This lesson examines the key regulatory, governance, and ethical considerations that govern treasury investment activities.

8.1 Regulatory Compliance

Treasury’s investment activities must comply with all relevant regulations, including financial reporting standards and anti-money laundering requirements. Treasuries must “ensure regulatory compliance, and report internally and externally on compliance” . Key frameworks include financial reporting standards (IFRS/GAAP) for financial instruments , and financial reporting for institutions like banks .

8.2 Governance and Ethics

The treasury function must adhere to high standards of governance and ethical conduct. Key elements of treasury governance include the role of the board and senior management in defining the risk appetite, the development and implementation of treasury policies and procedures, and the regular monitoring and reporting of compliance . Ethics and governance are central pillars of a professional treasury function , and are explicitly included in the exam syllabus for treasury management qualifications .

8.3 Counterparty Credit and Diversification

Treasury must establish a credit approval policy to manage counterparty risk . This involves setting counterparty limits and diversifying counterparty exposure, as a key tool for managing the overall risk profile of the investment portfolio