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Code of Ethics

Charter of Best Practice in Treasury Management. These principles are 'recommended practice' by IGTA members

Listing of Principles

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1. Risk management strategy
Principle no. 1: Role of the board

The responsibility for understanding the risks run by the company, and ensuring that they are appropriately managed, is placed clearly with the board of directors.

Principle no. 2: Role of the executive committee (EXCO)

The board of directors must approve risk management strategies, but will delegate authority for day-to-day decisions to an executive committee/treasury so that risk can be effectively managed in the company.

Principle no. 3: Role of the risk management group

In certain organisations the risk management group may equate to the treasury. A risk management group, including members of the executive committee, should be responsible for defining the company’s risk management policies and ensuring that the risk strategy is implemented through the development of appropriate procedures and investment in skills and systems.

Principle no. 4: Risk management policies

Risk management policies must be prepared by the risk management group and reviewed and approved, on a regular basis by the executive committee, which in turn must submit them to the board of directors for adoption. The risk management group should be provided with adequate resources and systems to enable them to implement these policies effectively.

Principle no. 5: Support for the risk management group

The group organisation structure should have clear reporting lines and responsibilities to enable the executive committee to monitor and control activities.

Principle no. 6: Delegation of risk authority

The group organisation should provide a risk framework by which authority is delegated to business units/subsidiaries, within clear mandates set by the board and the executive committee.

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2. The risk management function
Principle no. 7: Role of the risk management function

There should be an independent risk management function with clearly defined responsibilities, reporting directly to the risk management group.

Principle no. 8: Role of the head risk

There should be a head of the risk management function who is responsible for ensuring day-to-day measurement, monitoring and evaluation of risk across the company.

Principle no. 9: Prudent selection of risk management instruments

The risk management function should only assume the management of risk, using risk management instruments and techniques with which it has a proven ability to independently:

  • identify, quantify and re-value the risk of the instruments on an ongoing basis,
  • trade the component parts of the risk management instruments efficiently, and
  • report the results comprehensively

    Principle no. 10: Ethical behaviour of the risk management function

    The risk management function should in its dealing with banks and other counter parties adhere to the ethical standards determined by the French code of Conduct as adopted by IGTA.

    • 3. Risk measurement, reporting & control
    3.1 Market risk measurement
    Principle no. 11: Valuation

    All positions should be independently valued at fair value using approved policies and procedures at least daily/weekly.

    Principle no. 12: Risk decomposition

    Market risk components inherent in any product should be identified to provide a basis for ensuring that market risk measurement is accurate.

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    3.2 Credit Risk measurement
    Principle no. 13: Netting

    Companies should net credit exposures only where supported by the appropriate legal netting agreements.

    Principle no. 14: Creditworthiness

    The EXCO should be responsible for the evaluation of customer and counterparty creditworthiness and the setting of individual credit limits.

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    3.3 Liquidity risk measurement
    Principle no. 15: Cash management

    Short-term projected cash flows for each currency should be measured and monitored in order to anticipate future funding requirements.

    Principle no. 16: Funding strategies

    Alternative strategies to meet liquidity needs arising from either a loss of market liquidity or market access should be incorporated into the company’s contingency liquidity planning process.

    Principle no. 17: Liquidity assurance and compliance reporting

    Assuring the liquidity of the company by whatever means available should be the first priority of treasury. However in the event where a liquidity crisis becomes likely it is the duty of the Treasurer immediately to notify the board officially of the situation.

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    4. Operations
    4.1 Front office
    Principle no. 21: Authorisation

    Management should set clear levels of authority for committing the company to different types of transactions.

    Principle no. 22: Trade capture

    Controls need to be in place to ensure the completeness, accuracy and timeliness of trade data captured.

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    4.2 Middle and back office
    Principle no. 23: Valuations

    Formally documented and approved policies and procedures should be used for the revaluation of positions. Valuations should be based an appropriate bid or offer level obtained from a recognised provider of market data. This should be in compliance with internationally accepted accounting standards.

    Principle no. 24: Profit and loss reporting

    Preparation of profit and loss statements for the company’s portfolios should be performed on a daily/weekly basis.

    Principle no. 25: Price verification

    Prices and rates used for revaluation should be taken from independent sources. Where in-house prices are used, independent review procedures should be in place, including independent models.

    Principle no. 26: Trade processing

    Approved transactions should be processed in a timely manner, with an audit trail that links the transaction to the initiator.

    Principle no. 27: Confirmation

    All transactions should be confirmed independently of the trading function with the trading counterparty within defined time constraints.

    Principle no. 28: Settlements

    All cash and security movements should be properly authorised by senior staff and be executed by staff independent of the trading, trade processing and reconciling functions.

    Principle no. 29: Reconciliation

    Independent reconciliation should be carried out with third parties on a regular basis (consistent with the level of transactions) and internal reconciliation should be performed as appropriate.

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    4.3 Company wide
    Principle no. 30: Recruitment and staffing

    The company should ensure that all treasury management, trading, operations, risk management and auditing activities are undertaken by professionals in sufficient number and with appropriate experience, skill levels and degree of specialisation.

    Principle no. 31: Skill levels

    The requisite skills, training and experience for each level of treasury resource should be aligned to the output expected from an employee on that level (as defined in the education framework proposed to the International Group of Treasury Associations)

    Principle no. 32: Compensation policies

    Compensation levels should reflect the skills required in each area of the business: compensation policies should not encourage behaviour that is inconsistent with the company’s goals.

    Principle no. 33: Internal audit

    An internal audit function should be set up by the board to examine, evaluate and report on accounting and other controls over operations. Internal audit should be specifically charged with assessing, for each area it examines, the adequacy or otherwise of the IT and other systems in operation, in relation to the risk management strategy adopted.

    Principle no. 34: Legal documentation

    Relationships with all custodians, brokers, trading counterparties and customers should be determined and appropriate legal documentation should be in place before any business commences. This should also apply where a group of companies under common ownership transacts and/or deals between its members.

    Principle no. 35: Business continuation

    The board must ensure that adequate and comprehensive business continuation plans have been established and tested to address any disruption to normal business operations.

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    5. Risk management systems
    Principle no. 36: Data storage

    The data architecture should define the data storage requirements of the company, including structure, level of detail and location.

    Principle no. 37: Level of sophistication

    The technical architecture should define the level of sophistication required for treasury management, including the appropriate use of emerging technologies and package solutions.

    Principle no. 38: System and model security

    The technical architecture should define the required levels of security, to ensure integrity and confidentiality of the company’s information, systems and models.

    Principle no. 39: Back-up, recovery and contingency planning

    The technical architecture should define adequate back up and recovery procedures to ensure the company can withstand failures of hardware, software or telecommunications with an acceptable level of disruption. Full contingency plans should be in place in the event of failure.

    Principle no. 40: IT developments

    All treasury IT developments, whether bespoke or package based, should be specified, developed and implemented in a controlled manner.

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