This lesson examines the complex regulatory environment in which treasury operates and the compliance obligations that must be met.

4.1 Key Regulatory Requirements

Treasury must comply with a wide range of regulations, varying by jurisdiction. Key areas include:

  • Financial Reporting Standards (IFRS/GAAP): Treasury must correctly recognize and measure financial instruments under IFRS and GAAP, including fair value measurement and hedge accounting .

  • Anti-Money Laundering (AML) and Know Your Customer (KYC): Treasury must ensure compliance with KYC and AML requirements, including proper documentation and screening of counterparties.

  • Taxation: Compliance with tax reporting and withholding requirements.

  • Market Abuse and Insider Trading: Prohibiting the use of inside information for trading.

4.2 Hedge Accounting and Financial Reporting

A key regulatory challenge is compliance with financial reporting standards. Treasuries must “correctly recognize and measure financial instruments under International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP)” . This includes:

  • Classification of Instruments: Classification under IFRS 9: Fair Value Through Profit or Loss (FVTPL), Fair Value Through Other Comprehensive Income (FVTOCI), amortized cost .

  • Impairment: Applying the expected credit loss model and the three-stage evaluation process .

  • Hedge Accounting: Meeting the conditions for hedge accounting under IFRS 9, including documenting the hedging relationship and testing effectiveness .

4.3 Ensuring Regulatory Compliance

Treasury must “Ensure regulatory compliance, and report internally and externally on compliance” . This requires staying up to date with regulatory changes, implementing systems to track compliance obligations, and maintaining accurate records.

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