This lesson examines the development and implementation of treasury policies and procedures, which are the cornerstone of effective treasury governance .

2.1 The Purpose of a Treasury Policy

A treasury policy is a formal document that sets out the objectives, authority, and controls for all treasury activities. It ensures that treasury’s actions are aligned with the organisation’s overall risk appetite and strategic goals. It provides a clear framework for decision-making and serves as a defence against fraud or unethical activities .

2.2 Key Components of a Treasury Policy

A comprehensive treasury policy typically covers:

  • Scope and Objectives: Defines the treasury function’s purpose and the activities it covers.

  • Risk Appetite and Limits: Specifies acceptable levels of financial risk (e.g., FX, interest rate, counterparty credit) and sets clear limits.

  • Authorisation Levels: Delegates authority for dealing, approving transactions, and signing off on policies.

  • Counterparty and Bank Relationships: Sets criteria for selecting and managing banking counterparties.

  • Reporting and Review: Requires regular reporting of treasury activity and performance to senior management and the board .

2.3 The Deal Execution Process

The process for executing a treasury transaction follows a structured workflow to ensure robust controls:

  1. Analysis and Decision: Identifying a financial risk or funding need and deciding on a course of action.

  2. Execution: The front office transacts with a counterparty.

  3. Approval: The deal is checked against pre-established limits and authorisation rules.

  4. Settlement: The back office settles the funds when due.

  5. Accounting: The transaction is accurately recorded in the organisation’s financial systems .

2.4 Policy Review and Continuous Improvement

A treasury policy is not a static document. It must be reviewed periodically to ensure it remains fit for purpose. Any significant change in the organisation’s risk appetite, regulatory environment, or market conditions should trigger a review .

PreviousNext