Mastering Compliance: The Top Challenges for Cash Managers and Strategies for Success

Compliance is a critical part of the cash management function.

This is especially true for cash managers at companies that operate in multiple jurisdictions.

From Anti-Money Laundering (AML) regulations and Know Your Customer (KYC) requirements to data privacy rules and tax laws, compliance has never been more complex for cash managers. 

This article reveals the biggest compliance issues that cash managers face, shows why compliance is getting harder, and provides strategies that cash managers can use to ease their compliance burden.

Biggest compliance issues for cash managers

Complying with financial regulations and industry standards is a heavy burden for cash managers.

Here are some of the biggest compliance challenges that cash managers face:

• Tax compliance.  From assisting with the preparation of tax filings to ensuring a business has enough money to pay its tax liability, cash managers play a big role in tax compliance.

• AML and KYC requirements.  Governments across the world are stepping up their efforts to prevent the laundering of money made from drug trafficking, terrorist funding, and other criminal activity.  In many businesses, it falls on the cash manager’s shoulders to verify the identity of clients, put systems and processes in place to monitor transactions for anomalies, and report any suspicious transactions to the authorities.  Similarly, to prevent illicit funds from entering the financial system, regulators require businesses to collect and maintain customer information and monitor customer accounts for suspicious and illegal activity. 

• Counter-Terrorist Financing (CTF) compliance.  CTF is an effort by governments to stop terrorism.  If a cash manager suspects that funds are being used to fund terrorist activities, they must quickly report their findings to their national Financial Intelligence Unit (FIU). 

• Sanctions screening.  Governments and other organizations maintain dozens of lists of companies, entities, and individuals that businesses cannot buy or sell from.  Doing business with a sanctioned organization, entity, or individual could result in severe fines or penalties.  The fast-changing geo-political environment is making sanctions screening more difficult.     

• Data privacy.  Cash managers handle a mountain of sensitive data.  From the General Data Protection Regulation (GDPR) to the Health Insurance Portability and Accountability Act (HIPAA), there are numerous regulations governing how this data should be protected.

• Payment Card Industry Data Security Standard (PCI DSS).  Card transactions are one of the fastest-growing methods for paying suppliers in the United States.  Finance departments that process card payments must adhere to PCI DSS standards for protecting cardholder data and ensuing security payment processing or risk fines, penalties, and reputational damage.  In the United States, businesses that make electronic payments must adhere to the Electronic Funds Transfer Act (EFTA), which governs electronic funds transfers and consumer rights.   

• Cross-border regulations.  Conducting business internationally requires cash managers to comply with exchange controls, tax laws, trade restrictions, and other cross-border regs.

• Securities regulations.  Cash managers that manage investment securities must comply with U.S. Securities and Exchange Commission (SEC) rules and other securities regulations.

• Market regulations.  The cash managers at multi-national corporations must help ensure that the business complies with the myriad rules and regulations for the stock exchanges, forex markets, commodities markets, and other global markets in which the business operates. 

• Environmental, Social, and Governance (ESG) compliance.  ESG is a top priority for more businesses.  Some businesses expect their cash manager to take ESF factors into account when making investment decisions and to comply with ESG disclosure requirements.

Complying with these rules, regulations, and requirements is no small feat for cash managers.

Why compliance is becoming harder for cash managers

If it feels like compliance is more complex these days, you are not alone.  Several factors are making it significantly harder for cash managers to comply with rules, regulations, and requirements.

• Ever-changing rules, regulations, and laws.  New rules and regulations are constantly emerging.  International tax laws are more complex.  And many regulatory authorities are intensifying their scrutiny of corporate cash management practices.  It’s up to cash managers to stay up to date on the latest rules, regulations, and laws, and help their business adapt. 

• Globalization.  Conducting business in today’s hyper-connected global economy requires cash managers to navigate a byzantine network of complex, overlapping, and often conflicting rules, regulations, and laws from different jurisdictions.  In some cases, cash managers may have to juggle divergent regulations by authorities in different regions.  And changes to one jurisdiction’s regulations can have a ripple effect for multi-national firms.    

• Data privacy.  The proliferation of GDPR and other data privacy laws and regulations has added another layer of complexity to the compliance burden of cash managers.  A single slip-up in how customer data is handled can result in costly and onerous legal complications. 

• Risk of fraud.  Digitization and the growth of artificial intelligence and other powerful technology has created new vulnerabilities for businesses.  Cash managers must ensure their department is doing all it can to protect the business from data breaches and cyberthreats.

• ESG considerations.  Complying with ESG disclosure standards requires additional research and reporting on the part of cash managers to justify their decision-making processes.  New climate and sustainability regulations may further complicate cash management practices.  

Cash managers must find ways to comply with regulations, no matter the complexity.

How cash managers can reduce their compliance burden

There are several steps that cash managers can take to reduce their compliance burden.

• Automate. Automating tasks such as supplier onboarding, sanctions screening, transaction monitoring, and reporting reduce the possibility of things slipping through the cracks.  Consider deploying technology to track and report on compliance-related data efficiency.

• Centralize your compliance efforts.  The inconsistency the comes with desk-level decision-making can undermine a compliance plan.  Ensure adherence with all relevant regulations by centralizing your compliance efforts and standardizing your policies and procedures.  And consider using templates and checklists to ensure that all compliance steps are completed.

• Invest in education.  Well-informed staff are more likely to make compliance decisions.  Assess your current program for training employees about relevant rules, regulations, and requirements.  Develop a program to update staff on regulatory changes, and best practices.  Continuously monitor regulatory updates and changes in rules, regulations, and requirements.  And make compliance resources from trust third parties available to cash management staff.  

• Beef up your Know Your Customer (KYC) process.  Many risks can be identified and mitigated by better understanding who your company does business with.  Take a hard look at your processes for collecting, verifying, and validating customer information, developing a risk profile for each customer, and monitoring customer activity on an ongoing basis. 

• Regularly take stock of where you stand.  Conduct periodic assessments of your compliance risks to identify the most critical vulnerabilities and to prioritize areas of improvement.  Segment your customers and transactions by level of risk and allocate more resources to higher-risk areas.  And share any best practices you uncover with your staff.

• Protect your data.  Implement cash management solutions with user permissions, data encryption, audit logging and other built-in controls to protect sensitive information. 

• Make friends with legal.  Collaborate with your legal and audit departments to navigate complex regulatory environments.  Tap their expert guidance on compliance strategies.

These strategies will help reduce a cash manager’s compliance burden.

Conclusion

There’s a lot riding on a cash manager’s ability to ensure that their business complies with various rules, regulations, and requirements.  The task is harder these days.  And regulators are more closely scrutinizing cash management activities for compliance.  But following the strategies in this article will make it easier for cash managers to navigate complex regulations across the world.