7 Reasons why you need a treasury compliance department

The argument for establishing a dedicated treasury compliance department has never been more compelling in an increasingly global business world fraught with hidden challenges and risks.

Tasked with managing and mitigating the risks associated with complex global operations, a treasury compliance department can play an essential role in financial organization and risk management. They help handle multiple bank accounts and prevent fraud and corruption while maintaining compliance across multiple regulatory environments.

Creating an effective treasury compliance department may take time and effort since adopting best practices in risk and compliance is a continuous journey, not a one-off exercise. But the good news is that wherever you are on that journey, there are steps you can take to strengthen your controls, adopt best practices, and achieve your goals.

In this blog, we’ll discuss seven key reasons why companies choose to establish a dedicated treasury compliance department. We’ll also cover best practices you can follow to optimize compliance and mitigate risk within your organization – from rationalizing bank accounts to adopting a centralized payment system.

1. Enhance compliance and control

Compliance with international finance regulations is non-negotiable for large multinational companies. Treasury compliance departments play a crucial role in ensuring that nothing is missed.

In short, the treasury compliance department ensures adherence to anti-corruption and anti-bribery laws, safeguarding companies from the risk of legal penalties or reputational damage.

When seeking to boost compliance, companies should consider whether IT or treasury should own key development and how a treasury compliance department fits into the organization as a whole.

Advice from experienced treasurers highlights the necessity for treasurers to maintain ultimate accountability and responsibility for these projects, encompassing both financial sign-off and their role as the end user and subject matter expert.

With the right structures in place, companies will be better placed to centralize their risk management activities while delegating tasks to local teams that are nimble enough to operate without incurring significant additional risk.

2. Increase the efficiency of bank account management

Companies can often accrue large numbers of bank accounts over time, particularly when they engage in frequent M&A activity. This can result in higher-than-necessary costs and inefficiencies, so dedicated resources may be needed to rationalize these accounts to a more manageable number.

With a streamlined account structure, companies can reduce costs and improve oversight, making it easier to comply with regulatory requirements. As part of this exercise, treasurers may also look at centralizing their banking relationships to a core group of banks, which can significantly reduce long-term costs associated with both administration and compliance.

3. Streamline processes with a centralized payment system

A centralized payment system can be a powerful tool that helps companies save time and creates a foundation for building further capabilities.

With the right system in place, companies will be better positioned to streamline their payment processes and improve operational efficiency, with visibility over all payments in a single location.

A centralized payment system also enables companies to adopt elements such as compliance checks, the four-eyes principle (meaning that decisions are approved by at least two people), and comprehensive access controls to prevent unauthorized maverick transactions.

That said, it’s important to recognize that the value of a centralized payments system will be determined by the percentage of payments flowing through it. To get the most out of a payments system, companies must also harness change management, eliminate exceptions, and monitor progress continuously.

4. Create the right environment for risk mitigation software

The building blocks listed above play a crucial role in helping companies mitigate financial risks, including fraud and payment errors. However, further steps are needed if companies are to continue on their journey to achieving better, more reliable compliance.

With centralized payment processes and robust monitoring systems, companies can create the environment needed for software that can quickly detect and flag potential fraud instances. This, in turn, allows them to respond rapidly to suspicious activity, correct errors in a timely manner, and adapt to constantly evolving cyber threats.

5. Standardize processes across subsidiaries

Companies that operate around the globe have much to gain by managing their treasury functions in a standardized way. A treasury compliance department can ensure that all subsidiaries follow the same financial standards and practices, thereby simplifying management and enhancing regulatory compliance.

Consolidating this responsibility under a dedicated, centralized department ensures that a consistent approach is adopted across global operations. This creates benefits in both efficiency and visibility, providing stricter adherence to compliance guidelines.

6. Reconcile local responsibility with global oversight

Managing a vast payments network that handles thousands of payments can be challenging. While a centralized signing authority is generally recommended, it’s important not to overlook the deep knowledge that regional treasury teams have of their local payments environments. For example, companies that keep responsibility local may be able to avoid the need for extra intermediaries and, therefore, respond faster to payment rejections.

When deployed effectively, the treasury compliance team can provide a strong foundation for centralized payments and global standardization while empowering local teams to flag suspicious or unusual payments using automation. At the same time, companies that funnel all possible payments through a single tool can benefit from visibility over their payments around the world.

7. Take part in technology decisions

Lastly, treasurers responsible for payments need to have a robust understanding of the technology being used for payments, compliance, and auditing. In practice, IT teams may not have the same level of understanding of payment processes as the treasurer, so it’s essential that the treasury department is involved in selecting and customizing payment technology, especially when third parties are involved.

Want to learn more from treasury peers? The Taulia Treasurers’ Club is an exclusive forum for treasurers to network, engage with like-minded peers on topics that are top of mind, challenge each other’s thinking and share best practices. The topics are driven by treasurers for treasurers. Sign up for our Treasurers’ Club to learn more.