The challenges that companies have faced since the globalfinancial crisis have heightened corporate treasurers' focus onrisk management. A recent survey by FIS, a provider of banking and paymenttechnology, shows a pickup in the portion of corporates that haveformal risk management policies, as well as an increase in theshare of companies that award themselves a decent grade on riskmanagement.

The executives surveyed still see challenges in a number of riskmanagement areas, though, including market risk and creditrisk.

FIS, which acquired treasury systems provider SunGard last year,surveyed treasury and finance executives at more than 100 companiesaround the world, 68% of which had annual revenue of more than $1billion.

The survey showed that 81% of the companies have formal riskpolicies, up from 67% in 2015. Such policies detail the company'srisk appetite and risk management objectives.

Andrew Bateman, head of corporate liquidity solutions at FIS,cited a “continual increase” in the share of companies with formalrisk policies amid the greater corporate focus on financial riskssince the 2008 financial crisis.

And according to the survey, while 26% of companies judged theirrisk management efforts to be “very effective,” in line with theprevious survey, 31% rated themselves as “somewhat effective,” upfrom 20% in the previous survey.

FIS found a correlation between finance teams' view of theirrisk management effectiveness and the level of technology they havedeployed.

About half of the companies surveyed use spreadsheets or othermanual methods to handle risk management, and according to thereport, all of the companies that gave themselves a poor grade onrisk management use those manual methods.

At the other end of the spectrum, although 26% of all thesurveyed companies rated themselves as “very effective” at managingrisk, that rose to 43% among the companies that use a treasurymanagement system with risk management capabilities, and to 71%among those that use a specialized risk management informationsystem that is integrated with their treasury managementsystem.

“The effectiveness of risk management in a treasury is driven bythe technology that's allowing them to do that management,” Batemansaid. “Those that move from spreadsheets to treasury systems aregoing to have the greatest capability to have a formal riskmanagement policy; those that have specialized risk systems, evenmore so.”

The survey results suggest that companies are gradually movingaway from handling cash management and risk management onspreadsheets.

Bateman said that while Excel spreadsheets offer an attractivecombination of flexibility and low cost, the availability ofsoftware-as-a-service (SaaS) technology is convincing companies toadopt specialized software.

With SaaS, “the cost is significantly lower, so it makes it aneasier decision for someone to make,” he said. “The availability ofSaaS, that's the thing that's helped people move offspreadsheets.”

Risk Management Concerns

Nevertheless, treasury and finance executives continue to seechallenges in a few areas. In the FIS study, 65% said they havemoderate or severe difficulty in managing market risks, such asinterest rate risk and foreign exchange risk. The report linkedthose concerns to market volatility as well as the negativeinterest rates seen in Europe.

The companies also cited challenges related to credit risks,with 56% citing moderate or severe difficulty in dealing with risksrelated to the companies with which they do business and 54% citingmoderate or severe difficulty in dealing with bank counterpartyrisks. And almost half (49%) of the companies cited moderate orsevere difficulty dealing with liquidity risks; the report notesthat money market fund reforms in the U.S. and negative interestrates overseas have made it harder for treasurers to findappropriate short-term investments.

One risk the surveyed finance and treasury executives seemedrelatively relaxed about was cyberattacks. Just 7% said thatcybersecurity risks are having a significant effect on their riskmanagement strategies currently, while 29% said such risks arehaving some effect.

Bateman, pictured at right, said he wassurprised by the low readings on cyber risks given events like the$81 million cyberheist from Bangladesh's central bank, whichoccurred in February, but he predicted that sentiment oncybersecurity would shift in the next year or so.

“Treasurers have to work very closely with their IT counterpartson security,” he said, “to put in place the right infrastructureand to have policies around the use of technology that have a highlevel of discipline.” Treasurers also need to educate theiremployees about the ways cyber criminals will try to getinformation or drive a payment, he said.

“If a payment is made out of a system because of a fraudulentactivity, whether because of collusion between employees or abreach of cybersecurity, the treasurer needs to realize they're onthe hook for that and needs to work with their IT department tomitigate it,” Bateman said.

The report also noted the regulatory risk that treasurers face.“The interesting thing for me was just the level of uncertaintyabout some of the key regulations that are coming out,” Batemansaid, citing the new international accounting standard for hedgeaccounting, IFRS 9. According to the survey, almost half of thosesurveyed are uncertain about the effect the new standard would haveon the way they account for derivatives.

“We're only a year away now from the mandatory adoption of that,and we still have a lot of corporates out there that really haven'tthought about the implications and how it's going to shift from theprevious standard,” Bateman said, adding that he expects to see “alot of activity over the next 12 months” as corporates prepare forthe January 2018 implementation.