Digitization and Cybersecurity in Treasury: Insights from Royston Da Costa
In an era marked by rapid technological advancements, the treasury sector is pivotal. Digitization and cybersecurity are no longer options but necessities in the ever-evolving landscape of treasury operations.
This article offers invaluable insights from Royston Da Costa, Assistant Treasurer at Ferguson, a $30 billion leader in plumbing and heating distribution in North America. Da Costa, a front-runner in treasury technology, navigates Ferguson’s UK intercompany loans portfolio and spearheads the group’s strategy in treasury technology.
This article will explore the transformative benefits of digitizing treasury operations, enhancing efficiency and decision-making capabilities. Cybersecurity emerges as a critical element in safeguarding finances against evolving threats. This article will dissect foundational and advanced cybersecurity measures tailored to treasury operations. Furthermore, it will illuminate how treasurers can stay informed and ahead in mitigating financial risks in this digital era.
Prepare for a comprehensive guide to mastering these challenges, from the subtleties of treasury digitization to enforcing stringent cybersecurity protocols. Da Costa offers a practical, strategic viewpoint on these vital issues.
Evolution of the Web and Its Impact on Treasury Operations
The evolution of the Internet, commonly segmented into Web 1, Web 2, and Web 3, has significantly influenced treasury operations. Initially, the Internet (Web 1) served as a one-way information source, evolving into the interactive and social platform of Web 2. Currently, we are transitioning into Web 3, which emphasizes read, write, and execute functionalities. This phase is particularly transformative, highlighting user data control and privacy.
Key Drivers of Digital Transformation in Treasury
Economic Crisis of 2008
The 2008 economic crisis marked a turning point, prompting companies to seek efficiency and profitability enhancements. This period saw a shift in treasury management, focusing on technological advancement and automation. The transition was driven by a need for streamlined operations and better financial management.
Regulation and Open Banking
The advent of open banking in 2017, especially in the UK, further accelerated technological integration in treasury operations. This shift allowed for more collaboration between fintechs and banks, although there remains room for improvement, particularly from banking institutions.
The Pandemic’s Influence
The COVID-19 pandemic underscored the value of digital readiness. Companies like Ferguson, which had already adopted cloud-based solutions and remote work capabilities, experienced minimal operational disruptions. This situation highlighted the importance of digital infrastructure in maintaining business continuity during unforeseen challenges.
Current State of Treasury Technology
Treasury operations currently exhibit a diverse range of technological adoptions:
- A significant number of corporations still rely on Excel spreadsheets. While useful, there’s a growing need for more advanced, secure, and future-proof technologies.
- An increasing number of companies are adopting cloud-based solutions, enhancing efficiency and data management.
- Advanced technologies like AI and machine learning are gaining traction, though their full potential is yet to be realized in many treasury departments.
The evolution of AI, notably the transition from ChatGPT 3 to ChatGPT 4, represents a leap in technology’s ability to provide more sensible and rational responses. This advancement is relevant to tech sectors and becoming increasingly significant in treasury, where it promises to enhance decision-making and operational efficiency.
Impact of Cloud-Based Solutions in Treasury During the Pandemic
Adopting cloud-based solutions was crucial in maintaining business operations during the pandemic. Previously, corporate treasury functions relied on physical office setups and business continuity plans that included alternate locations, known as hot sites. However, the shift to cloud technology-enabled remote work reduces reliance on physical office spaces. This transition was vital for uninterrupted operations during unforeseen events like the pandemic.
Advantages of Cloud-Based Systems
- Flexibility and Connectivity: Cloud solutions offer the flexibility to work from anywhere, ensuring continuous access to necessary financial systems and data.
- Enhanced Security: While security concerns exist, cloud technology provides robust security features that safeguard sensitive financial data.
- Operational Efficiency: The ability to work remotely without disruption highlights the efficiency of cloud-based systems in treasury operations.
Challenges Without Cloud Technology
Without cloud solutions, companies face significant challenges:
- Dependence on physical office infrastructure.
- Need for alternative solutions like shipping computers to staff for remote work.
- Increased security risks in less secure home networks.
The Role of AI in the Treasury
Cash Flow Forecasting
AI significantly improves cash flow forecasting, addressing one of the top challenges in treasury management. By breaking down barriers in data centralization and communication between systems, AI enhances the accuracy and efficiency of forecasting.
Digital Twins Technology
Digital twins offer a virtual representation of treasury functions, allowing for advanced planning and risk management. This technology can simulate various scenarios, aiding in decision-making for FX hedging, commodity hedging, and other risks.
Automation and Future Prospects
Technologies like Microsoft Copilot enable the automation of processes, even in rudimentary forms. AI’s potential is vast, and its application in treasury is evolving rapidly, promising more sophisticated and efficient operations in the future.
Overcoming Barriers to Technology Adoption in Treasury Departments
Treasury departments are often cautious and conservative due to their role in managing financial risks and assets. This conservative approach can lead to resistance to adopting new technologies, even when these technologies offer financial and operational benefits.
The Necessity of Embracing Technology
Despite the inherent caution, the need to embrace technology is undeniable. This is evident from the success of technology-driven companies and the decline of those ignoring technological advancements. The rapid technological changes in society make it imperative for treasury departments to adapt and integrate new technologies.
Strategies for Adopting Technology
To begin incorporating technology, treasuries don’t need to dive into complex systems immediately. A gradual approach can be more effective:
- Start with Familiar Tools: Most treasurers use smartphones packed with technology. This familiarity can be a starting point for understanding and embracing more complex treasury technologies.
- Educate and Stay Informed: There are numerous resources available, such as treasury journals, conferences, and podcasts, that provide valuable information on the latest technologies and their applications in treasury.
- Leverage Banking Partners: Banks are valuable resources for understanding and adopting new technologies. They often have the financial means and the willingness to engage with customers about transformative technologies.
- Attend Conferences and Events: Attending conferences, even once a year, can expose treasurers to new technologies and industry leaders, providing insights into the latest trends and applications in the financial sector.
Cybersecurity Concerns
With the adoption of new technologies, cybersecurity emerges as a critical concern. Ensuring financial data security and transactions is paramount, particularly as treasury departments increasingly rely on digital platforms and tools.
Cybersecurity Considerations for Treasurers in a Digital World
Cybersecurity is a critical pillar in corporate security, especially for treasury departments. The relationship between the treasury and IT departments is vital in ensuring effective cybersecurity measures.
The Role of IT and Treasury in Cybersecurity
- IT Department as the Gatekeeper: IT is crucial in blocking cybersecurity threats such as ransomware and phishing emails.
- Treasury’s Responsibility: While IT provides technical defenses like firewalls, the treasury department must establish robust processes and controls to prevent and detect fraud.
Key Cybersecurity Processes in Treasury
- Regular Training: Continuous education on cybersecurity is essential for all employees. This includes recognizing phishing emails and practicing safe online behaviors.
- Process Review and Control: Effective processes and controls are the best defense against cyber threats. For example, using pre-approved templates for payments helps prevent unauthorized transactions.
- Segregation of Duties: Having separate teams for different functions, like payment processing and supplier validation, reduces the risk of fraud.
Examples of Cybersecurity Measures
- Payment Processing Controls: Implementing a ‘four eyes principle’ where two people must approve every transaction.
- Supplier Validation: Independently verifying supplier information to prevent fraudulent invoices.
- Use of Secure Technology: Ensuring all technology vendors and banking partners meet stringent cybersecurity standards, such as SOC 1 certification.
Practical Steps for Treasurers
- Understand the Technology: Treasurers should have a basic understanding of cybersecurity technology, like firewalls, provided by IT.
- Implement Strong Processes: Establishing secure processes for activities like payment approvals and supplier validation is crucial.
- Collaborate with IT and External Partners: Work closely with IT and external parties like vendors and banks to ensure comprehensive cybersecurity measures.
Cybersecurity Insurance as a Resource
Cybersecurity insurance is a valuable tool, offering protection and free assessments to identify risks and vulnerabilities in a company’s cybersecurity practices.
Real-World Application in Ferguson
The right cybersecurity measures have proven effective in practical scenarios, such as potential attacks on payment processes. For instance, segregation of duties ensures that fraudulent requests are identified and stopped before causing harm.
Advanced Cybersecurity Strategies in Treasury
Treasury departments are often key targets for cybercriminals due to their control over company finances. Advanced cybersecurity strategies are crucial, going beyond basic measures to combat this.
Integrating IT and Treasury for Enhanced Security
The primary responsibility for technical cybersecurity lies with the IT department. They provide the tools and infrastructure for a secure operational environment. The treasury’s role is to ensure that treasury management systems are secure and support effective internal controls and processes.
Evaluating Cybersecurity Solutions
Treasuries should focus on how solutions can help implement and operate controls successfully rather than looking for software that completely protects against cyber threats. There are no solutions that create an impenetrable security bubble. Instead, solutions should be seen as tools to reduce the risk of becoming a victim. For instance, software that helps monitor payment patterns or manage supplier data can be beneficial, especially for validating vendors and ensuring payments are made to the correct parties.
The Importance of Basics in Cybersecurity
Despite technological advancements, managing risk and understanding treasury operations remain fundamental. Technology should be used as an enabler and a tool, not a replacement for understanding and managing risks efficiently.
Example of a Cybersecurity Solution
NSNOX is an example of a company that provides strong cybersecurity solutions, particularly for smaller companies. While they offer valuable services, larger companies with more extensive security requirements might use different providers. The selection of a cybersecurity solution should be based on the specific needs and size of the organization.
Keeping Up-to-Date with Cybersecurity Advancements
With the rapid evolution of technology, cybercrime also advances quickly. Treasurers must stay updated on the latest developments to protect their departments from emerging threats.
Resources for Cybersecurity Information
- Financial Institutions: Banks and financial institutions are a primary resource. They often have access to extended cybersecurity resources and might invite clients to relevant events or webinars.
- Government Websites: Official governmental cybercrime websites offer reliable information and updates on cybersecurity.
- Conferences and Webinars: Attending conferences or webinars, especially those hosted by banks, can provide insights into combating cybercrime.
- Online Resources: Searching the Internet for cybersecurity materials can yield a wealth of information. There are numerous publications and best practice guides available online.
- Internal Collaboration: Collaborating within your organization can enhance cybersecurity protocols and processes. Sharing best practices and staying informed about internal policies is crucial.
The Importance of Open Collaboration and Communication
The stigma around discussing cybersecurity in treasury has diminished. Now, it’s more accepted and necessary for treasurers to discuss and collaborate on cybersecurity issues openly. This openness leads to better awareness and preparedness against cyber threats. Utilizing professional networks like LinkedIn or directly reaching out to experts in the field can also be beneficial for gaining insights and advice.
Embracing Cybersecurity as an Ongoing Process
Staying informed about cybersecurity is not a one-time effort but an ongoing process. As cyber threats evolve, so should the strategies to combat them. Treasurers must actively seek information, engage with experts, and participate in relevant events to ensure their departments remain protected.
Treasury Dragons: An Innovative Approach in Treasury
Treasury Dragons is a panel consisting of four experienced professionals in the field of treasury. It is a platform similar to “Dragon’s Den” or “Shark Tank” but focused on treasury-related solutions. The panel members evaluate and discuss various vendor solutions, providing insights and feedback.
Role and Impact of Treasury Dragons
- Evaluating Vendor Solutions: Members of Treasury Dragons evaluate solutions presented by vendors in sessions. These sessions typically involve a brief presentation followed by a question-and-answer segment.
- Encouraging Innovation in Treasury: The platform encourages innovation by showcasing new solutions in treasury, including cash pooling, FX risk management, and bank account management.
- Educational and Informative: Treasury Dragons serves as an educational resource for treasurers and others interested in the latest developments in the field. It allows professionals to learn about new products and services without directly engaging with vendors.
Trends and Innovations in Treasury Solutions
Treasury Dragons has showcased various solutions, from cash pooling to bank connectivity, fraud and cybercrime prevention, FX risk management, and bank account management. It’s a valuable resource for staying informed about the latest developments and innovations in the treasury space.
Pain Points and Emerging Solutions
KYC (Know Your Customer) processes and cash flow forecasting are significant pain points in treasury. The expectation is that AI might soon offer effective solutions for these challenges. Treasury Dragons provides a platform to explore these emerging technologies and how they can address long-standing issues in treasury management.
Future Directions in Treasury Technology
The trend is moving towards integrated platforms that consolidate various cloud-based solutions, leading to more efficient and streamlined operations. The expectation is that banks might collaborate more in areas like digital currency, which could pave the way for improved processes like KYC.
Essential Communication in Treasury Solution Sales
A frequent error vendors make, not just in treasury but across various industries, is failing to ask customers what they need. Instead of assuming or shaping customer needs to fit their solutions, successful vendors should focus on understanding and addressing the exact problems their clients face.
The Importance of Understanding Customer Needs
- Direct Inquiry: The first step for vendors is to ask the client about their specific requirements. This simple yet crucial step is often overlooked.
- Avoiding Assumptions: When vendors receive a response, they should avoid twisting the answer to fit their existing solutions. True customer service involves providing a solution that addresses the client’s problem.
The Art of Communication in Sales
- Effective Listening: Vendors must listen more to treasurers and other customers’ requests. Understanding the problem is key to providing a suitable solution.
- Confirmation and Clarification: Once vendors understand the client’s needs, they should confirm their understanding and clarify any ambiguities. This ensures both parties are on the same page regarding the problem and the proposed solution.
A Powerful Lesson in Perception and Communication
An exercise in a project management workshop highlighted how different people could have entirely different associations with the same concept, like ‘trust.’ This demonstrates the importance of ensuring mutual understanding in communication. Just because one party believes they have communicated their needs clearly does not guarantee the other party has the same understanding.
Application in Treasury Solutions
Regarding treasury solutions like cash flow forecasting tools, vendors should delve deeper into understanding the client’s specific challenges and requirements. They should inquire about what the client is trying to achieve, what is lacking in their current system, and how a new solution can genuinely address their pain.
The Role of ESG in the Treasury
Environmental, Social, and Governance (ESG) factors are becoming increasingly important, even in fields like treasury. While ESG might not traditionally top the list of priorities for treasurers, its significance is growing for several reasons.
The Environmental Aspects and Its Implications
One of the key components of ESG, the environmental aspect, includes alarming statistics like the projected 40% reduction in global drinking water by 2030. This statistic underscores the urgency of environmental accountability. Treasurers can contribute by focusing on sustainable products and practices.
The Social Component: A Game Changer
The social aspect of ESG has gained prominence, especially since the pandemic. The new generation prioritizes work-life balance, diversity, and inclusivity in the workplace, which are not traditionally strong in the treasury. Companies are now focusing more on training and awareness programs in areas such as menopause, unconscious bias, and mental health. These efforts are crucial in creating an inclusive work environment and are directly linked to productivity and mental health.
The Importance of Governance
Governance catalyzes bringing about positive changes in the workplace. It plays a crucial role in ensuring these changes occur swiftly and effectively.
Treasury’s Part in ESG
While the treasury’s role in ESG might still be evolving, there is a growing recognition of the need for treasurers to be involved in ESG-related initiatives. This involvement could be in various forms, from corporate decision-making to specific treasury practices.
Future Discussions and Learnings
The topic of ESG in treasury is vast and warrants further discussion. It’s essential to explore how treasurers can effectively contribute to ESG initiatives and what specific roles they can play. Like those planned with Bank of America and other financial institutions, future panel sessions and discussions will provide valuable insights into this evolving area.
Conclusion
In conclusion, we’ve journeyed through the evolving world of treasury operations, shaped by the web’s growth and technological breakthroughs. From the early days of the Internet as a basic information source to the advanced capabilities of Web 3, we’ve observed a significant impact on treasury functions. The economic crisis of 2008 and the pandemic have been critical in speeding up digital transformation, highlighting the essential role of technology in maintaining operational resilience and efficiency.
We’ve looked at the pivotal role of open banking and cloud-based solutions in revolutionizing treasury operations, offering greater flexibility, connectivity, and security. The impact of AI and machine learning has ushered in a new age of sophisticated forecasting and decision-making in treasury management. Cybersecurity has been a key focus, with a strong emphasis on staying alert to emerging threats and solutions.
The ‘Treasury Dragons’ initiative showcases the industry’s commitment to innovation, providing a platform for exploring and adopting new treasury solutions. A major emphasis has been placed on understanding customer needs in treasury solution sales, promoting a dialogue-based approach for better client service.
Lastly, the increasing importance of Environmental, Social, and Governance (ESG) factors in treasury highlights the expanding role of treasury in corporate decision-making and sustainable practices. This shift opens up new avenues for discussion, especially regarding how treasury can play a more integral role in ESG initiatives, underlining its key position in driving responsible and forward-thinking corporate strategies.
Frequently Asked Questions
What is the significance of digitization in treasury operations?
Digitization in treasury operations is vital as it enhances efficiency, decision-making, and adaptability to the evolving financial landscape. It streamlines processes, reduces manual errors, and provides real-time insights, ultimately improving financial management.
How does cybersecurity safeguard treasury finances?
Cybersecurity is crucial in treasury to protect against evolving threats. It includes measures like regular training, process controls, and secure technology usage. These ensure the integrity of financial data and prevent unauthorized access, reducing the risk of fraud and financial losses.
What role does AI play in treasury, and how does it impact decision-making?
AI, like ChatGPT 4, is advancing treasury operations by improving cash flow forecasting, offering virtual representations of functions, and automating processes. It enhances decision-making by providing data-driven insights, helping treasurers make informed choices for risk management and financial planning.
How can treasuries overcome resistance to technology adoption?
Treasuries can gradually adopt technology by starting with familiar tools, staying informed through resources like conferences, leveraging banking partners, and attending relevant events. This approach ensures a smooth transition and helps treasurers embrace new technologies effectively.
Why is ESG becoming important in treasury, and what role can treasurers play?
ESG factors are gaining significance in treasury due to their impact on corporate responsibility and sustainability. Treasurers can contribute by aligning treasury practices with ESG principles, such as promoting sustainable products and fostering inclusive workplaces, thereby supporting broader corporate goals.
