4 Issues That Will Impact Treasury Management in 2023

  • By AFP Staff
  • Published: 1/12/2023
Global Network

The economic outlook for 2023 is less than rosy, steering the focus of most companies’ leadership toward preparation and planning. Treasurers are helping to develop strategic plans and update the various liquidity and risk management policies and procedures.

Alongside this work, there are four key developments that will impact treasury management in 2023.

Real-time payments in the U.S.

The Fed’s real-time payment system, FedNow, is due to come online in 2023, complementing The Clearing House’s RTP® network. The introduction of FedNow will increase the uptake of real-time payments in the U.S. by extending the availability of real-time payment functionality to more banks.

For some companies, the greater availability of real-time payments represents an opportunity to improve efficiency; for others, it will be an added vulnerability to be managed. Each company’s fate will largely depend on whether it has a specific use case to make, or accept, real-time payments.

Treasurers need to understand the implications of real-time payments, especially for liquidity and operational risk management, as two key features — irrevocability and instant processing — will alter the risk profile of payments management within the treasury department.

ISO 20022 – improvements to cross-border payments

The second key change is the March 2023 go-live for ISO 20022, the new payment messaging standard for cross-border payments. For all users, the potential benefits derive from the ability of new message types to carry more data along with payment or account information.

Once ISO 20022 is fully operational, treasurers should be able to identify significant benefits of the transition. Cross-border payments will be more transparent due to interoperable standards offering more structured data. The same data will ease the automation of more of the disbursement and collection processes including reconciliation. In turn, these improvements to payment processing will lead to a more efficient use of liquidity.

While the timing of the transition will vary by country, by acting now, treasurers can prepare their organizations to take advantage of the new format as soon as possible.

Money fund reform

Following significant redemptions from prime money funds in spring 2020, the SEC has proposed a series of reforms aimed at improving the resilience of the sector. Although the proposed reforms had not been finalized at the time of writing this article, the proposed introduction of swing pricing for institutional prime and tax-exempt funds would encourage a further switch from prime to government and treasury funds.

As proposed, a fund that has net redemptions over a specific time period will be required to amend its net asset value for that period. Assuming the SEC adopts swing pricing in its final proposals, treasurers will need to review their use of money funds, as there will be an increased risk of a loss of principal when investing in affected funds.

The end of Libor

Finally, the remaining five USD Libor settings (and six synthetic settings in GBP and JPY) will continue to be published until the end of June 2023. Little new Libor business should have been written since the 2021 cut-off date, but there will still be some legacy USD Libor business to be managed, including remaining syndicated loans, term loans and intercompany loans.

For those who have yet to start transitioning, it is time to prepare, as external support may not be available closer to the deadline.

Are you ready for what’s to come in 2023? Check out the 2022 AFP Treasury in Practice Guide: What’s Next? A Practical Guide to Prepare for Change in 2023.

How TIS Enables Accurate Cash Forecasting During Uncertain Times
In the modern business environment, cash forecasting is an essential treasury activity. However, during periods of uncertainty – whether due to a recession, a pandemic, or geopolitical instability – the forecasting process becomes even more important.
Read the full article.

Copyright © 2023 Association for Financial Professionals, Inc.
All rights reserved.