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Policy

Treasury Policy

Treasury Management Policy

Treasury Management Policy Statement

‘The management of the organisation's cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.’

Treasury Management Practices

The policies and objectives of treasury management activities of the University are as follows:

1. The University will manage its cash resources mindful of three key elements:

The University recognises that the complete avoidance of risk is neither appropriate nor possible and a balance must be struck with a responsibility to safeguard University cash resources.

2. The University defines its treasury management activities as:

The management of the University's investments, borrowings and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities and the pursuit of optimum performance consistent with all those risks.

3. The University regards successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the organisation.

4. The University acknowledges that effective treasury management will provide support towards the achievement of its business objectives. It is therefore committed to the principles of achieving best value in treasury management, and to employing suitable performance measurement techniques within the context of effective risk management.

5. The University follows the key recommendations of CIPFA’s Treasury Management in the Public Services/Code of Practice and Cross-Sectoral Guidance Notes.

6. The Treasury Management Policy Statement and Policies set out here will apply to subsidiaries of the University whose results are consolidated into the University’s annual accounts.

1. Treasury risk management

General Statement

1.1 Liquidity risk management

The Chief Finance Officer (CFO) will ensure that the University always has sufficient liquid funds available to it, which are necessary for the achievement of its business objectives. The CFO will ensure that sufficient cash balances and available facilities exist for this purpose. Detailed parameters within which the University will seek to operate are set out in Schedule 1.1.

1.2 Interest rate management

The University will manage its exposure to fluctuations in interest rates with a view to containing its net interest costs or securing its interest revenues (as identified in the annual budget and cash flow forecasts) and meeting reasonable benchmark returns. It will achieve this by ensuring stability and certainty of costs and revenues whilst retaining a sufficient degree of flexibility to take advantage of unexpected, potentially advantageous changes in the level or structure of interest rates as detailed in Schedule 1.2.

1.3 Exchange rate risk management

The University will manage any exposure to exchange rate risks.  Any potential material foreign currency exposures will require prior approval from the Performance, People and Resources Committee (PPRC).

1.4 Credit and counterparty risk management

The primary objective of the University’s treasury management activities is the security of the principal sums it invests. Accordingly, it will ensure its counterparty list is constructed with security in mind, but with reasonable spread to make the most of market conditions. In particular, the organisation ranks the security of principal sums invested ahead of yield earned on credit risk bearing investments. The counterparty list will be reviewed on a continuing basis. The University will limit its investment activities to the instruments, methods and techniques referred to in section 4 below. Its formal counterparty policy and investment parameters are set out in Schedule 1.3.

1.5 Refinancing risk management

Where relevant, the University will ensure that its borrowing and financing agreements are negotiated with a view to obtaining competitive and favourable offer terms for renewal or refinancing if required. It will actively manage its relationships with its counterparties in these transactions in such a manner as to secure this objective and will avoid over-reliance on any one source of funding if this might jeopardise achievement of the above. The University will not enter funding arrangements where the repayment profile of the loans exceeds the expected useful economic life of the asset or venture being financed.

The University will seek to ensure that, where possible, new funding arrangements will not be entered into that bind the University to meet financial covenants and security arrangements which are deemed to be more onerous than those contained within the current loan documentation. The financial position of the University is monitored on a regular basis to ensure it does not breach any of its existing financial covenants where relevant.

Where relevant, the University will aim to spread the maturities of funds raised such that refinancing risk does not become unduly concentrated at particular dates, thus guarding against unexpected refinancing exposures. The University will aim to avoid projected borrowing maturities in any one year exceeding 10% of total debt outstanding, except where such concentration of principal maturities is unavoidable (for example, under a bullet corporate bond structure or where facilities are limited to short-term working capital facilities).

Capital and interest repayments are incorporated within the cash flow projections.

1.6 Legal and regulatory risk management

The University will ensure that its treasury management activities comply with all its statutory powers and regulatory requirements. Schedule 1.4 identifies the key legislative and regulatory framework within which it currently operates.

1.7 Fraud, error and corruption, and contingency management

The University will ensure it has identified the circumstances which may expose it to risk of loss through fraud, error, corruption, or other eventualities in its treasury management dealings. It will employ suitable systems and procedures and will maintain effective contingency management arrangements.

1.8 Market risk management

The University will take all reasonable measures to safeguard its treasury management policies and objectives in the event of adverse market fluctuations in the value of the principal sums invested. The University will seek to protect itself from the material effects of such fluctuations.

2. Value for money and performance measurement

The University is committed to the pursuit of value for money. PPRC will receive reports on investment performance including benchmark data every six months. The appointment of treasury advisers and solicitors will be conducted in accordance with the University’s Financial and Procurement Regulations and with support from the Central Procurement Unit. See Schedule 2.

3. Decision making and analysis

The University will maintain records of its treasury management decisions and of the processes and practices applied in reaching those decisions, both for the purposes of learning from the past and for demonstrating that reasonable steps were taken to ensure that all issues relevant to those decisions were considered at that time. The issues to be addressed and processes and practices to be pursued in reaching decisions are detailed in Schedule 3.

4. Approved instruments, methods, and techniques

The University will undertake its treasury management activities by employing only those instruments, methods and techniques detailed in Schedule 4 to this document, and within the limits and parameters defined in section 1 above.

5. Organisation, clarity, segregation of responsibilities and dealing arrangements

The University considers it essential that treasury management activities are structured and managed in a fully integrated manner and that there is always clarity of treasury management responsibilities. This is to ensure the effective control and monitoring of its treasury management activities, the reduction of the risk of fraud or error and for the pursuit of optimum performance.

The principle on which this will be based is a clear distinction between those charged with setting treasury management policies and those charged with implementing and controlling these policies, particularly regarding the execution and transmission of funds, the recording and administering of treasury management decisions, and the audit and review of the treasury management function.

If and when this University intends, as a result of a lack of resources or other circumstance to depart from these principles, the CFO will ensure that the reasons are properly reported to PPRC in accordance with section 6 and the implications properly considered and evaluated.

The CFO will ensure that there are clear written statements of the responsibilities for each post engaged in treasury management, and the arrangements for absence cover in line with Schedule 5.

The CFO will ensure that there is proper documentation for all deals and transactions, and that procedures exist for the effective transmission of funds.

6. Reporting requirements and management information arrangements

The University will ensure that regular reports are prepared and considered on the implementation of its treasury management policies; on the effects of decisions taken and transactions executed in the pursuit of those policies; on the implications of changes, particularly budgetary, resulting from regulatory, economic, market or other factors affecting its treasury management activities and on the performance of the treasury management function.

As a minimum, PPRC will receive

The form and frequency of these reports are detailed in Schedule 5 to this document.

7. Budgeting, accounting, and audit arrangements

The University's current systems and procedures in relation to budgeting, accounting and audit arrangements are detailed in the University's financial regulations.

The University will account for its treasury management activities, for decisions made and transactions executed, in accordance with appropriate accounting practices and standards, and with statutory and regulatory requirements in force for the time being.

8. Cash and cash flow management

Unless statutory or regulatory requirements demand otherwise, all monies in the hands of the University will be under the control of the CFO and will be aggregated for cash flow and investment purposes. Cash flow projections will be prepared on a regular and timely basis and the CFO will ensure that these are adequate for the purposes of monitoring compliance with section 1.1 above. The present arrangements are set out in Schedule 6 to this document.

9. Money laundering

The University is alert to the possibility that it may become the subject of an attempt to involve it in a transaction involving the laundering of money. Accordingly, the University maintains a separate money laundering policy for verifying and recording the identity of counterparties and reporting suspicions and will ensure that members of staff involved in this are properly trained.

10. Training and qualifications

The University recognises the importance of ensuring that all staff involved in the treasury management function are fully equipped to undertake the duties and responsibilities allocated to them. It will therefore seek to appoint individuals who are both capable and experienced and will provide training for staff to enable them to acquire and maintain an appropriate level of expertise, knowledge, and skills. The CFO will recommend and implement the necessary arrangements as detailed in Schedule 7.

11. Use of external service providers

The University recognises that the responsibility for treasury management decisions remains with the University at all times, it recognises that there may be potential value in employing external providers of treasury related services, in order to acquire access to specialist skills and resources. The monitoring of such arrangements rests with the CFO and considerations are set out in Schedule 8.

12. Corporate governance

The University is committed to the pursuit of proper corporate governance throughout its businesses and services and to establishing the principles and practices by which this can be undertaken with openness, transparency, honesty, integrity, and accountability.

The University has adopted and implemented the key recommendations of the CIPFA code of practice. This, together with the Ordinances, Committee of University Chairs (CUC) HE Code of Governance - Updated 2020 and Financial Regulations are considered vital to the achievement of proper corporate governance in treasury management, and the CFO will monitor and if and when necessary, report upon the effectiveness of these arrangements.

Treasury Policy Schedules

Schedule 1.1. Liquidity risk management parameters

1.1.1 The University defines liquidity risk as “the risk that cash will not be available when needed, that ineffective management of liquidity creates additional or unbudgeted costs, and the University’s business objectives may thereby be compromised”.

1.1.2 For the purpose of this document:

1.1.3 The University will maintain the following minimum levels of liquidity:

1.1.4 The University will undertake reasonable sensitivity analysis, scenario analysis of its liquidity position and cash flow projections, to fully understand the impact of adverse operational and financing scenarios on its Net Cash Requirement and its position against liquidity policy limits.

1.1.5 The University will be required to keep within its approved overdraft limits.

1.1.6 A nominal overnight balance will be maintained in the primary current accounts.

Schedule 1.2. Interest rate management strategy

1.2.1 The University defines interest rate risk as “the risk that unexpected fluctuations in the level of interest rates adversely impacts the University’s finances”.

1.2.2 The University considers the management of its exposure to interest rate risk to be a critical element in achieving its business objectives. Where relevant, the University is able to manage its exposure to interest rate risk through the medium of its loan agreements and any embedded hedging instruments.

1.2.3 The University seeks to prudently manage its long-term interest rate risk. Where new facilities are entered into, the University will pay due consideration to how to manage this interest rate risk via, where applicable, fixed rate hedging or via funding that is fixed rate by nature (such as capital markets funding). The University will also consider the exposure of its total outstanding debt obligations when considering how to manage the long-term interest rate risk.

1.2.4 Prior to the undertaking of any new borrowing the CFO will prepare a report with recommendations for managing the exposure resulting from that new borrowing for presentation and approval by Governing Council.

Matters to be considered in Reviewing the Interest Rate Management Strategy

Schedule 1.3. Counterparty credit risk policy

1.3.1 The University defines counterparty risk as “the risk of failure by a third party to meet its contractual obligations to the University under an investment, borrowing, or hedging arrangement which has a detrimental effect on the University’s resources and/or gives rise to credit losses”.

1.3.2 The University applies approved counterparty exposure limits.

1.3.3 Counterparty Credit Limits apply to combined short-term and long-term deposits and derivatives but does not apply to accounts or funds provided by or via the University’s main banker. Where the bank is also a lender, the deposit limit can be increased through reliance on right of set off where there is documentation and legal advice that this would apply.

1.3.4 Should the clearing bank used by the University fall below the relevant criteria, consideration will be given to changing banks but the wider context, such as the risk of fraud or operational loss, will also be considered. It may be appropriate to continue using the same clearing bank but to keep overnight balances with a different entity. Any decision will be kept under regular review whilst the threshold breach exists.

1.3.5 The University will refer, at least every month, to the short and long-term credit worthiness of its financial counterparties.

1.3.6 Where the University has placed funds on fixed term deposit and circumstances change such that there is a rating agency downgrade, an increase in the 5-year credit default swap price beyond the acceptable range or the University receives advice regarding the counterparty, no further deposits will be made with that counterparty. Existing deposits will be allowed to mature unless the change indicates a fundamental deterioration in the institution’s position to the extent that the security of the deposit is considered by the CFO to be at risk when they will seek the early return of the deposit and attempt to minimise the breakage costs of the early return.

1.3.7 The University holds surplus funds and invests these prudently to generate additional returns to further the organisation’s aims. The University organises its managed funds as follows:

1.3.8 Additionally, money market funds need to meet the following minimum criteria:

1.3.9 The University’s deposits will primarily be placed in GBP; however, deposits can also be placed in Euros and US Dollars where appropriate but never on a speculative basis. Where the deposits are placed in Euros or US Dollars the exchange rate risk will be detailed in the assessment of the investment.

1.3.10 All investments are to be compliant with the University’s Investment Policy (see Appendix 1).

1.3.11 Where counterparties are ring-fenced or non-ring-fenced banks within a group structure, the credit rating of the specific legal counterparty will be the rating applied using the above limits and the list of approved counterparties will differentiate where appropriate. It will not be assumed that netting could be achieved across the relevant banking group unless there is documentation and legal advice to the effect that it could be.

1.3.12 Where the University’s subsidiary companies are seeking to borrow, the University will take a view of the funding sources of that borrowing and review the business case in relation to tax implications, gift aid, greater borrowing power of the University group and the potential to invest by the purchase of shares. If funding is required outside that of a share issue from the University, then the approval process will follow that of the University and require the approval of Governing Council.

Schedule 1.4. Legislative and regulatory framework

1.4.1 The University defines legal and regulatory risk as “the risk that the University itself, or a third party with which it is dealing in its treasury activities, fails to act in accordance with its legal powers or regulatory requirements and that the University suffers losses as a result”.

1.4.2 The University will ensure that all its treasury management activities comply with its statutory powers and regulatory requirements.

1.4.3 The University will ensure that its legal and regulatory risks are effectively managed through:

Schedule 1.5. Operational risk policy

The University will ensure that treasury operational risk is effectively managed through:

1.5.1 Treasury Procedures: Maintaining a set of procedures covering all treasury dealing, administrative, and reporting practices.

1.5.2 Treasury Systems: Maintaining appropriate treasury systems, which record all treasury transactions undertaken, and store all critical treasury data.

1.5.3 Treasury Policy Limits: Ensuring that individuals tasked with managing treasury will always ensure that compliance is maintained with treasury policy limits and that any instances of non-compliance are reported to the CFO or PPRC, as appropriate.

1.5.4 Documentation: Ensuring documentary evidence is stored which contains an accurate and complete record of every treasury transaction undertaken. This includes banking and investment transaction statements, account statements, all borrowing and hedging agreements.

1.5.5 Loan Administration: Ensuring compliance with covenants of all borrowing arrangements on a continuous basis and, in addition to complete documentary records, maintain a summary database of key contractual terms which cover:

1.5.6 Reconciliation: Undertaking at least monthly reconciliations of all account balances and loan balances between internal accounting records and counterparty documents.

1.5.7 Dealing Mandates: Maintaining up to date lists of authorised signatories and dealing mandates for all banking facilities, investment accounts and borrowing arrangements. All treasury transactions with Approved Counterparties must be undertaken in compliance with existing dealing mandates.

1.5.8 Professional Advice: Recognising that treasury management is a complex and high-risk business activity and therefore seeking independent professional advice in any circumstances where the University does not possess sufficient skills in-house to undertake a particular operational treasury activity.

1.5.9 Reporting: Where there is a material treasury error, operational failure, or occurrence of fraud, a Treasury Policy Exception Report will be submitted to Governing Council as detailed in Schedule 10.

Schedule 1.6. Exchange rate risk

Schedule 2. Value for money and Performance Measurement Procedure

2.1 The University will endeavour to achieve value for money in its treasury management activities through employing, inter alia, the following performance measurement techniques:

Schedule 3. Decision Making Process

3.1 In making key decisions regarding its treasury management activities the University will ensure that proper consideration is given to all relevant factors. These will include;

3.2 Any key decisions will be made with the benefit of an appropriately detailed report compiled by the CFO for consideration and decision by Governing Council or authorised committee or sub-committee.

3.3 Biannual meetings of PPRC will discuss the current treasury position and to plan actions for the next two quarters. Discussions and subsequent decisions will be recorded in the minutes to these meetings.

3.4 The CFO will be responsible for ensuring that the outcome of such decisions is effectively communicated to any officer of the University who may be involved in implementing those decisions.

Schedule 4. Approved instruments, methods, and techniques

4.1 The University will only utilise Approved Instruments (for Investment, Borrowing, and Hedging) in its treasury management activities, as permitted by its Ordinances.

4.2 Approved Instruments – Investments:

4.3 Approved Instruments – Borrowing Arrangements:

4.4 Approved Instruments – Hedging Arrangements (in embedded format only):

4.5 The University will only use standalone financial derivatives (such as swaps, forwards, futures, and options) where they can be clearly demonstrated to reduce the overall level of the financial risks that the University is exposed to. Additional risks presented, such as credit exposure to derivative counterparties, will be considered when determining the overall level of risk. Embedded derivatives will not be subject to this policy, although the risks they present will be managed in line with the overall treasury risk management strategy.

Schedule 5. Responsibility for treasury management

5.1 PPRC maintains overall responsibility for the key treasury management policies and practices of the University. PPRC may delegate authority to the University's CFO in accordance with the following scheme.

5.1.1 Authority retained by Governing Council

5.1.2 Authority delegated to PPRC

5.1.3 Authority delegated to CFO

5.1.4 Authority delegated by CFO to Head of Financial Accounting

5.2 The CFO will submit to PPRC an Annual Treasury Strategy setting out the treasury management aims and objectives of the University for the coming financial year and a commentary on treasury operations for the previous financial year.

5.3 The Annual Treasury Strategy will include/lead to

5.4 The CFO will, upon identification of any treasury management event likely to have a materially adverse effect on the finances of the University, report this as soon as possible to the Vice-Chancellor and Chairs of Governing Council and all sub-committees with proposals for rectifying or ameliorating the effect of such an event.

Schedule 6. Cash flow management

6.1 The CFO will create a cash flow forecast for the current and next four financial years.

6.2 The Head of Financial Accounting will produce a detailed cash flow analysis / forecast on a rolling monthly basis.

6.3 The University recognises that the preparation of accurate and reliable cash flow forecasts depends on the provision of information from several sources. The CFO will be responsible for ensuring that appropriate officers are aware of the information required from them to ensure that estimates can be made, and the deadlines for the provision of such information.

Schedule 7. Staff training and qualifications

7.1 Relevant staff involved in treasury management activity will be encouraged to maintain their knowledge and skill base by following the Continuous Professional Development opportunities offered by their professional bodies and the British Universities Finance Director’s Group.

7.2 The University will support members of staff seeking to gain professional qualifications relevant to their roles, provided this can be done without compromising the workings of the Finance Department.

Schedule 8. Use of external providers

8.1 When the University employs external service providers (for example, banks, retained treasury advisors, and valuers for loan security purposes), it will ensure it does so for reasons which have been submitted to a full evaluation of the costs and benefits. It will also ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented and subjected to regular review.

8.2 Where services are subject to formal tender or re-tender arrangements, legislative requirements will always be observed. The monitoring of such arrangements is the responsibility of the CFO.

This is the public version of the University's Treasury Management policy and is provided for external reference.

Policy last review date: January 2025