When it comes to managing cyber risk and macroeconomic risk, preparedness is everything, according to experts on the AFP webinar “Treasury's Role in Controlling and Mitigating Risk.”

To stay ahead of evolving cyber fraud, treasury professionals need to have strong policies and procedures in place — that are in writing, well documented and tested.

Treasury weighs the benefits and costs of certain types of risk every day, but cyber risk is different. “I’ve never heard of anyone saying, oh yes, let's take more cyber risk, bring it on. It's one of those risks that is always a bad thing. Preparedness is really, really important,” said Johan Nystedt, President and Founder of Nystedt Enterprise Solutions.

As so many move toward greater use of technology, do we become more vulnerable to cyber risk? To answer this question, Ferdinand Jahnel, CTP, Vice President and Treasurer, Marsh McLennan, spoke about their implementation of a new TMS. “Risk exists, and that's why it is very important that we not implement this new system in a vacuum,” he said. “We are working very closely with our internal IT department and controllership. During the implementation phase, you have to make sure that there is good governance and control built into this more streamlined, more integrated solution.”

Macroeconomic risk is even further outside our control and a challenge to manage. Giving an example, Jahnel said, “We are, unfortunately, confronted with multiple military conflicts, which have economic spillover that we have to deal with, especially when we run global organizations that are exposed to those geographies. We have a business in China and in Israel — basically in every continent around the world — and we have to deal with those macroeconomic challenges like many other multinationals.”

Learn about the current perceptions of the risk environment and top risks concerning treasurers in the 2023 AFP Risk Survey, supported by Marsh McLennan.

Preparedness is critical to managing macroeconomic risk as well. Two tips the experts offered in helping you prepare include having access to experts in local markets who can tell you what is happening there and finding a way to effectively communicate with external stakeholders regarding risks — particularly those we have not yet faced.

On the topic of bank runs, Jahnel predicted that we are not out of the woods yet, as one negative headline could set another run in motion. “A banking crisis is a lack of trust in the system or a lack of trust in an institution, and it can result in a run on a bank that can ultimately hit any bank around the world, big or small,” he said.

The speed at which a bank run can happen today is not the same as it was during the Great Depression. Then, people had to stand in line; they had to be physically present to withdraw funds. Compare that to today: “Even as a corporate treasurer, you can go to the app on your phone and withdraw your funds within minutes,” said Jahnel.

It was suggested that the U.S. is looking at regulations — the processes, safeguards and guardrails — the European Union (EU) has in place. Instituting such regulations would not be easy or cheap. Which banks would be impacted by these new regulations? Will they be able to deal with it? Which ones would face significant trouble?

“One thing to look out for is the predictable surprise,” said Nystedt. “The predictable surprise is that we're going to end up having more regulations. Which of our banks is going to be able to implement that in a way that doesn't hurt the bank, the shareholders or the clients?”

Bank regulations imposed after the 2008-2009 global financial crisis have done a lot of good around the world. Imagine if these had not been in place in 2020. It is because of current regulations that the world did not experience a banking crisis during the pandemic. We were (and are) better prepared and capitalized to face a crisis.

Finally, Nystedt touched on enterprise risk management (ERM) and its relationship to treasury. ERM is about freeing up risk capacity for the profitable risk and getting rid of the under-compensated or uncompensated non-core risk.

“It’s liberating and fun for treasurers because enterprise risk management allows the treasurer to fully get into the room where it happens to utilize risk management for decision-making purposes,” he said.