DATA AND (REVOLUTIONARY) TECHNOLOGY

The use of exponential technology in the treasury environment will continue to be a trend in 2021 and beyond. We have reached a stage where this is not simply a buzzword anymore, and we are seeing an increasing number of organizations successfully adopt exponential technology to realize a variety of benefits.

For example, there are organizations using tools such as robotic process automation (RPA), artificial intelligence (AI), and application programming interfaces (APIs) to enable better handling of both structured and unstructured data sets. Additionally, we see that tools which utilize AI technology are becoming more common, such as platforms that are able to identify anomalous payments. Some errors or fraud in manual payments processes are not easy to detect, and hence these types of payments can easily slip through. The learning capabilities of AI are now supporting the identification and prevention of these erroneous or fraudulent payments.

The rising use of APIs also opens up opportunities to view bank account information. Previously, information such as prior day or intraday statements and balances would need to be retrieved from banking systems via the SWIFT network. Using APIs, information can be obtained from the banks in a timelier manner, facilitating a more up to date view of an organization’s cash position. Furthermore, APIs introduce the possibility to access and handle bank account data more efficiently, and to spread these activities more evenly throughout the day rather than being reliant on daily or intraday messaging arrangements.

As part of the digital transformation of the payments landscape, the opportunities to adopt and make use of secure and real time payments are increasing. There are now 56 countries live with an instant payments scheme, with more countries looking to implement a similar scheme. For insurers, this opportunity increases their ability to improve the service to their customers – and this opportunity is readily being seized by many to settle customer claims more quickly and efficiently, with improved controls. However, this introduces a new challenge from a cash management perspective: is there enough money available to make these payments?

People

With digital technology's 'industrial revolution', treasury practitioners will inherit new roles and responsibilities. An organization’s innovation capacity comes down to how well it channels its efforts in training and retaining its talent pool, while utilizing their intellectual capacity to the maximum. The successful application of technology requires the business, culture, and people to be aligned.

Whether your organization is actively building a highly skilled workforce, or the people are more broadly grounded, the greatest assets for any organization are still the individuals they employ particularly those that are accustomed to embracing and delivering the rapid application of the digital technologies.

REGULATION AND COMPLIANCE

Increasing regulatory burdens will also keep treasury occupied in 2021, so treasurers should be familiar with all relevant regulation to ensure compliance and minimize operational hiccups. There are a number of topics that those in the insurance sector should be keeping an eye on.

Although Solvency II and Basel IV regulatory updates did not come into effect recently, they continue to impact the cash management function, and dictate how insurance companies can manage their cash efficiently and effectively.

Another topic under significantly increasing focus is the KYC scope by banks. This is driven by the introduction of stricter regulations, such as ultimate beneficial owner (UBO) registers, combined with a more risk averse approach from banks to ensure that they comply with AML and anti-terrorist funding regulations in order to avoid additional fines.

The current financial ecosystem continues to become more digitally driven, focusing on a more competitive, integrated, and secure environment. This ecosystem is being fueled by the Payment Service Directive (PSD2) across the EU, the Open Banking Standard from the UK’s Competition and Markets Authority (CMA), and the Consumer Data Right (CDR) changes being introduced in Australia.

A regulatory hot topic for 2021 continues to be IBOR replacement, with the ultimate transition deadline set for December 31, 2021. For new financial instruments, it is already advised to use the replacement reference rate and on October 23, 2020, the International Swaps and Derivatives Association (ISDA) launched the IBOR Fallback Protocol. This protocol states the replacement risk free rate (overnight rate) supplemented by the term structure and credit sensitive elements, and to support this ISDA partnered with Bloomberg to quote the adjusted risk-free rates .

Additionally, the ISO 20022 XML format for financial messaging between financial institutions is being standardized globally. This transformation aims to 'future proof' bank messaging, and all messages sent through TARGET2 and EURO1/STEP1 will be required to be in the ISO 20022 format by November 2022. In simpler terms, this means that the sending and receiving of SWIFT messages will require an adjustment, and a move towards the more flexible XML format. There is no regulatory need for this standardization, but rather is designed to lead to benefits for all parties involved. Read more about this here.

To conclude

All of these trends will have a profound impact on the treasury function in the insurance and other sectors, as we move towards a truly real-time, frictionless and data rich environment that will enable treasury to elevate liquidity and risk management processes.

As with any change, there will be both opportunities and challenges. Therefore, it is important that these changes are evaluated and monitored, as they provide a clear opportunity to drive even greater financial and operational efficiencies.

Sources:

https://zanders.eu/en/white-papers/unavoidable-trends-for-any-resilient-treasury-plan/ https://www.ecb.europa.eu/paym/integration/retail/instant_payments/html/index.en.html https://www.bloomberg.com/professional/solution/libor-transition/ https://www.ecb.europa.eu/paym/target/consolidation/html/index.en.html