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Articles

Keys to Setting Up a Treasury Operation

  • By Andrew Deichler
  • Published: 6/29/2020

apac treasury

Last week, AFP held a webinar to provide a better understanding of how treasury operates in the Asia-Pacific (APAC) region. A special companion piece to the 2020 AFP Asia-Pacific Treasury Management Handbook, sponsored by Kyriba, the webinar looked specifically at the challenges of setting up a regional treasury operation in APAC.

SETTING UP

Tom Hunt, CTP, AFP’s Director of Treasury Services, began by explaining that controls, communication and efficiency are the three tenets around setting up a treasury structure in the APAC region.

In terms of controls, everything starts at the top. “When you're setting up a treasury department, the board is going to designate who can do what through a board resolution,” Hunt said. “Then there are group entities and possibly local entities. Essentially, what gets determined is the controls around who can do what. So you define the structure, how it's going to operate, what it will report up to, and who will have control over a lot of different areas—especially if there's going to be a lot of reliance on local expertise.”

For APAC specifically, controls can be especially challenging due to the many different payment methodologies used across the region. Rules and regulations vary widely from country to country and can be very complicated, so treasury must have a firm grasp on all of these factors as it seeks to establish a new entity. “You want payments to be as straight-through and hands-off as possible, but you also need to make sure that they arrive at the correct beneficiary on time,” Hunt said.

Communications will depend on how the entire operation is established. If it's set up in a decentralized format, then the reporting lines between the parent and the legal entity will need to be clearly established. “Is treasury going to have its own separate legal entity? Is it going to report into a country level? There are lot of different ways that this can be accomplished, but you want to definitely establish proper communications between the parent entity and the local entities going forward,” Hunt said.

TREASURY EFFICIENCY

Efficiency will depend on the structure of the entity. Regional treasury center structures can differ greatly; it often depends on a number of factors, including industry, the region itself, and the overall company philosophy.

Logistic giant DHL operates a regional center in Singapore, but it is part of a single, central department. So while all regional centers have a degree of autonomy, at DHL, they still function as part of one, global unit.

“My team in Singapore is part of the same department as my colleagues in Fort Lauderdale, Florida, the UK, and the main team in Bonn, Germany,” said Stephen Hogan, VP, Regional Treasury Asia-Pacific for DHL. “I report to the EVP of corporate finance, who is a member of the finance board. All of our policies and decision-making that have been delegated to us have been approved by that finance board, and therefore, it's also been approved by the divisional CFOs, globally.”

According to Hogan, this structure makes communication fairly easy. “When we're communicating with our subsidiaries in Asia-Pacific—and in Asia Pacific our stretch is about 41 countries—you are dealing with the different divisions,” he said. “If you're dealing with a CFO in a country, he knows you are finance and ultimately knows that you are carrying out policies and directions that have fundamentally been approved by his boss's boss, at the finance board level.”

For DHL, choosing to open a regional treasury center was primarily a decision to be close to its business partners. “It’s about one corporate function being close to the business in the region,” Hogan added.

At multinational food company Danone, each business unit has its own finance department that reports to its global finance directors. However, treasury is not considered part of any business unit, but rather a support function, explained Pulat Yunusmetov, Treasury Manager at Danone. “That's why on the group level, we report to the CFOs through the corporate treasurer,” he said. “We're split between the business unit and the business services. The goal of the business services is to fully support the business unit.”

Given treasury’s unique position at Danone, there are certain skills that are desirable for employees who operate the regional center in Singapore. Yunusmetov noted that the ability to collaborate and negotiate with the business units is particularly critical for his staff, especially in the current pandemic environment. “As I mentioned, we are more like a partner in the middle,” he said. “Things are not as easy as before, but at the same time we have to ensure that we follow all the policies and rules. Negotiation power is quite important.”

TREASURY TECHNOLOGY

However you structure your regional treasury center, technology can make or break the entire function. Hunt sees treasury technology is the glue that binds the entire operation together.

JaeSon Kim, managing director of APAC for Kyriba, noted that the last several years have seen an influx of new technologies that can improve treasury’s functionality, such as APIs, automation, AI, and real-time payments. However, despite these innovations, recent surveys have shown that many treasury departments are still struggling to complete traditional functions.

“I think many treasurers are still having challenges out there within some of the fundamental requirements for a treasury, such as the visibility of your global operations of cash management or managing your FX volatility,” he said.

Kim noted that treasury departments need to establish a roadmap to get to where they want to go with technology. For an APAC regional center specifically, treasury will need to have a firm grasp of the different country requirements across the region, as well as its automation needs.

Kim added that there has been an increasing demand for automation in the COVID-19 environment, as treasury departments have been working from home and have been forced to rely far less on manual processes. “I think a lot of people are seeing that this could be a great opportunity to transform how you operate as a treasury system or treasury department out there, enhancing your capabilities and using different technologies to actually improve your processes,” he said. “The idea here is to really understand how you can actually leverage technology to turn your treasury operations to be strategic.”

For more insights, download the 2020 AFP Asia-Pacific Treasury Management Handbook, sponsored by Kyriba.

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