This lesson examines the complex regulatory environment in which treasury operates and the compliance obligations that must be met .
3.1 Key Regulatory Requirements
Treasury must comply with a wide range of regulations, varying by jurisdiction. Key areas include:
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Financial Reporting Standards (IFRS/GAAP): Treasury must correctly recognize and measure financial instruments under IFRS and GAAP, including fair value measurement and hedge accounting .
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Anti-Money Laundering (AML) and Know Your Customer (KYC):Â Treasury must ensure compliance with KYC and AML requirements, including proper documentation and screening of counterparties.
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Taxation:Â Compliance with tax reporting and withholding requirements.
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Market Abuse and Insider Trading:Â Prohibiting the use of inside information for trading.
3.2 Hedge Accounting and Financial Reporting
A key regulatory challenge is compliance with financial reporting standards. Treasuries must correctly recognize and measure financial instruments under IFRS and GAAPÂ . This includes:
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Classification of Instruments:Â Classification under IFRS 9: Fair Value Through Profit or Loss (FVTPL), Fair Value Through Other Comprehensive Income (FVTOCI), amortized cost.
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Impairment:Â Applying the expected credit loss model and the three-stage evaluation process.
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Hedge Accounting: Meeting the conditions for hedge accounting under IFRS 9, including documenting the hedging relationship and testing effectiveness .
3.3 Ensuring Regulatory Compliance
Treasury must stay up to date with regulatory changes, implement systems to track compliance obligations, and maintain accurate records. This includes understanding the legal and regulatory environment in which treasury operates .