions in ASEAN are working towards the same goal, with acceptance anticipated within the next two to three years.

Digitalisation enables the faster movements of goods and payments, and presents lower risk and costs for participants, Southworth explained. It is treasury’s role to explore how to unlock the finance piece. But, he added, it needs early adopters to build use cases. The ICC UK is willing to help interested parties, but Southworth believes buyers and sellers should now work together, using their combined power “to make change happen”.

The power of collaboration is evident in the fight against financial crime, too, said John Cusack, Global Coalition To Fight Financial Crime (GCFFC). This body, today comprising 36 large institutions from the public, private, and NGO sectors, is the only global coalition of experts that exists to fight financial crime. It relates not just to money laundering or terrorism finance but also areas related to offences such as drug, human, and wildlife trafficking.

From all those different sectors, explained Cusack, “if we can get a consensus, then when we present that to policy- and decision-makers, they are much more likely to agree with us that we have a productive way forward”. The GCFFC lobbied for some 10 years to allow banks to disclose data on identified criminal parties. Only now is the industry making headway, a notable success being Section 75 of the EU’s AML regulation. This finally permits European banks to share information among themselves. The GCFFC is keen to work with corporates on any related issues they may be facing.

From an EACT perspective, Masquelier reiterated the association’s intention to increase treasury’s visibility on the wider stage, working with other stakeholders “on our common interests”. The current core areas of representation, he said, are payments, sustainable finance, fund and non-bank regulations, and the financial markets. “You can count on us to do our best to protect your interests,” he declared.

Day two: priorities ahead

In his presentation, Pierre Fersztand, Global Head of Cash Management, Payments, Trade Solutions & Factoring, BNP Paribas, drew attention to some of the key trends in treasury. The importance of the role, he said, has been reinforced in recent years, and with the pressure to perform increasing, he welcomed technological evolution. Headway is being made in core areas such as payments and reconciliations, but he noted, too, how AI is beginning to play a major role in honing treasury decision-making, with BNP Paribas committed to co-creation of cutting-edge solutions with clients.

The future is also about people, Fersztand continued. Acknowledging the need to attract young candidates to the profession, he referenced how the bank’s year-long training scheme, aimed at graduates, is generating a pool of new talent for industry to absorb.

Alongside practical solutions for chronic pain points such as KYC/AML (a new platform is expected to roll out in 2025), he believes BNP Paribas is set to “accompany clients on their journeys” as all “face the challenges of tomorrow”.

In the final panel discussion What the CFO expects from the treasurer a straw poll revealed that 51% of treasurer delegates felt they were aligned with their CFO, ‘with some differences’.

Turning to the panel of CFOs, Jacques Molgo, Deputy CFO, Air Liquide, saw a good alignment with treasury. He said that while he is focused on matters such as capital allocation and optimisation of resources, this translates for treasury, for example, into securing the right funding either through capital market or bank debt, for the company’s projects and investments. 

Attila Sztankó, CFO, Kometa 99, accepted that financing in a post-Covid, war-torn and sanctions-heavy world ensures “liquidity is king”, seeing it as “the strongest risk protection tool”. With pressure to meet ESG expectations as CFO, he accepted that it is getting harder for treasury because the function “needs to be much closer to the business”, to access and provide essential and timely data.

ESG reporting was picked up by Stefan-Alexandru Frangulea, Group CFO, Electrica, who said that within treasury, sustainability reporting now goes hand in hand with bond issuance. As such, he restated the importance of treasury being in a position to understand the business in greater depth and breadth.

Another straw poll queried perceptions of treasury across organisations, with 35% being afforded strategic value, 34% a collaborative label, and 31% seen as a transactional function.

It should be seen as strategic, stated Sztankó. The pandemic forced changes, many being managed by treasury. The sudden hike in energy costs, for instance, saw treasury taking crucial hedging decisions. “Today, treasury has become part of the business.”

Treasury must be all three, remarked Molgo. “It has to ensure the basics are carried out, but now it also has to be a business partner, and offer a long-term view and influence over operations.”

The CFO wants treasury to be proactive, revealed Frangulea. In particular, he said, it needs to be diversifying funding; with rising rates, finding cheaper funding sources is critical. Molgo added that treasury can also use its knowledge and connections to source money internally – perhaps using cash conversion cycle metrics – to avoid costly external borrowing.

Across the entire event, technology was never far from the surface: another straw poll in this panel probed the main barriers to digital investment. The results underlined a lack of internal knowledge (35%) and a lack of budget (24%) as leading culprits. Data issues were in third place (17%).

Not only were the right skills not always evident in-house but often there was insufficient skill to even choose the right vendor to help, stated Sztankó. That said, he noted that data-mining work is often pushed to treasury “as they are most capable numbers people”.

The human element was also raised by Frangulea, who welcomed budgeting for a TMS if used for automation, “not as a means to get rid of people but to give them more focus”. He commented, too, that boards often do not understand why a major non-specific IT system is rarely good enough for highly specific treasury purposes, and that trying to explain this from a position of “finance function transformation” can be challenging.

Frustrations aside, treasury often operates as a cost centre. With pressure mounting to cut those costs, Frangulea argued that CFOs must support the function with sufficient resources to keep its practitioners “looking at least one step ahead”.