Cracking the treasury vault – what’s in store for 2018?

Cracking the treasury vault – what’s in store for 2018?

Over the last years the global economy has been in a ‘Goldilocks’ state, enjoying moderate economic growth combined with low inflation and low interest rates. These favourable market conditions are fuelling corporate and private equity M&A activity, which is generally keeping treasurers busy around the globe. And although the consensus is that the Goldilocks economy will continue in 2018, it will be the unexpected events (rather than expected) which will drive the financial markets. In this regard who better to deal with the unexpected than the treasurer?

The end of cheap borrowing?

The low interest rate environment, which has lasted a decade already, could be well at its turning point. In the US the Federal Reserve is continuing to use the interest rate lever to manage a ‘healthy’ economy with three more rate increases expected during 2018 adding to the recent December rate hike.

The European Central Bank has announced that it plans to spread the remainder of the EUR2.5 trillion ‘Quantitative Easing’ programme from January until September, which indicates that monthly repurchases will fall from €60bn to €30bn.

While the markets do not expect euro rate hikes in 2018, the reduction in debt purchases suggests a tighter policy. Next to the pressure on the central bank interest rates, there is also the risk of increasing credit margins for corporate borrowers. As part of new proposed tax regulation the US will impose double taxation on payments by US affiliates of international banks, potentially leading to increased costs of borrowing.

Furthermore the ECB has finalised the framework of its new regulation on leveraged lending, to mirror existing US guidelines, which potentially has an effect on many ‘x-over’ and leveraged bank funded debt transactions. The US and ECB regulation on this point leads to an uneven playing field and potential migration of leveraged lending to non-banks. Cost of capital for net borrowers will be adversely affected by these changing interest rate and regulatory environments.

As a consequence, every treasury department needs to review their optimal capital structure, interest rate risk management and possible future funding plans.

Regulation, regulation, regulation…

Next to the abovementioned regulatory changes impacting the lending market, we see many other regulations impacting the corporate treasury market. The new IFRS9 standard comes into effect as of January and will be applicable for reporting periods starting thereafter.

The standard has two key elements related to treasury i) new rules for hedge accounting which will allow more economic approaches to link instruments with underlying assets and ii) a new more forward-looking credit loss calculation approach for financial assets.

At first glance one might think this regulation is particularly aimed at banks and their credit provisioning process but corporates also have in-house banks and intercompany financings to which this new regulation applies. Similarly FASB’s Current Expected Credit Loss (CECL) model will come into effect after 2019, with early adoption possible as of the end of 2018.

The new IFRS16 standard will have an influence on practically all firms and there are already some early adopters on the market. However, industries who are heavily dependent on leasing, such as retailers, airlines and logistic companies, will see the biggest impact on their balance sheets and financial ratios. If leases are part of your business then preparations need to begin (or continue) in 2018.

BEPS is currently making most treasury and tax departments work in collaborative fashion to prepare for acceptance and compliance. Intercompany financing structures are subject to review based on tougher transfer pricing and arm’s length pricing requirements. The action plan of the OECD will restrict interest deduction in certain situations and will require of companies to have more complete intercompany pricing approaches and documentation.

The Revised Payment Services Directive (PSD2) is a new European regulation that forces banks to open a direct access via APIs to authorised third party providers to view bank account data as well as authorize outgoing payments. With many FinTech software providers on the market, corporates are likely to benefit from alternative ways to connect to their banking landscape and manage their payments in more user-friendly ways. Therefore, treasurers should actively look for opportunities to embrace the benefits PSD2 has to offer.

With the Republican Party finally agreeing in principle, the US Corporate Tax Reform bill is one major step closer to legislation which will most likely happen in 2018. The bill proposes amendments that would permanently reduce the corporate tax rate from 35% to 21% and change the treatment of profits generated abroad quite substantially.

Tax and treasury departments will be extremely busy evaluating the benefits of the new rules and how to implement the best strategies to leverage these historic changes in US taxes. Also, non-US banks who were safeguarding the cash of US companies for years will encounter a serious liquidity drought once this offshore cash is repatriated and starts to flow back to the US.

The European Money Market Fund reform came into force last July and will force MMFs to apply new rules by January 2019. Unless certain fund capital and governance criteria are met, constant NAV funds are likely to transition to one of the two new categories i) the Public Debt CNAV fund and ii) the low volatility NAV fund. Therefore treasurers may need to review their investment policies and consider adapting their investment strategies in order to optimise their allocation targets under the new set-up.

Technology Never Sleeps

If we thought technology advanced at a strong pace over the last couple of decades we probably need to brace ourselves for the next couple of years. Every week there is a new technology-led alliance at the centre of which is break-through technological services or products. ‘Instant payments’ is in the news more often than ever. Recently AMEX and Santander teamed up with Ripple.

Ripple’s blockchain-based cross-border payment technology solves the two oldest pain points in cross-border commerce i) transfers that used to take days can be now settled in real time and ii) provide transparency into execution status and charges paid. In response, SWIFT introduced the global payments innovation (gpi) and this service addresses some of the same issues as Ripple.

Cross-border payments using SWIFT gpi should be credited much faster than traditional payments, even same day and provide real-time tracking and confirmations once the counterparty has been credited. The adoption rate of this new technology is growing rapidly and in 2018 we expect to see widespread application.

Cloud-based ‘Software-as-a-Service’ (SaaS) solutions will continue to gain ground within corporate treasury. The flexibility, quick deployment and independence from local IT resources offered by cloud solutions have won treasurers’ approval and continue to be accepted as trustworthy systems infrastructure. Ease-of-access on mobile devices adds to the SaaS attraction.

Exponential Technology is an area which covers a wide array of topics, such as Artificial Intelligence, Big Data, Distributed Ledger Technology and Crypto-currencies. The widespread application of these technologies is changing the way businesses are run in monumental fashion. In this regard treasury should be the function in which the ‘power of technology’ is a driving factor. Nonetheless, a lot of treasuries are not yet in the driving seat and lag behind in evaluating inevitable changes in their core tasks.

Which treasury processes will be impacted by exponential technologies is a major topic on its own, which we present in our white paper ‘What Impact will Exponential Technology have on Corporate Treasury?’


Similar to the risks Goldilocks encountered when she wandered off and explored unknown territory, treasury in 2018 will be full of the unknown. With so many regulatory changes coming into effect in 2018 & 2019 coupled with the changing interest rate landscape in the major economies it’s sure to be a busy year for the corporate treasurer. Add-in the constantly developing tech space searching for use cases (of which there are many in treasury) and it could be the most exciting year yet for your treasury team!