This lesson examines the governance framework that ensures treasury operations are controlled, compliant, and aligned with corporate objectives.

3.1 The Purpose of Treasury Governance

Strong governance is essential for ensuring treasury operates within defined risk parameters and complies with regulatory requirements . Governance ensures accountability, transparency, and oversight, preventing unauthorized activities and protecting the organisation from financial and reputational risk.

3.2 Treasury Policies and Procedures

A comprehensive treasury policy document is the cornerstone of governance. Key responsibilities of treasury include drafting and complying with treasury policies and procedures (such as investment, FX, risk management, hedging, credit approval)” . A treasury policy typically covers:

  • Investment Policy: Defining acceptable investments, credit quality, and maturity limits.

  • FX and Risk Management Policy: Defining the organisation’s FX and interest rate risk appetite and approved hedging instruments.

  • Hedging Policy: Distinguishing between hedging and speculation and defining acceptable instruments.

  • Credit Approval Policy: Defining limits for counterparty credit exposure.

3.3 The Role of the Board and Senior Management

Treasury governance requires active involvement from the board and senior management. The treasury policy must be approved by the board, and treasury must report regularly on compliance and performance. Senior management sets the risk appetite that treasury must operate within.

3.4 Monitoring and Reporting

Regular monitoring and reporting are essential for effective governance. This includes:

  • Compliance Reporting: Reporting on adherence to treasury policy.

  • Counterparty Risk Reporting: Reporting on exposure to banks and other counterparties.

  • Performance Reporting: Reporting on treasury performance against benchmarks.

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