When I was trading, policy wasn’t a priority. This attitude wasn't just mine; it was common throughout the bank. The entire organisation seemed to operate more on gut instinct than formal guidelines. I don't recall ever seeing a document until the mid-1990s. Even when such things existed, they were often poorly written and irrelevant to what we did. It’s no wonder they went unread.
Things changed after Nick Leeson. Banks were compelled to scrutinise their risk practices closely, and having a policy became widespread. Though turgid, these documents provided something to show a framework was in place. However, in practice, they were largely ignored.
Today, well-crafted explanations are essential. Documenting procedures forces focus. It raises awareness about your activities and their purposes.
Treasury policy explains what you do, how you do it and why you do it.
Structure it into sections that can stand alone. For instance, it should outline the role of the treasury, its relationship to the firm, and its overarching purpose.
It should also identify the principal risks being managed, such as credit, market, liquidity and operational risk. Additionally, it should explain how these risks are influenced by broader business operations. For example, selling mortgages introduces interest rate risk, while holding deposit accounts brings liquidity risk. This explains the context.
Beyond identifying risks, the policy should detail the methods used to manage them. Think about how risk is monitored and the limits in place. Above all, the document must be succinct. Low-level details should be relegated to appendices for easy access.
Effective governance, or the management process, must also be explained. This is often a weak point, with unclear committee structures and ambiguous responsibilities. Improving this aspect helps clarify decision-making processes.
The treasurer should not be solely responsible for creating the policy. Input from other stakeholders, particularly the Asset Liability Committee, is vital. Circulate the draft for feedback; collective input can significantly improve things.
Drafting and revising policy is time-consuming and seen as a low priority. The good news is existing material can be refined. AI can expedite the process. Rather than inputting the entire document all at once, break it into smaller sections and use the AI to make improvements.
Try prompting: "This is part of our treasury policy, and I would like to enhance it. Please ask me questions that will help refine this section, ask the questions sequentially, and let me answer before moving to the next question, once you have gathered the information you need to rewrite the piece in straightforward terms and UK English".
With AI as a supportive tool, it’s also easier to create an overview of what the treasury does. This serves as a preface to the policy document, making it accessible to everyone in the organisation.
To get things started, I’ve included a simple checklist of the key elements below, and remember, proportionality is in order.
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