Prior to the financial markets crisis, Regulatory Agencies and Consulting firms, especially the big 4, provided advice on deals / transactions across the Banks, especially for M&A activity. The regulators were the capital experts on these transactions, providing and some continue to provide Accounting, Regulatory, and Tax consulting in accordance with Basel I and II.
After the financial markets crisis, and with the introduction of the Dodd Frank Act, Regulatory Agencies are no longer allowed to advise traders, the Treasurer, the CFOs, and any others involved with M&A and capital raising, because the new rules mandate ‘independent advice.’ Traditional consulting firms such as the big 4 cannot longer provide both advice and audit services at the same time. Doing so violates the provisions of the Act and compromises the interests of the financial institution and its investors.
As such there is a need of the right form of consulting in the area of Treasury, to provide an independent assessment of how transactions are structured and executed. Components include legal and tax consulting, financing collateral, operational controls, and litigation support (expert witness). In today’s environment, these Banks and Broker Dealers have to go to the hedge funds who will take the exposure for the various trades. Funds, Fund to Funds, and Private Equity firms will bucket the exposure, exchange notional, and put on the required hedges.
Being able to justify the valuation for those assets falls within the Treasurer’s domain, and require a uniform treatment from an accounting, tax, and regulatory perspective. It is the Treasurer’s job to allocate the capital to the firm for the various trades. He is she ensures that the firm has the right governance piece with the right processes and procedures. Without the decision of the Treasurer, the firm cannot process any trades or dispose funds to the clients. In addition, the Treasurer is the key advisor to the CFO to ensure that all areas of the firm operate under proper governance with the right controls in place. Areas include Capital Markets, Mortgages, Personal Loans, Cash Management, Securities, Investments & Liquidity, M&A, Retail Activity, Legal, Risk Management, Technology, Operations, Audit & Compliance, and Network Management. Network Management in recent days has taken the role of being the ‘governance gate keeper’ for the firm’s activity across all transactions initiated in the US and overseas.
There are currently no competitors in this space. However, the recent disciplinary actions from the Fed and the SEC against Banks for mishandling foreclosures and violating compliance and antimony laundering rules, has put enormous pressure on these firms and their current Auditors to follow the rules and draw the line. Recent interviews with 12 Treasurers from Banks and from recently observing the aggressive hiring for FDIC and other Federal Government Agencies talent by Promontory and FTI Consulting, conclude that the need for ‘Regulatory Consulting’ is still fresh, but not for long.
The Treasurer Solutions Network will require the following structure: