Sam Hunt

Tom Hoyle

Justin Xu

Joe McKenna

MillTech Team

FX volatility has reshaped the risk landscape for UK fund managers. While currency swings supported returns for many in 2025, they also exposed weaknesses in protection as rising costs and tighter credit conditions constrained hedging decisions.
As managers enter 2026, FX strategy is being recalibrated - not just in terms of how much risk is hedged, but how effectively it is managed and executed.
<h2>Key takeaways:</h2>
<ul>
<li>How has FX volatility affected UK fund managers? FX volatility has largely boosted returns, with 96% of fund managers reporting a positive impact from pound movements in 2025. However, the same volatility has exposed weak protection, with 95% of funds experiencing losses from unhedged FX exposure.</li>
<li>Why are some fund managers hedging less despite higher volatility? Rising hedging costs and forecasting existing currency risk have been key constraints. Mean costs increased by 69% in 2025, with tighter credit conditions (56%) further limiting how much FX risk managers can economically protect.</li>
<li>What tools are fund managers using to manage FX risk more effectively? The use of <a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> is rising sharply, with 91% of funds increasing usage to cap downside risk while preserving upside potential. Digital execution is also gaining traction, though many funds still rely on manual processes.</li>
<li>What are the biggest FX challenges facing fund managers heading into 2026? Rather than one dominant issue, fund managers face a balanced set of pressures, including high costs, difficulty forecasting currency risk, manual processes and securing credit lines.</li>
<li>How is <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a> expected to evolve beyond 2026? Many fund managers are utilising automation and outsourcing to improve visibility, execution and control. Many view a digital, multi-bank FX platform with advanced automation as the ideal future-state operating model.</li>
</ul>
&nbsp;
<h2>Volatility boosts returns, but exposes weak protection</h2>
FX volatility created a paradox for UK fund managers last year: it boosted returns for many, but also exposed the cost of inadequate protection.
Nearly all respondents (96%) reported that pound volatility had a positive impact on returns, with more than half describing the effect as significantly positive. Well-positioned portfolios benefited from currency movements, turning a potential drag into a tailwind.
However, these gains came alongside sharply rising hedging costs. Mean hedging costs increased by 69%, with more than seven in ten funds seeing costs rise by at least half. Tighter credit conditions (55%) have compounded the pressure, forcing managers to weigh the affordability of protection more carefully than in previous years.
Against this backdrop, hedging participation eased. While 81% of UK fund managers continue to hedge their FX exposure, this is down from 88% in 2024, reflecting the growing cost and liquidity trade-offs involved.
The consequences of reduced protection have been stark. Almost all UK funds experienced losses from unhedged FX exposure in 2025 (95%), with two in five describing those losses as very significant. Volatility may have supported returns overall, but insufficient protection left many portfolios exposed when currency moves turned unfavourable.
&nbsp;
<h2>How funds are evolving their hedging strategies</h2>
Faced with higher costs and exposed downside risk, UK fund managers are adjusting not just how much they hedge, but how they hedge.
Despite widespread losses from unhedged exposure, the average hedge ratio has fallen to 46%, its lowest level since data collection began in 2023. At the same time, average hedge length has edged higher to 5.5 months, up from 5.2 months last year. Together, these shifts point to a more selective approach: favouring agility over blanket coverage, hedging long enough to smooth near-term volatility, but short enough to adjust quickly if the pound&rsquo;s direction changes.
Differences by fund size are becoming pronounced. Larger funds hedge a greater proportion of their exposure and for longer periods, with mean hedge ratios of 55% and hedge tenors of seven months, compared with 40% and five months among smaller firms.
The tools used to manage FX risk are also evolving. The use of FX options continues to rise, with 91% of UK funds reporting increased usage over the past year. Options are increasingly favoured for their ability to cap downside risk while retaining upside potential, a valuable trade-off in volatile and cost-constrained markets.
Operational change, however, is moving slower. Digital execution is gaining gradual traction, with web-based platforms used for FX trade instruction rising from 28% to 39%. Despite this progress, many funds remain reliant on manual processes, limiting speed, transparency and control.
<blockquote>
&ldquo;What we&rsquo;re seeing is a more pragmatic approach to hedging. Managers are increasingly weighing the trade-off between protection, cost, and operational flexibility. Rather than targeting a specific ratio, they&rsquo;re building hedging strategies that can evolve with the fund.&rdquo;
Joe McKenna, Head of Fund Solutions at MillTech
</blockquote>
&nbsp;
<h2>The FX challenges facing fund managers heading into 2026</h2>
UK fund managers continue to face a broad and balanced set of structural FX challenges. No single issue dominates: each of the top five challenges is cited by around one in four fund managers (27%), highlighting the cumulative nature of the pressure across the industry.
High hedging costs sit at the centre of these challenges, eroding performance margins - particularly for smaller funds (39%) with less balance sheet flexibility. At the same time, tighter credit conditions (55%) are making it harder secure credit lines constraining how much risk managers can hedge.
These financial pressures are compounded by forecasting and operational challenges. Difficulty in accurately forecasting existing currency risk is limiting managers&rsquo; ability to size and time hedges effectively, increasing the risk of misaligned protection as market conditions shift. Continued reliance on manual FX processes - particularly email (47%) and phone-based (45%) trade instruction - adds friction, reduces transparency and heightens operational risk.
Overlaying these issues is a regulatory and compliance demands, with enhanced reporting and transparency expectations increasing administrative and operational complexity.
&nbsp;
<h2>FX risk management in 2026 and beyond</h2>
Looking ahead, <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX risk management</a>&nbsp;is increasingly defined not just by how much risk is hedged, but by how effectively it is executed.
Automation has moved firmly up the agenda. Two in five fund managers identify automating manual processes as their leading operational priority for 2026, with reporting, price discovery and trade execution emerging as the key focus areas for 38% of funds.
Adoption of AI is also accelerating. A quarter of funds are already using <a href="https://www.milltech.com/product/co-pilot" target="_blank" rel="noopener">AI within their FX workflows</a>, while a further 71% are exploring its capabilities in some capacity. Rather than being treated as a standalone innovation, AI is increasingly viewed as a tool to enhance decision-making speed and accuracy as FX markets grow more complex.
Alongside technology, <a href="https://www.milltech.com/resources/glossary/fx-outsourced-execution" target="_blank" rel="noopener">outsourcing </a>is becoming a more central pillar of FX strategy. Faced with limited internal expertise (20%) all fund managers surveyed now rely on external partners to some extent. The primary motivations include improving scalability and flexibility (41%), allowing teams to focus on core business activities (38%), and strengthening risk management and compliance frameworks (32%).
Looking to the future, funds have a clear view of what effective FX operations should look like. One third of funds (33%) say their ideal FX setup is a digital, multi-bank platform with advanced automation capabilities - signalling where FX strategy and execution are ultimately heading.
<blockquote>
&ldquo;<a href="https://www.milltech.com/clients/fund-managers-and-institutional-investors" target="_blank" rel="noopener">Fund managers shouldn&rsquo;t settle for fragmented systems and opaque pricing</a>. They want a single, digital ecosystem where automation, AI, and multi-bank access work seamlessly together. Those who embrace this shift will gain the speed, transparency, and control needed to protect their bottom line&rdquo;
Eric Huttman, CEO at MillTech.
</blockquote>
&nbsp;

Volatility, rising costs and tighter credit reshape risk management strategies for UK fund managers in 2026.

 V1   

How UK funds are recalibrating FX strategies for 2026

Nick Wood

<h2>What&rsquo;s the top macroeconomic trends you think CFOs and treasurers should monitor right now?</h2>
2025 has proved challenging, driven by a trifecta of macroeconomic themes - global trade tensions, global conflicts, and domestic policies. All three remain relevant, with ongoing global trade tensions the most impactful due to its consequence of increased volatility and uncertainty. From my perspective, tariffs have contributed to a rise in inflation, alongside dampening investment and growth, which has influenced domestic policies, creating a challenging environment for both governments and central banks who need to balance growth and inflation. All of which has resulted in periods of increased volatility and/or trending foreign exchange markets.
&nbsp;
<h2>How do shifts in interest rate policy affect how finance leaders manage their FX exposure?</h2>
By adjusting interest rates, central banks influence growth, inflation and exchange rates. When interest rates rise, banks and investors can earn higher returns compared to other countries, attracting foreign capital and pushing the exchange rate upward. However, this effect may be weakened if domestic inflation is significantly higher than abroad or if other factors put downward pressure on the currency. Conversely, when interest rates fall, foreign investment can become less attractive, often leading to a decline in the exchange rate. Understanding how domestic and global policies impact exchange rates is important for any company when deciding to fund or hedge their underlying investments. However, as alluded to, it&rsquo;s important to remember that changes in interest rates do not guarantee a specific outcome in foreign exchange markets as their impact doesn&rsquo;t occur in isolation - it depends on a range of factors.
&nbsp;
<h2>How should businesses balance short-term volatility with long-term currency planning?</h2>
Short-term currency volatility is a natural market feature that can impact immediate profitability and cash flow, but it generally evens out over time in long-term planning. The key is to implement strategies that mitigate short-term transaction risks while remaining focused on long-term strategic goals. Whilst certain funding and repatriation transactions may be difficult to anticipate and would be executed at point of requirement, quite often more strategic investments will require a more deliberate approach factoring in cash flow, optimal instruments, tenors and hedge ratios. &nbsp;
&nbsp;
<h2>What major forces do you expect to shape global FX markets in 2026?</h2>
Certain themes from 2025 will remain pertinent, namely de-globalization and tariffs, in addition to monetary policies and whether differentiation becomes prominent between countries, but another theme which will become increasingly pertinent is de-dollarization. Analysts and investors have been talking for years about <a href="https://www.investopedia.com/what-is-de-dollarization-7559514" target="_blank" rel="noopener">de-dollarization</a>, anticipating a gradual shift by governments, companies, and investors away from using the U.S. dollar as the world&rsquo;s default trading and reserve currency. In 2025, <a href="https://www.investopedia.com/dollar-weaponization-11753104" target="_blank" rel="noopener">de-dollarization gained prominence and </a>can best be seen in the performance of Gold which has strengthened <a href="https://www.coindesk.com/markets/2025/10/15/gold-isn-t-overpriced-on-purchasing-power-test-blackrock-s-evy-hambro-says?" target="_blank" rel="noopener">60% year to date</a>. With the dollar representing <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-2025-edition-20250718.html" target="_blank" rel="noopener">more than 50% of global reserves</a> more rotation into alternative currencies can happen, the question is will it and to what magnitude and where.
&nbsp;
<h2>If you could fast-forward five years, what will best-in-class FX execution look like &mdash; and what role will technology play in getting us there?</h2>
Digital transformation, driven by AI and data analytics, is now essential and will become more commonplace in our day to day. It will help organizations automate routine work and access real-time insights for smarter decisions and outcomes.
&nbsp;
Get in touch to learn more about how MillTech&rsquo;s AI-driven FX solutions can help your business turn data into intelligent currency risk management, <a href="https://www.milltech.com/contact" target="_blank" rel="noopener">https://www.milltech.com/contact</a>.

Key FX and macroeconomic trends corporates and treasurers should monitor in 2026, from our Chief Trading Officer.

Nick   

Rapid Fireside Chat with Nick Wood

For years, currency risk has often been relegated to the background, something for the treasury team to quietly manage - but in 2025, it has pushed its way firmly into the spotlight. A mix of <a href="https://www.bloomberg.com/news/articles/2025-04-08/fx-volatility-bets-show-swings-will-get-bigger-as-tariffs-shatter-order" target="_blank" rel="noopener">currency shocks</a>, <a href="https://tax.thomsonreuters.com/blog/2025s-supply-chain-challenge-confronting-complexity-and-disruption-in-global-trade-tri/" target="_blank" rel="noopener">trade disruptions</a> and <a href="https://www.ft.com/content/437a6438-742a-42fe-97ff-b427448ce0f6" target="_blank" rel="noopener">US dollar volatility</a> has elevated FX to a strategic priority for the North American corporate cohort across the US and Canada.
Our latest <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-north-america-corporate-cfo-fx-report-2025" target="_blank" rel="noopener">North America Corporate CFO FX Report</a> shows just how quickly the landscape is changing and how finance leaders are responding to shield margins as we head into 2026.
&nbsp;
<h2>Key takeaways:</h2>
Why has FX risk become a strategic priority? Tariffs, US dollar volatility and trade disruption have elevated <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a> from a treasury function to a core CFO concern across North America.
How are tariffs affecting corporate profitability? 69% of North American corporates report reduced competitiveness, with 87% forced to adjust sourcing or manufacturing strategies in response.
How are firms responding to rising currency volatility? 91% of corporates now hedge FX risk, amid 83% experiencing losses from previously unhedged currency exposure in 2025.
What is holding FX risk management back? Rising hedging costs (94%) combined with fragmented systems (32%) and manual processes (30%) are limiting efficiency, transparency and control.
How are corporates modernising FX operations? Firms are investing in <a href="https://www.milltech.com/resources/blog/Embedding_automation_in_fx_strategy_2025" target="_blank" rel="noopener">FX automation</a> and AI-driven risk identification to improve visibility, accuracy and governance across the FX lifecycle.
&nbsp;
<h2>Tariffs harm corporates competitiveness</h2>
With <a href="https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far" target="_blank" rel="noopener">sweeping tariffs</a> introduced by the Trump administration in February 2025 - including the blanket 10% tariff on most imports on &ldquo;<a href="https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far" target="_blank" rel="noopener">Liberation Day</a>&rdquo; - nearly seven in ten firms (69%) report that their profitability or competitiveness in international markets has been negatively affected. Both the smallest and largest companies are feeling the strain, showing that the impact cuts across both size and sector.
Against this backdrop corporates have been forced to react quickly as margins come under pressure. A significant 87% of firms have adjusted their sourcing or manufacturing strategies in response to the shifting tariff landscape. The uncertainty is feeding directly into FX concerns, with 36% worried about the impact of policy changes on currency values, while 34% are delaying major decisions due to elevated market uncertainty.
Yet despite the disruption, confidence remains surprisingly resilient: 84% of corporates remain optimistic about the future impact of tariffs, signalling belief that short-term pain may ultimately give way to longer-term strategic opportunities.
&nbsp;
<h2>FX volatility drives record hedging levels</h2>
Amid the tariff announcements, currency volatility surged to levels last witnessed during the <a href="https://www.ft.com/content/3f9b02f5-a780-4736-8790-b9c4775c55b1" target="_blank" rel="noopener">collapse of Silicon Valley Bank</a>, and the impact on unhedged firms has been severe. Eight in ten (83%) corporates have experienced losses due to unhedged FX risk, underscoring just how quickly market swings can erode profitability.
In response, hedging activity has risen to the highest level we&rsquo;ve recorded in the past three years as firms move to shield margins from further shocks. 91% of corporates now hedge their FX risk, up sharply from previous years - and even smaller firms, despite their typically lower exposure, are now participating at much higher levels.
Firms are also now rethinking the mechanics of their hedging strategies. The most common adjustment? Extending hedge lengths (64%), as they look to lock in certainty amid short-term instability.
<blockquote>
"Short-end volatility is spiking so it makes strategic sense for firms to extend the tenor of FX hedging instruments. Market spreads on short-end instruments are increasing as more market participants look to buy near-term protection. Hedging farther out along the curve maintains the same level of protection against currency movements but without the need to crystallize profit and loss generated by short-term FX swings".
Simon Lack, Head of Investment Solutions at MillTech
</blockquote>
&nbsp;
<h2>Operational complexity and rising FX costs add pressure for corporates</h2>
Despite the FX market being the largest and most liquid in the world, many corporates still face major operational challenges in managing foreign exchange risk. The biggest challenges remain deeply rooted in day-to-day processes, with firms highlighting demonstrating best execution (33%), fragmented systems and workflows (32%) and manual processes (30%) as their top three.
<img src="https://directus.corp.milltechfx.com/assets/ff7f3348-9438-4b59-8b6c-7b9394402233.png?width=614&amp;height=200" alt="Screenshot 2025 12 17 at 15.02.00">
These operational hurdles are far from trivial. Among those not currently hedging, a striking 83% pointed to burdensome hedging infrastructure as their primary barrier, reinforcing the view that operational inefficiencies are actively preventing some firms from managing their risk.
While access to credit has fallen down the list of headline concerns, conditions remain tight. 46% of firms report stricter lending criteria, and 69% are facing higher interest rates or fees, making it harder and more expensive to support FX strategies.
At the same time, the cost of hedging is rising sharply. An overwhelming 94% of firms say their hedging costs have increased, with smaller companies being hit the hardest - over a third saw costs more than double.
As these expenses rise, so does the demand for clarity. Cost transparency has now become the number-one priority for over a third of corporates (34%), overtaking automation. For many firms, particularly smaller businesses, this creates a tough dilemma: is it more costly to hedge or to risk not hedging at all?
&nbsp;
<h2>Corporate FX goes digital</h2>
In light of struggles with fragmented workflows, the shift away from manual FX processes is gathering real momentum. Traditional booking methods such as phone (29%) and email (24%) are in decline, with corporates increasingly turning to digital tools instead. Four in ten firms now instruct FX trades via their own internal systems or web apps, up significantly from <a href="https://www.milltech.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">27% and 31% last year</a>, respectively.
The pivot to digital is being accelerated by strong demand for automation across the entire FX lifecycle. Firms are focusing on processes that improve speed, accuracy and control with the most in-demand capabilities including automated price discovery (34%), end-to-end workflow automation (33%) and real-time risk identification (30%).
<img src="https://directus.corp.milltechfx.com/assets/62d85674-a64f-4f7e-857e-f798ddc01ca2.png?width=614&amp;height=400" alt="Screenshot 2025 12 17 at 16.09.28">
Artificial intelligence is becoming a core part of this transformation, with every company we surveyed actively exploring how AI can enhance their FX operations. The top use case is process automation (43%), as firms look for faster, smarter and more scalable ways to manage increasingly complex workflows. Close behind is risk identification (42%), with corporates turning to AI to spot exposures earlier and with greater accuracy as market volatility intensifies.
<img src="https://directus.corp.milltechfx.com/assets/4d5755cb-7533-46f8-ac49-f6fadbd6e1ea.png?width=614&amp;height=300" alt="Screenshot 2025 12 17 at 16.18.58">
<h2>US vs Canada: How FX strategies differ</h2>
The US and Canada are more than just close neighbours; they have one of the strongest political economic relationships in the world. However, <a href="https://www.theguardian.com/us-news/2025/jun/27/trump-canada-tariffs-trade-tax" target="_blank" rel="noopener">recent foreign policy gear shifts</a> in the US have put this friendship on rocky ground, particularly with US tariffs.
More Canadian firms report losses from unhedged FX risk (89%) than those in the US (81%) - a notable contrast given that Canadian corporates actually hedge more frequently and more aggressively, with 97% hedging FX risk compared with 88% in the US.
Amid these losses, Canadian corporates have made more tariff-driven operational changes than their US counterparts, with 96% adjusting their sourcing or manufacturing strategies in response, compared with 83% of US corporates. Yet despite the disruption, Canadian businesses remain more optimistic about the year ahead, with 89% expressing confidence over the next 12 months, compared with 81% in the US.
When it comes to digitisation, both markets are accelerating automation but with different priorities. In Canada, reporting is the top area of automation investment (38%), whereas in the US the focus is on price discovery (36%). Their AI strategies also diverge: Canadian firms are most interested in using AI to enhance operations (44%), while US corporates place greater emphasis on AI for process automation (46%).
&nbsp;
Want to explore the research in detail? Download the full report for free here: <a href="https://dev.milltech.com/resources/currency-insight-and-education/the-milltech-north-america-corporate-cfo-fx-report-2025" target="_blank" rel="noopener">The MillTech North America Corporate CFO FX Report 2025</a>
Please refer to our <a href="https://www.milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Tariffs, USD volatility and rising FX costs are prompting corporates in the US and Canada to rethink FX risk strategies

3 North American firms face a new era of FX risk in 2026

Foreign exchange markets have a way of making their presence felt - quietly at first, then suddenly, all at once. The year shattered any lingering belief that FX represents merely a secondary consideration. With tariff policies dominating headlines and policy shifting dramatically from one day to the next, currencies have been anything but stable.
North America's fund managers found themselves at the epicentre of this volatility. Their response, captured in the <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-north-america-fund-manager-fx-report-2025" target="_blank" rel="noopener">MillTech North America Fund Manager CFO FX Report 2025</a> reveals an industry moving beyond mere adaptation toward comprehensive FX risk management restructuring.
&nbsp;
<h2 class="MsoNormal">Key insights:</h2>
<ul>
<li class="MsoNormal">85% of North American fund managers hedge forecastable FX risk, the highest level we have recorded in the past three years.</li>
<li class="MsoNormal">99% of funds report higher hedging costs, with 58% seeing increases of 50&ndash;100%, pressuring margins.</li>
<li class="MsoNormal">Fragmented FX provision is pushing funds toward automation across settlement (49%), price discovery (47%) and risk identification (46%).</li>
<li class="MsoNormal">Every fund surveyed outsources at least part of its FX operations, marking a decisive shift toward specialist support reliance.</li>
</ul>
&nbsp;
<h2>Hedging hits record highs as funds race to protect portfolios</h2>
A striking 85% of North American fund managers now hedge their forecastable currency risk - the highest level we have recorded across the past three years. This shift comes amid 37% of funds suffering losses from unhedged FX positions in 2025. Among non-hedgers, 70% are now considering doing so, surging from just 16% last year.
Against this backdrop, firms adopting hedging strategies have embraced greater agility. Hedge ratios dropped to a mean of 45%, while hedge lengths shortened to an average of five months. As fund managers respond to accelerated market movements, 95% of funds increased their options usage, with smaller firms leading adoption as they seek downside protection while preserving upside potential.
&nbsp;
<h2>Dollar swings inflate returns - but also deliver painful losses</h2>
Despite turbulence, politically-driven dollar volatility generated unexpected tailwinds. A staggering 99% of fund managers&rsquo; report positive return impacts from these fluctuations this year.
The picture remains mixed, however. The same volatility that lifts results one moment can erode them the next, as the recent prevalence of losses shows. This tension has fuelled widespread concerns, with 99% of fund managers worried about the potential impacts of dollar volatility on foreign market exposures and 58% describing themselves as very concerned.
In response to this anxiety, many funds are reshaping their FX strategies. Increasing hedge ratios (54%) and extending hedge durations (52%) have emerged as the two dominant approaches to preparing for continued volatility.
&nbsp;
<h2>Hedging costs climb as firms face tightening conditions</h2>
Hedging became more essential but significantly costlier in 2025. 99% of North American fund managers&rsquo; reported increased hedging costs, jumping sharply from 80% in 2024. More than half (58%) experienced cost increases between 50% and 100%, heavily pressuring margins.
It's not just hedging costs, either - a more challenging credit environment means that many funds are encountering tighter conditions from their providers: 72% report stricter lending criteria and the same proportion have faced higher interest rates or fees. Smaller funds bore the heaviest impact - experiencing steeper cost increases and greater difficulty securing credit lines.
<blockquote>
Surging hedging costs and tightening market conditions are forcing fund managers to rethink how they approach risk. The rising expense of hedging is squeezing margins to the point where some are questioning its financial viability, while fragmentation and tougher credit conditions are adding further strain. In this environment, success hinges not only on managing FX risk, but also on securing the right partnerships and maintaining operational efficiency to stay resilient
Joe McKenna, Head of Fund Solutions
</blockquote>
&nbsp;
<h2>Operational strain pushes automation and AI to the forefront</h2>
Rising costs weren't the only pressure reshaping FX management. Operational strain intensified, with fragmented service provision cited by 36% of managers as their primary challenge. This comes amid continued reliance on manual FX workflows, with 6 in 10 now instructing transactions by email and 5 in 10 by phone.
Amid these pressures, modernisation appetite surged. Automation rose to top priority status, up from second bottom of the list in 2024. The key areas targeting for FX automation - settlement (49%), price discovery (47%) and risk identification (46%), directly address fragmented process pain points.
AI adoption accelerated in parallel. Every fund surveyed is now at least considering AI, with 77% already using it or aggressively evaluating potential applications. Surprisingly, smaller firms lead adoption (50%), whilst larger firms are more cautious (29%).#
&nbsp;
<h2>FX outsourcing becomes a strategic pillar for fund managers</h2>
As market conditions grew more complex, outsourcing became core to FX operations management. Every firm surveyed now outsources at least some FX workflow elements, marking a decisive shift toward specialist support reliance.
Motivations varied by role and size. CFOs primarily sought outsourcing for risk management and compliance strengthening (37%), while COOs and CEOs placed greater emphasis on specialized expertise access (80% and 67%, respectively).
Smaller funds focused on gaining specialized expertise, alongside scalability and flexibility (44%), helping them remain agile and competitive without needing to expand headcount or infrastructure. &nbsp;
Conversely, larger funds focused on achieving greater efficiency and automation (53%), integrating external solutions to streamline high volume, complex FX operations.
<blockquote>
Outsourcing became a cornerstone of FX strategy, helping fund managers navigate rising costs, operational pressures, and growing market complexity. Smaller funds turned to third parties for expertise, scalability, and flexibility needed to stay competitive, while larger firms leveraged outsourcing to boost efficiency and automate complex, high-volume operations. While motivations vary, across the board it's clear that tapping external specialists became an essential tool for fund managers.
Eric Huttman, CEO at MillTech
</blockquote>
&nbsp;
<h2>US and Canada diverge in their approach to FX volatility</h2>
Amid persistent market turbulence, US and Canadian fund managers find themselves navigating similar pressures, yet their responses to heightened volatility reveal striking differences shaped by distinct market dynamics, regulatory landscapes and strategic preferences that have emerged throughout the year.
Both regions hedge 85% of their FX risk and report that dollar movements have generally lifted returns. Despite this similarity, Canadian managers are more concerned about dollar volatility (63%), compared to their American counterparts (55%).
When it comes to strategies for combating dollar volatility, the divergence becomes even more pronounced. US funds are significantly more likely to increase hedge ratios (56%), reflecting a more aggressive defensive posture, while Canadian funds demonstrate a stronger inclination to extend hedge durations (55%).
Product preferences mirror this strategic split: US funds tend to favour currency swaps (49%), whereas Canadian funds lean more heavily on <a href="https://www.milltech.com/resources/glossary/currency-swap" target="_blank" rel="noopener">FX swaps</a> (61%), highlighting fundamentally different approaches to risk mitigation.
The biggest operational challenge plaguing US funds remains fragmented service provision (35%), with nearly half placing their greatest emphasis on automating settlement processes to address these inefficiencies. In Canada, the landscape shifts differs, with the top hurdles being securing credit lines and onboarding liquidity providers (41%).
On the technology front, Canadian managers are surging ahead in AI adoption, with 47% already implementing AI solutions and 37% exploring it&rsquo;s capabilities aggressively, compared with 39% and 34% respectively in the US. This technological advance comes despite Canadian funds showing greater reliance on traditional manual methods - email (70%) and phone (63%) - than their US counterparts (54% and 47%).
&nbsp;
<h2>Conclusion: Building FX resilience in a volatile landscape</h2>
Dollar volatility poses heightened risks for funds, with immediate implications for returns, liquidity and overall portfolio stability. In an environment where the dollar can wipe out gains as quickly as it can deliver them, building a smarter, more resilient FX strategy is no longer optional; it is urgent.
<a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX risk management</a> must be at the top of the agenda. Hedging strategies, when executed effectively, can protect margins and mitigate unexpected losses, while outsourcing FX operations to experienced providers offers access to specialized expertise, enhanced efficiency, and greater transparency.
Together, these steps enable funds to navigate volatility with confidence and position their portfolios for more consistent performance.
&nbsp;
Want to explore the research in detail? Download the full report for free here: <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-north-america-fund-manager-fx-report-2025" target="_blank" rel="noopener">The MillTech North America Fund Manager CFO FX Report 2025</a>.
Please refer to our <a href="https://www.milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

As 2026 approaches, fund managers are restructuring FX risk strategies to address volatility and cost pressures.

1 FX risk insights for NA Funds heading into 2026

The FX landscape is becoming increasingly complex for UK fund managers. Based on <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-uk-fund-manager-cfo-fx-report-2025" target="_blank" rel="noopener">MillTech's 2025 research</a>, this blog explores the top five FX-related challenges facing UK fund managers today - from forecasting to credit access and regulatory demands - and how firms are adapting their strategies to protect performance in an uncertain market as their attention turns to 2026.
<h2>Key takeaways:</h2>
<ul>
<li>FX costs are soaring: 95% of UK fund managers report higher FX expenses, with 77% seeing costs more than double in the past year. Cost transparency and control are now top priorities.</li>
<li>Forecasting remains a major challenge: 27% of fund managers cite currency forecasting as one of their biggest operational hurdle, as volatility and macro uncertainty make hedging decisions more complex.</li>
<li>Manual processes persist despite digital progress: 47% still execute trades by email and 45% by phone, but automation and AI adoption are rapidly gaining traction.</li>
<li>Credit access is tightening: Over a quarter (27%) of fund managers struggle to secure FX credit lines with 55% facing stricter lending terms.</li>
<li>Regulatory and compliance pressures intensify: 27% of firms name compliance as a top operational concern, with 32% turning to outsourcing.</li>
</ul>
&nbsp;
<h2>1. The unrelenting rise of high costs</h2>
Recent data highlights the mounting challenge to manage FX expenses, with 27% of UK fund managers citing it as their primary operational challenge. Among smaller funds - managing between &pound;74 million and &pound;369.99 million - this rises to 39%.
This shift comes as a staggering 95% of UK fund managers&rsquo; have seen costs increase over the past year. For many, this isn&rsquo;t just a marginal rise - 77% report cost surges more than doubling, with the mean increase reaching 69%.
CFOs are particularly exposed, facing a mean cost increase of 75%, and over three quarters (86%) say costs have risen by at least half.
As rising costs squeeze profitability, cost transparency has become a priority for 41% of fund managers. Without clear visibility into FX transaction costs, with fees often being hidden in the <a href="https://www.milltech.com/resources/glossary/bid-ask-spread" target="_blank" rel="noopener">spread</a>, firms risk overpaying for their FX execution and ultimately weakening returns.
&nbsp;
<h2>2. Forecasting in a volatile currency market</h2>
In an environment of market turbulence, driven by <a href="https://www.bankofengland.co.uk/financial-stability-report/2025/july-2025?" target="_blank" rel="noopener">shifting monetary policies and global trade uncertainty</a>, forecasting existing currency risk now ranks as the biggest operational hurdle for 27% of UK fund managers.
The consequences of misjudging these exposures could be substantial. Over the past year, 95% of Fund Managers reported losses from unhedged FX positions, with 40% describing losses as &ldquo;very significant.&rdquo;
Macroeconomic uncertainty - particularly currency volatility linked to U.S. trade tariffs - continues to add complexity, with 37% of fund managers citing this as a key concern.
In response, firms are reassessing how they approach cash flow visibility and forecasting. Looking ahead, improving the visibility and forecasting of global cash flows has emerged as the top priority for managing international cash and FX risk over the next three years, cited by 23% of fund managers.
Without accurate forecasts, deciding how much to hedge - and when - becomes guesswork, forcing managers to strike a difficult balance between overprotection and underexposure.
&nbsp;
<h2>3. The burden of manual processes</h2>
In an era of digital transformation, many UK funds remain reliant on manual FX processes. For 27% of fund managers, this dependence on outdated methods is a major operational pain point, consuming time that could be better spent on investment analysis and strategic decision-making.
The appetite for automation is growing rapidly. Fund managers are looking to automate key functions across the board which is no surprise when 47% are still executing trades by email and 45% by phone, limiting access to competitive rates and real-time market visibility.
<blockquote>
&ldquo;Manual processes may feel manageable day to day, but they&rsquo;re increasingly unsustainable in a market that demands speed, accuracy and oversight. Each email or phone instruction adds risk, delay, and opacity to the process. By embracing automation, fund managers can gain real-time visibility, streamline execution, and free up valuable resources to focus on strategic decision-making rather than administration.&rdquo; Sam Hunt, CTO, MillTech
</blockquote>
Artificial intelligence (AI) is also emerging as a powerful tool. While 25% of firms are already using AI in some capacity, a further 71% are considering it. A third of fund managers believe that a digital, multi-bank platform with advanced automation would best meet their firm&rsquo;s future needs, signalling a clear trend toward more sophisticated, tech-driven operations amid a backdrop of rising costs.
&nbsp;
<h2>4. The tightening grip on credit lines</h2>
The FX lending landscape is becoming increasingly constrained, creating new challenges for fund managers seeking flexibility in liquidity and execution. More than a quarter (27%) of fund managers now struggle to secure FX credit lines, with over half (55%) reporting that providers have tightened their lending criteria in the past year.
Chief Operating Officers (COOs) are feeling the squeeze most acutely, with 63% reporting stricter lending terms. Rising borrowing costs are compounding the pressure across the industry, with 64% of funds experiencing higher rates or fees in the past year.
In response, fund managers are re-evaluating how they access and manage liquidity. Automation remains a key theme, with 33% considering automating the onboarding of liquidity providers and 38% exploring automation in price discovery. These initiatives aim to make credit access faster, more transparent, and less reliant on a narrow group of traditional counterparties.
&nbsp;
<h2>5. Navigating regulatory and compliance pressures</h2>
The expanding scope of regulatory and compliance requirements continues to challenge fund managers, with over a quarter (27%) citing regulatory and compliance pressures as a top operational challenges.
The consequences of falling short can be severe - non-compliance can expose firms to financial penalties, reputational damage, and increased scrutiny from regulators.
To help elevate these pressures, 32% of firms have turned to using outsourcing as a key leaver for managing risk and compliance. As regulatory and operational demands intensify, outsourcing allows firms to access specialist expertise and institutional-grade infrastructure without expanding headcount or system costs.
&nbsp;
<h3 class="MsoNormal">Conclusion</h3>
In a market defined by volatility, tightening credit, and growing regulatory pressure, fund managers are being pushed to do more with less. The need for better forecasting, clearer visibility into FX costs, and smarter access to liquidity has never been greater - and many are turning to technology and outsourcing to deliver that edge efficiently.
MillTech supports this shift by helping fund managers automate key FX workflows, enhance cost transparency through Transaction Cost Analysis (TCA), and strengthen access to liquidity via a multi-bank platform. By combining intelligent technology with specialist expertise, we help firms simplify processes and focus on performance in a fast-changing market.
&nbsp;
Want to explore the research in detail? Download the full report for free here: <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-uk-fund-manager-cfo-fx-report-2025" target="_blank" rel="noopener">The MillTech UK Fund Manager CFO FX Report 2025</a>
<div class="InsightPage_content__lYK5z">&nbsp;</div>
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a>&nbsp;for more information on the data referred to in the above.

From escalating FX costs to tougher credit and compliance, our research reveals the pressures on UK fund managers.

The top 5 FX pressures on UK Fund Managers [2025 research]

The cost of managing FX exposure has climbed sharply and is cited by&nbsp;<a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-uk-fund-manager-cfo-fx-report-2025" target="_blank" rel="noopener">27% of UK fund managers</a> as their biggest challenge in 2025. This pressure is forcing many to reassess their approach, weighing the rising cost of protection against the growing risk and potential cost of doing nothing.
<h2>Key insights:</h2>
<ul>
<li>Hedging activity falls: Only 81% of UK fund managers are hedging forecastable FX risk, down from 88% in 2024.</li>
<li>Costs surge: Mean hedging expenses have risen by 69% year on year, with over half of fund managers &nbsp;seeing costs at least double.</li>
<li>CFOs under pressure: Hedging costs up by a mean of 75%, and nearly one-third (32%) face credit access challenges.</li>
<li>Technology gap: Almost half still trade by email (47%) or phone (45%), limiting price competitivity.</li>
<li>Digital shift begins: One in three fund managers believe a digital, multi-bank platform with advanced automation will best meet future FX needs.</li>
</ul>
<h2>&nbsp;</h2>
<h2>Hedging less, risking more</h2>
Hedging activity among UK fund managers has fallen noticeably year on year - and now trails their North American counterparts. In 2025, 81% of UK managers reported hedging forecastable currency risk, compared with <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltechfx-uk-fund-manager-cfo-fx-report-2024" target="_blank" rel="noopener">88% in 2024</a> and <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-north-america-fund-manager-fx-report-2025" target="_blank" rel="noopener">85% in North America</a>.
This pullback comes despite 95% of funds reporting losses from unhedged FX risk so far this year, with two in five describing those losses as very significant. The sharp rise in costs is a major driver: mean hedging expenses have surged 69% year on year, while over half of fund managers say their costs have at least doubled, and nearly one in five (19%) report increases of more than 100%.
For many, the choice to hedge has become more complex. Some are reducing their coverage or shortening hedge horizons, while others are delaying decisions altogether. The result is a market caught between risk aversion and cost control.
Concerns around global trade policy are adding to the uncertainty. In the wake of US tariff tensions, 37% of funds cite policy shifts and increased volatility as top concerns, while 35% admit they are holding back on major strategic moves until the outlook becomes clearer.
As hedging costs rise and global conditions remain unpredictable, many UK fund managers face a difficult balance: absorbing higher expenses to stay protected, or risking greater exposure in the hope markets calm.
&nbsp;
<h2>The CFO conundrum: Cautious but costly</h2>
UK CFOs are feeling the sharpest impact of rising FX hedging costs, reporting a mean increase of 75% year on year. Over four in five have seen their expenses rise by more than 50%, highlighting the strain of managing currency risk in today&rsquo;s volatile markets.
Although CFOs are the most likely to hedge, they maintain the lowest mean hedge ratio (41%) and hedge the shortest duration - just 4.6 months. Such a cautious, short-term stance can heighten sensitivity to rate fluctuations and add to overall costs, highlighting the trade-off between flexibility and expense.
Their limited hedge activity may also be constraining market access. Almost one-third (32%) of CFOs report difficulties securing credit lines, suggesting that smaller or less frequent hedging programmes may not always attract the most competitive terms from liquidity providers.
However, this relatively cautious stance appears to be shifting. With 95% of CFOs reporting losses from unhedged FX risk - and half describing those losses as very significant - many are rethinking their approach. Three in five plan to increase hedge ratios, whilst 42% intend to extend hedge tenors to combat pound volatility.
&nbsp;
<h2>Rethinking execution: The case for a digital edge</h2>
Despite mounting pressure to improve cost efficiency, many fund managers continue to rely on outdated, manual FX execution processes. Nearly half still instruct trades by email (47%) and phone (45%) - methods that make it difficult to benchmark pricing in real time. As a result, one in four fund managers say they struggle to compare rates effectively, a factor that can feed directly into higher hedging costs.
However, the limitations of manual execution extend beyond cost. Fragmented workflows, inconsistent communication, and limited audit trails can increase operational risk and reduce transparency, issues that are becoming harder to justify in a market full of tools to help achieve the speed and accuracy required for effective FX risk management.
Looking ahead, sentiment is clearly shifting towards technology-driven solutions. One in three managers now believe a digital, multi-bank platform with advanced automation will best meet their FX needs. By <a href="https://milltech.com/product/fx-management" target="_blank" rel="noopener">consolidating access to liquidity providers</a>&nbsp;and enabling transparent live rate comparison on a single interface, such platforms can help funds achieve demonstratable best execution, streamline execution through end-to-end automated workflows, and reduce manual intervention.
At MillTech, we see this shift first-hand. As fund managers seek to balance cost efficiency with control, the focus is moving toward smarter execution, solutions that integrate seamlessly, provide comparative rates across tier-one counterparties, and deliver data-driven insights. By replacing manual processes with <a href="https://milltech.com/product/co-pilot" target="_blank" rel="noopener">intelligent automation</a>, firms can strive to achieve faster execution, greater transparency, and reduce FX costs.
&nbsp;
Want to explore the research in detail? Download the full report for free here:&nbsp;<a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltech-uk-fund-manager-cfo-fx-report-2025" target="_blank" rel="noopener">The MillTech UK Fund Manager CFO FX Report 2025</a>
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.
<div>&nbsp;</div>

As FX hedging costs climb sharply, funds are forced to weigh costly protection against the risk of doing nothing.

Risk 2

The Hedging Dilemma: Cost vs Risk [2025 research]

Marketing Team

In Q3 2025, the US dollar struggled to regain momentum after its <a href="https://www.theguardian.com/business/2025/jun/30/us-dollar-first-half-trump-tariffs?utm_source=chatgpt.com" target="_blank" rel="noopener">sharp first-half decline</a>, with the dollar index (DXY) hovering at <a href="https://www.marketpulse.com/markets/the-us-dollar-dxy-pauses-at-9800-as-markets-await-clarity-whats-next/#:~:text=*%20%2D0.06%25%20(%2D6.9)%20*%20+0.08%25%20(10.5)%20*,+0.39%25%20(100.4)%20%E2%80%94%20*%20%2D0.24%25%20(%2D114.4)%20%E2%80%94">98</a>&nbsp;in August. <a href="https://www.azets.com/siteassets/.ie/documents/reports/banking-treasury-markets-q3-25-review.pdf?utm_source=chatgpt.com" target="_blank" rel="noopener">Persistent fiscal concerns, weaker economic data and growing expectations of Fed rate cuts</a> kept pressure on the greenback.&nbsp;
Sterling, meanwhile, delivered a mixed performance. While the pound found some support from global risk appetite and dollar softness, it weakened against the euro, with EUR/GBP rising toward <a href="https://www.fxstreet.com/news/eur-gbp-drifts-higher-to-near-08750-on-uk-fiscal-concerns-202509260637" target="_blank" rel="noopener">0.88 as UK growth concerns and fiscal uncertainty persisted</a>.&nbsp;
The Bank for International Settlements&rsquo; Triennial FX Survey confirmed that global FX turnover reached a new all-time peak, with average daily volumes <a href="https://www.bis.org/statistics/rpfx25.htm" target="_blank" rel="noopener">surpassing $9.6 trillion</a>, underscoring how volatility and policy uncertainty have driven trading across currencies.
&nbsp;
<h2>Hedge durations shorten as firms turn cautious</h2>
Against this backdrop, after a sharp uptick in hedging activity through the first half of the year, corporates eased off in Q3. The average hedge ratio fell to 46%, the lowest level since we launched the first hedging monitor back in Q1 2024, and a notable drop from the record high hedge ratio of 57% recorded in the previous quarter, Q2 2025.&nbsp;
Hedge lengths also shortened markedly, with the average tenor falling to 5.8 months; the shortest since monitoring began. This decline suggests many firms are taking a more cautious, wait-and-see approach amid shifting rate expectations and a fluid policy environment.
When asked about the biggest external factors shaping their hedging decisions, central bank policy (20%) and credit availability (19%) again topped the list, mirroring sentiment from Q2. The persistence of these concerns underlines how monetary conditions and access to liquidity continue to dominate corporate risk management agendas.
&nbsp;
<h2>Regional divergences and FX outlook for 2026</h2>
Regional patterns diverged slightly. In the UK, corporates were more concerned about credit availability (24%), potentially reflecting tighter lending conditions. In the US, the focus was more balanced, with central bank policy (22%), geopolitics (20%), and inflation (18%) cited as the main external drivers of hedging activity.
Expectations around rate movements remain central to corporate thinking. In the UK, a striking 79% of corporates believe the Bank of England will raise rates next year, and 90% say they plan to increase hedge ratios as a result. Across the Atlantic, 64% of US corporates expect the Fed to raise rates in 2026, with 96% planning to increase their hedge ratios accordingly.
Looking ahead through a geopolitical lens, 92% of corporates overall plan to raise hedge ratios and extend hedge lengths into 2026 in response to ongoing tariff and trade policies. The US cohort (96%) remains more likely than their UK peers (87%) to boost hedge ratios, potentially reflecting stronger concerns over inflation and the fiscal implications of trade barriers.
&nbsp;
<h2>Conclusion</h2>
The overall picture from Q3 is one of measured caution. Corporates didn&rsquo;t abandon hedging, but they shortened durations and reduced their cover as they awaited clearer policy signals. As the year heads into its final quarter, central bank guidance and tariff-related developments are likely to remain the dominant forces influencing hedging strategies.
&nbsp;
Please refer to our <a href="https://www.milltech.com/research-disclosures">Research Disclosure Page</a> for more information on the data referred to in the above.

Hedging slowed in Q3 2025, but corporates plan to lift ratios and extend tenors amid tariff and trade pressures.

2026 

Hedging to pick up in 2026 after dip in Q3 2025

<h2>Table of Contents:</h2>
<ul>
<li><a href="#AImisconceptions">What's the biggest misconception about AI in FX today?</a></li>
<li><a href="#UsingAItoamanagefx">How can AI help corporates better anticipate and manage FX exposure before it becomes a problem?</a></li>
<li><a href="#AIreplacinghumans">Will AI ever fully replace human decision-making in FX?</a></li>
<li><a href="#AIchangingoutlooks">How will AI change the way businesses think about currency risk over the next five years?</a></li>
</ul>
<a href="#AIchangingoutlooks"> </a>
&nbsp;
<h2 id="AImisconceptions">What's the biggest misconception about AI in FX today?</h2>
One of the misconceptions about AI is to think that it is a plug-and-play solution that will immediately solve all of the problems in FX markets.&nbsp;&nbsp;
The success here really depends on matching the right&nbsp;problem to the right&nbsp;tools within the right&nbsp;ecosystem.
AI offers a powerful set of capabilities, however an FX solution doesn&rsquo;t become effective just because we &ldquo;add AI.&rdquo; 
The starting point consists of disciplined problem identification: What are we actually trying to solve? Is it a risk prediction challenge (e.g. identifying liquidity gaps), or an analytical/explanatory task (e.g., summarizing event risk)?
Only after the problem is clearly defined and properly evaluated should we select the appropriate AI tech stack: LMs, agentic workflows, RAG, knowledge graphs, etc. to solve it.
Equally important, technology choices must be evaluated within a broader operating ecosystem:
<ul>
<li>Risk &amp; controls:&nbsp;Model risk governance, monitoring, guardrails, and human-in-the-loop design.</li>
<li>Regulatory alignment:&nbsp;Documentation, explainability, auditability, and data handling standards.</li>
<li>Data foundations:&nbsp;Quality, lineage, latency, and coverage across structured and unstructured sources.</li>
<li>Edge cases &amp; resilience:&nbsp;Stress behavior, distribution shifts, and fail-safe modes.</li>
</ul>
When we &ldquo;marry&rdquo; problems to tools&nbsp;inside this ecosystem, AI becomes fit-for-purpose: reliable, explainable, and operationally sound. When we skip these steps, we get model theatre - impressive demos that don&rsquo;t survive real FX markets. Therefore don&rsquo;t treat &ldquo;AI in FX&rdquo; as a single product. Treat it as a design discipline: start with the problem, choose the technique that fits, and engineer for the full FX lifecycle: risk, regulation, data, edge cases, and integration.&nbsp;
&nbsp;
<h2 id="UsingAItoamanagefx">How can AI help corporates better anticipate and manage FX exposure before it becomes a problem?</h2>
AI can transform FX risk management from reactive firefighting into proactive control by connecting three layers: data assembly, insight generation, and personalised delivery, all under robust governance.
First, it consolidates fragmented information across enterprise resource planning and treasury systems, CSV and PDF files, as well as unstructured sources such as contracts, emails, and logistics updates. It does this by using entity recognition, retrieval augmented generation (RAG), knowledge graph to tag currency, tenor, counterparties, and clauses so the currency risk manager can see a live, line-item exposure picture rather than static balances.
Second, it turns the multi-modal data sources into forward-looking analytics, running currency risk scenarios and stress tests from macro, geopolitical, and liquidity shocks, detecting regime shifts and event risk, and recommending hedge ratios and tenors aligned to risk appetite, accounting rules, and liquidity constraints - while explaining the &ldquo;why&rdquo; behind each suggestion.
Third, it delivers the right action to the right stakeholder with role-aware dashboards, proactive alerts ("hedge trigger reached" etc), workflow integration to TMS/EMS, and natural-language queries that supports in depth analysis which can be used for downstream applications.&nbsp;
In practice, AI might parse new client purchase orders, estimate net EUR exposure, flag a volatility uptick and recommend a staged hedge ladder with projected accounting impact. All of this must be anchored in strong guardrails: data lineage and quality controls, model-risk management with human-in-the-loop, auditability and documentation, and security by design, so that analytic insights become timely, explainable actions in currency risk management.
&nbsp;
<h2 id="AIreplacinghumans">Will AI ever fully replace human decision-making in FX?</h2>
I don't think AI will fully replace human decision-making in FX market, at least in the foreseeable future. AI is best understood as an effective co-pilot - a partner that augments human judgment - rather than a replacement. It excels at processing vast data, spotting patterns, and generating timely recommendations that help treasurers and CFOs take proactive risk management decisions.&nbsp;
The FX market is complex, path-dependent, and context-rich. Corporate exposures are idiosyncratic - shaped by contracts, cash-flow timing, pricing power, supply chains, and accounting treatments. Addressing these realities requires bespoke design: marrying the right data and models to the company&rsquo;s specific policies, constraints, and risk appetite. That tailoring is where human domain expertise remains important and effective.
There is also the governance dimension. Regulatory, legal, and audit requires an explainable and transparent decision making process. AI can support these obligations, by tracing inputs, evidencing assumptions, and logging recommendations, but humans must own the ultimate choices, especially when trade-offs involve reputational and regulatory risk.
Practically, the winning model is human-in-the-loop: AI surfaces scenarios, highlights regime shifts, proposes hedges or tenor ladders, and quantifies impacts; humans validate, adapt, or override based on the company domain specific context and policy. This partnership delivers speed and consistency without compromising judgment and accountability.
&nbsp;
<h2 id="AIchangingoutlooks">How will AI change the way businesses think about currency risk over the next five years?</h2>
Over the next five years, AI will reshape currency risk management in two major ways.
It will make decision-making deeply context-rich. Instead of relying on generic market views or historical time-series alone, AI will break data silos and fuse firm-specific information: sales and revenue projections, hedge policies, and cash-flow timing, with external context such as event calendars, macroeconomic data, geopolitical signals, and liquidity conditions. This synthesis turns static exposure snapshots into live situational awareness&nbsp;tailored to each company&rsquo;s unique context.
In the second instance, AI will drive on-demand, bespoke insights&nbsp;tailored to each stakeholder and use case. Instead of one-size-fits-all dashboards, treasurers and CFOs will receive targeted recommendations: hedge ratios, tenor ladders, trigger levels, and policy exceptions, delivered when and where they are needed. Natural-language queries, proactive alerts, and workflow integrations will make those insights instantly accessible and easy to act on, whether the task is approving a hedge, adjusting exposures, or revisiting currency risk management strategies.&nbsp;
The net effect is a move from periodic, generic risk reviews to continuous, personalised risk intelligence - context-aware analytics that surface the right action at the right moment for the right user.
To learn more about how MillTech&rsquo;s AI-driven FX solutions can help your business turn data into intelligent currency risk management, <a href="https://www.milltech.com/contact" target="_blank" rel="noopener">https://www.milltech.com/contact</a>.

AI in FX isn’t plug-and-play. Real impact comes from pairing the right tools, data, and governance.

Justin  

Rapid Fireside Chat with Justin Xu

Neil Gallacher

<h3>Quick Insights:</h3>
<ul>
<li>Fintechs are democratising market access: Digital platforms now enable smaller and mid-sized companies to access institutional-grade, Tier-1 money market funds.</li>
<li>Automation drives efficiency: AI, APIs, and TMS platforms are enabling dynamic allocations, faster decisions, and reduced operational burden.</li>
<li>Strategic liquidity management: Technology has become a strategic lever, turning idle cash into an active performance driver - optimising liquidity, reducing risk and enhancing transparency.</li>
<li><a href="https://www.milltech.com/product/cash-management" target="_blank" rel="noopener">MillTech advantage: </a>Express onboarding, Tier-1 MMF access, and trade-life automation - all on one zero-fee platform designed to deliver best execution and effective liquidity management.</li>
</ul>
&nbsp;
For too long, holding idle cash has been a quiet inefficiency, with inflation continuing to persist. Inflation has steadily remained <a href="https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2" target="_blank" rel="noopener">above 2%</a> in the UK and US since April 2021, well above central bank targets. Yet, technology is reshaping how corporates and fund managers deploy liquidity.
Digital tools, such as institutional-grade fintech platforms,&nbsp;have given smaller firms and funds access to products that were once the preserve of larger ones. A new wave of fintech innovation is now enabling even the largest players to rethink and refine how cash is managed.
&nbsp;
<h2>Cash management for all</h2>
Historically, cash management relied on <a href="https://www.jpmorgan.com/insights/treasury/liquidity-management/managing-liquidity-in-a-challenging-environment" target="_blank" rel="noopener">manual, outdated processes</a>. Small firms and funds tend to lack the infrastructure, scale or relationships to <a href="https://www.allica.bank/hubfs/pdf/Allica_Bank-Great_British_Savings_Squeeze.pdf" target="_blank" rel="noopener">optimise returns</a>, leaving surplus cash in low-interest accounts or relying on a single counterparty.
Consider a company with &pound;100 million in idle cash. With inflation at 3.8% and a typical low-interest account yielding just 3.5%, the business is effectively losing around &pound;300,000 in purchasing power each year.
Meanwhile, overreliance on a single counterparty may create overconcentration, limit diversification, or cause unnecessary exposure to avoidable counterparty risks.
But technology has changed that. Investors can now access institutional-grade, tier-one money market funds in fintech wrappers, all in one interface. Fintechs are here to democratise market access &ndash; erasing operational burden while delivering compliance, transparency and performance, all in a single workflow.
&nbsp;
<h2>The digital treasury toolkit</h2>
It&rsquo;s no longer just about access. For larger investors, innovation is about ensuring the strategic optimisation of cash, particularly given market fragmentation and big data. Managing liquidity across multiple geographies, currencies, and counterparties has introduced new layers of complexity, and new opportunities for technology to solve them.
Innovation has gone beyond trading, portfolio and operation management systems. AI and machine learning can scrape information from various data sources and documents, providing intelligent recommendations. This wealth of data can be utilised to improve short-term cash forecasts. Meanwhile, bank APIs can allow for automated rules-based allocations that instantly respond to market changes. Rules-based trading, for example, provides full audit trails and built-in regulatory compliance, helping meet internal governance standards and external reporting requirements without adding complexity. These rules can adapt dynamically to market conditions, providing more agility and control over liquidity, leaving investors to focus on strategy while the engine handles routine allocations.
Meanwhile, basic and binary tools, such as single counterparty bank sweeps, <a href="https://flow.db.com/files/documents/more/publications/white-papers-guides/The-road-to-real-time-treasury.pdf" target="_blank" rel="noopener">have been replaced</a> by Treasury Management Systems (TMS), providing consolidated access to cash deposits, money market funds, tokenised assets, and T-bills, all in one interface. This enables faster, more informed decisions and reduces the friction of managing fragmented systems or relying on outdated workflows.
&nbsp;
<h2>Optimisation at scale</h2>
For corporates and fund managers alike, technology has become a strategic lever. Cash management solutions are bringing together advanced financial technology, institutional-grade connectivity and seamless automation.
Yet more can still be done. Although systems have consolidated cross-product access, execution, oversight and reporting remain largely siloed. Further innovation in automation and allocation tools can remove the remaining manual processes treasurers have.&nbsp;
In an era where leaving cash idle is costly, institutional investors now have the chance to use technology not only to protect capital, but to make it work harder, optimising liquidity, reducing risk, and simplifying operations.
That&rsquo;s exactly where MillTech&rsquo;s advanced cash management solution delivers. By combining a network of multi-currency AAA-rated money market funds with highly competitive rates, best execution, and a zero-fee service model, MillTech enables investors to enhance cash returns without adding complexity.&nbsp;
Our solution delivers:
<ul>
<li>Enhanced&nbsp;returns - Earn more from your cash without increasing your operational burden. Customisable rules, automated best execution and optimised liquidity &ndash; all built in.</li>
<li>Time saving&nbsp;- Express onboarding with multiple Tier-1 Money Market fund providers and trade-life automation. Navigate the best available rate and streamline cash operations via a single platform</li>
<li>Risk reduction&nbsp;- Spread your counterparty risk across multiple AAA-rated funds and get enhanced control through customisable allocation rules. As an independent specialist, we help clients achieve optimal outcomes with intelligent tools for risk identification and informed decision-making.</li>
</ul>
Find out more here: <a href="https://milltech.com/product/cash-management" target="_blank" rel="noopener">https://milltech.com/product/cash-management</a>&nbsp;

Learn how fintech innovation is transforming cash management to help optimise liquidity, returns, and risk.

V5      

How is technology transforming the optimisation of idle cash?

<h2><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">Table of Contents:</h2>
<ul>
<li><a href="#fxtradelifecycleautomation">What part of the FX trade lifecycle is most overdue for automation?</a></li>
<li><a href="#technologyandfxdecisions">How can technology help treasury teams make faster, more informed FX decisions without deep market expertise?</a></li>
<li><a href="#emergingtechnologytransformingfx">What's one emerging technology that will quietly transform FX in the next decade?</a></li>
<li><a href="#securityinfxtech">How do you balance the push for speed with the need for security in FX tech?</a></li>
<li><a href="#automationreshapingfx">How will automation reshape the way corporates and fund managers manage FX by 2030?</a></li>
</ul>
&nbsp;
&nbsp;
<h2 id="fxtradelifecycleautomation"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">1. What part of the FX trade lifecycle is most overdue for automation?</h2>
Our CEO talks about a time where he watched a fund manager print out this month&rsquo;s data and last month&rsquo;s data, then runs a ruler down the page to compare the data and determine the FX trades that need to be placed. Whilst this is an extreme case, it is reflective of the lack of appropriate tooling available for mid-market organisations to manage their FX.
Typical areas where we see a lack of automation are determining trades to be placed, approvals and limits, executing in competition, trade settlement &amp; reporting, audit of execution quality, integration into up and downstream systems.
To determine the priority area for your organisation, focus on the bottlenecks and risk. What are the areas that consumes the most resource and introduces the greatest risks. Start there, any automation that isn&rsquo;t at the bottleneck, is a nice to have but will not move the needle until the bottleneck is resolved.
&nbsp;
<h2 id="technologyandfxdecisions"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">2. How can technology help treasury teams make faster, more informed FX decisions without deep market expertise?</h2>
When setting up an FX programme, one of the key decisions you need to make is your hedging strategy. What to hedge? How much to hedge? How long to hedge for? Traditionally, for clients that are not FX experts, these questions were the domain of expensive consultants. As a technology first organisation, we look at these questions as optimisation problems and give our clients the tools to make these decisions themselves, without having to pay expensive day rates.&nbsp;
The art of a great product is to take users on the journey with you. We spend a lot of time testing our designs and creating feature tours to make these tools easier to adopt. We&rsquo;ve recently started adding AI explainers as well to help translate the findings.
&nbsp;
<h2 id="emergingtechnologytransformingfx"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">3. What's one emerging technology that will quietly transform FX in the next decade?</h2>
I believe AI and Agentic will loudly transform FX in the next decade, as it will many other industries. Within this the enabling technology that I think will have the greatest impact but will get less column inches is Model Context Protocol (MCP). MCP provides a way for agents to talk to systems, like APIs currently allow systems to talk to systems. This has significant benefits, it will reduce the time to integrate AI enabled systems, and make it easy for non-technical people and agents to talk to systems and data in normal text rather than code. For example, rather than exporting a .csv then wrangling some excel formulars to complete an analysis you'll be able to describe what you want in plain English (or French, Spanish etc). The MCP server will determine which sequence of API calls and transformations are required to complete your request, then will share the results back to you in your preferred channel.
&nbsp;
<h2 id="securityinfxtech"><span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">4. How do you balance the push for speed with the need for security in FX tech?<span style="mso-ascii-font-family: Aptos; mso-fareast-font-family: 'Times New Roman'; mso-hansi-font-family: Aptos; mso-bidi-font-family: 'Times New Roman'; color: black; mso-font-kerning: 0pt; mso-ligatures: none; mso-fareast-language: EN-GB;">&nbsp;</h2>
These are often pitted against&nbsp;each other, but the reality is you cannot achieve speed without a high level of quality and security. If technical teams do not proactively focus on these non-functional elements, they will rear their heads in nasty and unexpected ways that derail the functional work.&nbsp;
The trick is to build these controls into your way of working in an automated fashion. Historically security was a gate point at the end of the project. We embed security throughout the process through early-stage threat analysis, technical security gates in the development process and ongoing security monitoring.
&nbsp;
<h2 id="automationreshapingfx">5. How will automation reshape the way corporates and fund managers manage FX by 2030?</h2>
Currently we see different levels of maturity when it comes to FX and treasury automation. By 2030, the difference between the leaders and the laggers will grow significantly. Those organisations that embrace the change will replace manual processes and a fragmented system landscape with FX intelligence available within their preferred tools. This will dramatically reduce the time spend managing FX and the risks associated with it.

Our Chief Technology Officer discusses how FX automation and AI are reshaping technology’s role in fx risk management.

Blog 

Rapid Fireside Chat with Sam Hunt

Learn what FX risk is, how to assess exposure, define hedging needs, and use tools to manage risk effectively in 2025

Risk 

Do you know your FX risk and hedging requirements?

MillTech was named the &lsquo;World&rsquo;s Best FX Risk Management Solution&rsquo; by Euromoney on 25th September at the <a href="https://www.euromoney.com/awards/foreign-exchange-awards/" target="_blank" rel="noopener">2025 Foreign Exchange Awards</a> in The Savoy, in London.
This is the second year in a row MillTech has won the &lsquo;World&rsquo;s Best FX Risk Management Solution&rsquo; at the Euromoney Awards, reinforcing our position as a market leader with a best-in-class FX offering.
For over 44 years, the Euromoney Foreign Exchange Survey has stood as the most comprehensive representation of the wholesale foreign exchange market. They celebrate excellence in the global FX market and provide the opportunity to be part of the market&rsquo;s most comprehensive overview of developments in the FX industry. Judged by the world&rsquo;s leading analysts and providers and buy-side corporations, the awards look to recognise the best in excellence and innovation in the market.
We were recognised for our commitment and success in reducing clients&rsquo; execution and hedging costs by providing them with direct access to preferential rates and credit from up to 15 Tier one counterparty banks via a user-friendly client platform.
Key to MillTech&rsquo;s win was the launch of our new risk advisory platform, <a href="https://www.milltech.com/product/co-pilot" target="_blank" rel="noopener">Co-Pilot</a>, in May 2025, to enhance client decision-making. Co-Pilot is a next-generation, AI-enabled risk advisory and calculation service designed to help clients efficiently manage their FX risk, optimise cash deployment and improve decision-making.
Initial Co-Pilot features include a hedging simulator, which enables MillTech clients to model and test various FX hedging strategies in a simulated environment. This means fund managers and corporates can probe their FX hedges in a risk-off environment, helping them to determine the risk profile of different strategies.&nbsp;
Co-Pilot also features a carry-analysis tool, which helps clients to better monitor and understand the implications of interest rate differentials between two currencies in the context of FX hedging.&nbsp;
We also simultaneously launched a new <a href="https://www.milltech.com/product/cash-management" target="_blank" rel="noopener">cash management solution</a>, in collaboration with BlackRock&rsquo;s CacheMatrix, to help investment managers and global corporates optimise their excess cash. Our solution automates cash investments and enhances returns through direct access to an integrated marketplace of tier-1 money market funds.
Eric Huttman, CEO of MillTech, commented: &ldquo;<a href="https://www.bloomberg.com/news/articles/2025-08-29/pound-strength-leaves-uk-companies-adding-hedges-as-pain-mounts" target="_blank" rel="noopener">Global economic shifts</a> and <a href="https://www.reuters.com/markets/currencies/geopolitical-angst-prompts-over-60-companies-hedge-fx-longer-survey-shows-2025-03-28/?utm_source=chatgpt.com" target="_blank" rel="noopener">geopolitical tensions</a> continue to drive FX markets, creating <a href="https://thefullfx.com/corporate-fx-hedge-ratios-soar-as-volatility-bites-survey/" target="_blank" rel="noopener">heightened volatility</a> and complex risks for corporates and fund managers. In this environment, proactive and adaptive strategies are crucial for protecting margins and maintaining stability. Our recognition as Best FX Risk Management Solution by Euromoney reflects our ability to deliver precisely that: robust, responsive solutions that help clients navigate uncertainty, absorb external shocks and stay ahead in unpredictable markets.&rdquo;
If you&rsquo;re interested in finding out more about the &rsquo;World&rsquo;s Best FX Risk Management Solution&rsquo;, get in touch today: <a href="https://milltech.com/contact/" target="_blank" rel="noopener">https://milltech.com/contact/</a>

We have been named ‘World’s Best FX Risk Management Solution’ by Euromoney for the second year in a row.

Awards 

World's Best FX Risk Management Solution 2025

How automation can help CFOs and treasurers streamline FX risk management and stay ahead in 2025&rsquo;s volatile markets.
<h2>The FX landscape in 2025</h2>
2025 has already been a whirlwind for global currencies. The dollar experienced its <a href="https://www.theguardian.com/business/2025/jun/30/us-dollar-first-half-trump-tariffs?" target="_blank" rel="noopener">worst first half since 1973</a>. Sterling recorded its <a href="https://www.reuters.com/world/uk/sterling-firms-three-year-peak-focus-welfare-bill-vote-2025-07-01/#:~:text=July%201%20(Reuters)%20%2D%20Sterling,investors%20to%20look%20for%20alternatives." target="_blank" rel="noopener">strongest quarter in nearly three years</a>, and the euro soared to a <a href="https://www.reuters.com/world/middle-east/dollar-droops-optimism-over-us-trade-deals-boost-fed-easing-bets-2025-06-30/" target="_blank" rel="noopener">four-year high</a>. With tariffs dominating headlines and policies shifting from one day to the next, stability has been hard to find.
Treasurers faced a jolt in April when the VIX index&mdash;a key measure of investor demand for protection against market volatility&mdash;<a href="https://www.reuters.com/markets/global-markets-volatility-graphic-2025-04-10/" target="_blank" rel="noopener">spiked to 60</a>, a crisis-level reading seen only three times since its inception. Meanwhile, corporate attention has been fixed on central bank policies, as diverging interest rate trajectories between the Federal Reserve, European Central Bank, and Bank of England further complicate the landscape.
For CFOs and treasurers, the message is clear: FX risk can no longer be left to chance. FX automation &mdash; the use of technology to execute, monitor, and adjust FX strategies without manual intervention &mdash; is emerging as an essential tool for navigating markets with speed, precision, and confidence.
&nbsp;
<h2>The case for automation in modern FX strategy</h2>
Our <a href="https://www.milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">2025 Global FX Report</a> shows just how dependent many market participants remain on manual methods. A third of corporates (34%) still pick up the phone to instruct their FX trades, while another 32% rely on email. Fund managers aren&rsquo;t much further ahead: 29% are on the phone, and 31% stick with email.
With so much inefficiency still in play, it&rsquo;s little wonder that automation is increasingly becoming a top priority for fund managers and corporates worldwide.
<h3>Why finance teams are prioritising</h3>
Automation in FX isn&rsquo;t just about speed &mdash; it&rsquo;s about accuracy, transparency and scale. Here are some of the key drivers behind the shift:
<ul>
<li>Price discovery: Manually comparing FX rates isn&rsquo;t just slow, it can also limit the pool of liquidity providers. The fewer options finance teams have, the more likely they are to end up paying a premium.</li>
<li>Risk identification: With the sheer volume of data involved, spotting hidden risks without technology is like looking for a needle in a haystack. Inevitably, that leads to oversights, and oversights in FX can be costly.</li>
<li>Trade execution and settlement: Every extra step done by hand adds friction. Delays creep in, errors become more likely, and costs quietly mount.</li>
<li>Onboarding liquidity providers: Bringing new counterparties onboard isn&rsquo;t just a handshake&mdash;it often means mountains of paperwork and ISDA agreements that can drag on for months.</li>
</ul>
&nbsp;
<h2>Practical applications of FX automation</h2>
<h3>Automated hedging</h3>
Hedging no longer requires continuous manual oversight. With automation, execution and settlement becomes rules-based and aligned with policy, reducing the risk of human error and ensuring consistent outcomes.
Key capabilities include:
<ul>
<li>Automated systems integration: Data flows automatically between treasury and accounting platforms, eliminating duplication, reducing delays, and ensuring real-time consistency across systems.</li>
<li>Automated reporting: Generating and distributing packs for regulators, auditors, and boards with minimal effort.</li>
</ul>
<h3>Cash optimisation</h3>
Excess liquidity often sits idle or is misallocated. Automation ensures cash is continuously deployed in line with treasury policy, maximising returns while maintaining necessary buffers.
With automation, CFOs and treasurers can:
<ul>
<li>Identify surplus cash automatically through configurable rules.</li>
<li>Deploy funds efficiently, directing them to earn the best return while maintaining liquidity buffers.</li>
</ul>
&nbsp;
<h2>Embedding automation into your existing FX workflow</h2>
<a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">Embedding automation</a> isn&rsquo;t about adding another layer of technology &mdash; it&rsquo;s about transforming how FX strategy is designed and executed.
For CFOs and treasurers, automation creates the foundation for risk management that is proactive, transparent, and scalable, rather than reactive and manual. At MillTech, we work with finance leaders to embed automation in a way that aligns directly with governance, risk appetite, and strategic objectives.
<ul>
<li>Automated execution: Trades are executed automatically via API or FIX connections.</li>
<li>Straight-through settlement: Settlement instructions are automated via SWIFT or CLS, sent directly to your custodian or bank account for faster, safer completion.</li>
<li>Automated reporting: Reporting packs are generated and distributed automatically to Administrators, Custodians, PMS/TMS systems, and regulators, ensuring consistency and compliance without extra manual work.</li>
<li>Cash optimisation: Excess cash is identified automatically using configurable client rules and deployed on a best-return basis.</li>
<li>Strengthening governance: Reports and yield data are published daily, ensuring compliance with best execution standards.</li>
</ul>
Together, these capabilities show how MillTech embeds automation at the core of FX strategy &mdash; delivering the accuracy, control, and scalability CFOs and treasurers need to navigate 2025&rsquo;s volatile markets with confidence.
If you&rsquo;d like to explore how automation could strengthen your FX strategy, you can get in touch with our team <a href="https://www.milltech.com/contact" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a>&nbsp;for more information on the data referred to in the above.

Automation is transforming FX strategies in 2025, supporting corporates and asset managers with greater efficiency and risk oversight.

Automation 

Embedding automation in FX strategy 2025

It&rsquo;s a challenging time for North American businesses. From <a href="https://www.bloomberg.com/news/articles/2025-04-08/fx-volatility-bets-show-swings-will-get-bigger-as-tariffs-shatter-order" target="_blank" rel="noopener">currency fluctuations</a> to <a href="https://tax.thomsonreuters.com/blog/2025s-supply-chain-challenge-confronting-complexity-and-disruption-in-global-trade-tri/" target="_blank" rel="noopener">trade disruptions</a>, the landscape is evolving rapidly&mdash;and often unpredictably. For years, FX risk was seen as a background issue, quietly managed by treasury teams while the rest of the business focused on more pressing priorities.
But that's changing.
Corporates across North America are quickly realising they can no longer afford to be passive as unhedged FX exposure erodes profits. In this blog, we&rsquo;ll explore the key differences in how Canada and US firms are managing the FX risk that threatens their bottom lines, based on our <a href="https://milltech.com/resources/currency-insight-and-education/the-milltech-north-america-corporate-cfo-fx-report-2025" target="_blank" rel="noopener">2025 North America Corporate FX Report</a>.
&nbsp;
<h2>Quick insights:</h2>
<ul>
<li>Canada demonstrates greater commitment to FX hedging: 97% of Canadian firms hedge FX exposure compared to 88% in the US, often using higher hedge ratios and longer tenors.</li>
<li>Tariff pressures prompt operational shifts: 96% of Canadian firms have adjusted operations in response to tariffs vs. 83% in the US&mdash;despite being more heavily impacted.</li>
<li>Regional FX challenges vary: US firms struggle with fragmented service provision (38%), while Canadian firms focus on demonstrating best execution (36%).</li>
<li>Differing reason for outsourcing: 40% of Canadian firms are outsourcing FX functions to access specialised expertise, while 30% of US firms are outsourcing to enhance scalability and operational flexibility.</li>
<li>AI adoption gains momentum: 46% of US firms are exploring AI for process automation, while 44% of Canadian firms are considering its use specifically for FX operations.</li>
</ul>
&nbsp;
<h2>In this blog:</h2>
<ul>
<li><a href="#fxriskmanagement">How are Canadian firms leading the way with FX risk management?</a></li>
<li><a href="#tariffs">How have tariffs impacted business in Canada and the US?</a></li>
<li><a href="#fxstrategydivide">What's driving the FX strategy divide between the US and Canada?</a></li>
<li><a href="#automationandai">Are automation and AI the future of corporate FX strategy?</a></li>
</ul>
&nbsp;
<h2 id="fxriskmanagement">How are Canadian firms leading the way with FX risk management?</h2>
FX risk management is rapidly moving up the corporate agenda across both Canada and the US. Yet it's Canadian businesses that are taking the lead, embracing a more strategic and forward-thinking approach to navigating currency volatility.
But how exactly do their strategies differ from those of their US counterparts?
<h3>Higher hedging activity</h3>
97% of firms in Canada are hedging their FX exposure, compared to 88% in the US, highlighting a stronger focus on protecting their bottom lines against currency volatility.
<h3>More aggressive hedging</h3>
On average, Canadian firms hedge 57% of their currency exposure, significantly higher than the 47% hedged by US businesses.
<h3>Longer hedging tenors</h3>
Canadian corporates are not only extending hedging tenors more frequently (71% vs. 61%) but are also hedging for longer periods on average&mdash;13 months compared to 4.81 months in the US. This indicates a strategic focus on long-term stability versus short-term speculation.
<h3>Increased hedge ratios</h3>
Canadian firms are boosting their hedge ratios more frequently (36% vs. 31%) whilst US firms are more likely to reduce their hedge ratios (37% vs. 25%), a decision that may leave them more exposed to market fluctuations.
Whether it&rsquo;s through raising hedge ratios, extending tenors, or covering a greater share of their FX exposure, Canadian corporates are taking decisive steps to shield themselves from currency volatility and build stronger financial resilience. For US corporates, this presents a timely opportunity to reassess existing hedging strategies and adopt a more proactive, forward-looking approach, to stay competitive in an increasingly unpredictable FX landscape.
&nbsp;
<h2 id="tariffs">How have tariffs impacted business in Canada and the US?</h2>
Tariffs have emerged as a disruptive economic force in 2025, <a href="https://www.bloomberg.com/professional/insights/markets/navigating-market-volatility-amid-tariff-threats/#:~:text=In%20the%20wake%20of%20tariff,the%20beginning%20of%20the%20pandemic." target="_blank" rel="noopener">dominating headlines and fuelling volatility</a> across global markets. President Trump&rsquo;s assertive <a href="https://www.pbs.org/newshour/economy/a-timeline-of-trumps-tariff-actions-so-far" target="_blank" rel="noopener">trade actions</a> began with targeted measures on Chinese goods, quickly expanding to include imports from Canada and Mexico. The market&rsquo;s response was swift and severe&mdash;on March 10, the S&amp;P 500 dropped <a href="https://www.reuters.com/markets/us/investors-flee-equities-trump-driven-uncertainty-sparks-economic-worry-2025-03-10/" target="_blank" rel="noopener">2.7%</a>, wiping out nearly $4 trillion in value in a single day.
As one of the earliest targets of these new tariffs, it&rsquo;s no surprise that businesses in Canada are feeling the impact more acutely than their US counterparts. Here&rsquo;s a closer look at how tariffs are affecting Canadian firms compared to those south of the border:
<h3>Profitability &amp; competitiveness</h3>
71% of businesses in Canada say tariffs have significantly hindered their profitability or global competitiveness, compared to 69% in the US
<h3>Hedging strategies</h3>
Canadian firms plan to increase hedge ratios and durations in response to tariffs, compared to US firms.
<h3>Currency risk concerns</h3>
In Canada, 43% of firms cite both policy-driven currency fluctuations and unpredictable market movements as their top concerns.
US firms, on the other hand, adopt a more cautious approach, with 38% prioritising counterparty risk in hedging as well as delaying major decisions due to uncertainty.
<h3>Optimism for the future</h3>
Despite the challenges, 89% of businesses in Canada remain optimistic about how tariffs will impact their operations and strategies over the next 12 months, compared to 81% of US firms.
<h3>Strategic operational adjustments</h3>
96% of firms in Canada have adjusted sourcing or manufacturing strategies due to tariffs, significantly higher than the 83% reported by US firms.
&nbsp;
<h2 id="fxstrategydivide">What's driving the FX strategy divide between the US and Canada?</h2>
<h3>How do day-to-day FX operational challenges differ for firms in the US and Canada?</h3>
Navigating foreign exchange operations continues to pose critical challenges for businesses across North America. While both US and Canadian firms face a range of pressures, the nature of these challenges differs by region.
In the US, the fragmentation of service provision stands out as the most pressing issue for 38% of businesses, indicating that many firms are grappling with the challenge of coordinating across multiple liquidity providers or platforms to meet their FX requirements. While platforms that integrate <a href="https://milltech.com/product/fx-management" target="_blank" rel="noopener">counterparty diversity within a single solution</a> can streamline operations and mitigate this issue, many businesses may be unaware that such consolidated solutions exist.
In Canada, the emphasis shifts toward demonstrating best execution, a concern for 36% of respondents. This reflects growing pressure from both internal stakeholders and regulators to ensure transparency and robust pricing justification in FX transactions. For firms relying on a single liquidity provider, demonstrating best execution becomes particularly challenging. However, this challenge can be addressed by comparing FX rates across multiple providers and implementing regular <a href="https://milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">Transaction Cost Analysis</a> (TCA) reporting to evidence that best execution standards are being met.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/6c670665-56af-4cd6-940a-df60f959f1d2" alt="Biggest challenges in FX operations for US and Canadian corporates" width="614" height="350" />
&nbsp;
<h3>Why are corporates in the US and Canada outsourcing FX processes?</h3>
Outsourcing FX processes is on the rise, with 100% of surveyed firms now outsourcing at least some part of their FX operations.
From onboarding multiple counterparties to managing the entire end-to-end FX workflow, businesses are increasingly recognising the strategic advantages of outsourcing:
<ul>
<li>30% of US corporates are outsourcing their FX processes to gain greater scalability and flexibility in their operations.</li>
<li>40% of corporates in Canada are outsourcing FX to gain access to specialised expertise.</li>
</ul>
So why are businesses increasingly turning to FX outsourcing now?
It seems there is growing recognition that outsourcing FX operations offers significant advantages, and when done with the right partner, it no longer means a loss of control. By delegating complex tasks to specialised providers, firms can streamline operations, focus on their core business, and drive growth.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/c6336545-1ab8-4eda-b777-77d30aceb5e2" alt="Primary reason for outsourcing FX operations &ndash; US and Canada Corporates" width="614" height="350" />
<h3>&nbsp;</h3>
<h2 id="automationandai">Are automation and AI the future of corporate FX strategy?</h2>
<h3>Where are US and Canadian corporates focusing their automation efforts?</h3>
The automation journeys of US and Canadian corporates show similar enthusiasm but different focus areas:
<ul>
<li>36% of US firms are considering automating price discovery.</li>
<li>38% of firms in Canada are considering automating FX reporting.</li>
</ul>
For US corporates, it&rsquo;s no surprise that price discovery is a top priority, with % still struggling to obtain comparative FX quotes. US firms are increasingly adopting&nbsp;web apps to manage transactions, with&nbsp;42%&nbsp;already leading the way. Multi-bank platforms are leading the charge, letting businesses compare quotes from multiple liquidity providers while automating the process. For those still stuck on manual uploads or phone calls, it may be time to upgrade&mdash;or risk falling behind.
For Canadian corporates, ongoing FX volatility and rising costs are making it increasingly essential to track every FX-related transaction&mdash;from trades to payments and receipts&mdash;with precision. Accurate and timely reporting isn&rsquo;t just about compliance; it&rsquo;s also about making smarter decisions and being able to demonstrate best execution. Yet, for many firms, this remains a tough nut to crack.
&nbsp;
<img src="https://directus.corp.milltechfx.com/assets/267666aa-3a8f-4e4e-9744-156966c224f5" alt="Processes US and Canadian corporates are considering automating" width="614" height="350" />
&nbsp;
<h3>What role will AI play in the future of FX strategy?</h3>
AI is no longer just a buzzword for North American corporates, it&rsquo;s becoming a key part of their FX strategy. All firms surveyed are actively exploring how AI can improve their operations, with priorities varying by region:
<ul>
<li>46% of US corporates are considering using AI for process automation</li>
<li>44% of Canadian corporates are considering using AI for FX operations</li>
</ul>
As FX environments become more complex, firms are increasingly looking for faster, smarter, and more scalable ways to manage FX workflows&mdash;and AI is quickly emerging as a powerful enabler of that transformation.
&nbsp;
<blockquote>
Simon Lack, Head of Risk Advisory at MillTech, shares his insights into the drive towards AI for smarter FX risk management:
"We&rsquo;re seeing strong demand for tools that help with <a href="https://milltech.com/product/co-pilot" target="_blank" rel="noopener">hedge scenario modelling and cost attribution</a>, especially as CFOs look for more transparency and control in their FX strategies. These tools make it easier to test different market scenarios, understand the potential impact of hedging choices, and track trading costs more accurately across portfolios. That kind of insight helps finance leaders make smarter decisions and drive better outcomes for their business."
</blockquote>
&nbsp;
Please refer to our&nbsp;<a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a>&nbsp;for more information on the data referred to in the above.
&nbsp;

Why Canadian firms hedge more, what’s driving the FX strategy divide, and how AI is shaping FX in 2025.

Uscanada 

How do FX risk strategies differ between Canada and the US?

In an increasingly volatile global economy, managing currency risk has become a top priority for businesses worldwide. As exchange rates fluctuate and financial pressures mount, firms are turning to FX hedging strategies to safeguard their bottom lines.
This blog explores the key trends shaping corporate FX hedging in 2025, including the growing adoption of hedging practices and the impact of local currency movements on corporate decision-making.
&nbsp;
<h2>Hedging is crucial for tackling currency risk</h2>
<h3>Why is hedging becoming more important for businesses?</h3>
As financial uncertainty grows, an increasing number of businesses worldwide are taking proactive steps to protect themselves. In fact, <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">81% of companies across Europe, North America, and the UK</a> are now actively hedging their currency exposure.
Leading the charge is Europe, where a remarkable 86% of corporates are now hedging their FX risk&mdash;<a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-european-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">a dramatic rise from just 67% in 2023.</a> This surge is likely driven by a combination of tangible market forces: rate differentials and sustained dollar strength have created persistent volatility, making it increasingly important for corporates to manage their FX exposure.
<h3>What are the consequences of not hedging currency exposure?</h3>
As market conditions continue to shift, 52% of businesses globally that don&rsquo;t currently hedge their currency exposure are now reconsidering their approach. UK corporates are at the forefront this rethink, with 68% exploring new hedging strategies. What&rsquo;s prompting the change? Most likely the financial consequences of inaction: three in four businesses worldwide have recently reported losses due to unhedged FX risk&mdash;underscoring the urgent need for more proactive and robust currency risk management.
&nbsp;
<h2>A cohesive approach to hedging strategies</h2>
<h3>How consistent are hedging strategies globally?</h3>
Corporate hedging strategies are demonstrating notable consistency across the globe. The average global hedge ratio is 48%, reflecting a broad alignment in hedging practices. Here's a closer look at how different regions compare:
<ul>
<li>North America and Europe: Both regions report hedge ratios of 49%.</li>
<li>UK Corporates: Slightly lower at 45%.</li>
</ul>
When it comes to hedge duration, the variation is minimal, which further points to a uniform approach in managing currency risks:
<ul>
<li>Global average hedge duration: 5.3 months.</li>
<li>UK Corporates: Leads with an average hedge duration of 5.5 months.</li>
</ul>
<h3>What do longer hedge tenors and consistent hedging strategies indicate?</h3>
Longer hedge tenors typically indicate that firms are aiming to secure protection over an extended period, likely reflecting their efforts to gain stability amid a turbulent year for the pound. The limited variation observed in hedging strategies suggests that corporates globally are responding in a broadly uniform manner, adopting consistent risk management approaches as they navigate shared global uncertainties.
&nbsp;
<h2>How are domestic currency movements impacting businesses?</h2>
Domestic currency movements are having a pronounced impact on corporates bottom lines, with 88% of firms globally reporting effects. North American firms have borne the brunt, with 92% citing challenges tied to a stronger U.S. dollar.
<h3>How have trade tariffs affected currency movements?</h3>
<a href="https://www.bbc.co.uk/news/articles/c8rgkkl7v8lo" target="_blank" rel="noopener">Tariffs imposed by the the Trump administration</a>, alongside <a href="https://www.theguardian.com/business/2025/apr/04/china-announce-levy-on-us-imports-in-retaliation-to-donald-trump-trade-war-tariffs" target="_blank" rel="noopener">retaliatory levies</a> from global trade partners, have added pressure to markets. These developments have disrupted markets and raised the cost of cross-border trade for both large and small economies. Interestingly, in the immediate aftermath of U.S. tariff announcements, <a href="https://www.reuters.com/markets/currencies/is-dollar-weakness-panic-signal-or-healthy-rebalancing-klement-2025-04-14/" target="_blank" rel="noopener">the dollar has shown unexpected weakness</a>&mdash;suggesting that the financial repercussions may initially be felt domestically before reverberating abroad.
<h3>How have the euro and pound movements affected firms?</h3>
Meanwhile, in Europe, 88% of corporates reported being affected by euro volatility. Similarly, in the UK, of firms felt the impact of a strengthening pound. However, there&rsquo;s a notable difference in the consequences:
<ul>
<li>42% of UK firms experienced negative consequences from pound appreciation.</li>
<li>In comparison, only 28% of European firms were negatively impacted by euro movements.</li>
</ul>
&nbsp;
<h2>Tighter lending criteria and heightened FX costs</h2>
<h3>How is access to credit affecting corporates?</h3>
Access to credit has emerged as one of the top concerns for corporates worldwide:
<ul>
<li>In North America, 31% of corporates identified credit access as their primary challenge.</li>
<li>In the UK, 74% reported greater difficulty securing credit, while 79% noted an increase in fees from credit providers.</li>
</ul>
<blockquote>
&ldquo;Tighter lending criteria is a common feature of turbulent economic times. If the average corporate earnings take a downturn, then lenders perceive a higher risk of defaulting on loans. This causes them to allow only the most creditworthy companies to borrow, particularly given higher interest rates. This tends to cause liquidity headaches and restricted investment opportunities.&rdquo; Tom Hoyle, Head of Corporate Solutions at MillTech
</blockquote>
<h3>How have hedging costs changed for businesses?</h3>
Another key trend impacting businesses globally is the rise in corporate FX hedging costs, with four out of five corporates reporting higher costs over the past year:
<ul>
<li>Europe experienced the most significant increase in hedging costs, with 98% of respondents noting higher costs.</li>
<li>UK businesses were less affected but still saw a rise, with 70% reporting increased hedging costs.</li>
<li>North American businesses experienced a similar trend, with 73% reporting higher hedging costs.</li>
</ul>
Higher hedging costs demand a more proactive and considered approach from treasury teams, given that hedging decisions now carry more weight. CFOs must carefully assess their exposures, determine their hedging capacity, and be sure to choose the right financial instruments. Most importantly, they must strike a delicate balance between the rising costs of hedging and the potential risks of leaving exposures unprotected.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.
&nbsp;

Explore the key trends influencing corporate FX hedging, including the growing influence of local currency movements on business decisions.

Blog 2025

Key global trends shaping corporate FX hedging in 2025

Traditional FX risk management processes are often manual, time-consuming and reliant on outdated tools&mdash;making it harder for corporates to respond quickly and efficiently in today&rsquo;s volatile markets. It&rsquo;s little wonder, then, that all respondents in our recent <a href="https://milltech.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">North American</a> and <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024" target="_blank" rel="noopener">UK corporate</a> FX surveys said they are exploring the use of AI in some capacity to improve both operations and decision-making.
In this blog, we take a closer look at how corporates across both regions are starting to adopt AI to reduce their reliance on resource-heavy manual tasks, and move towards more intelligent, tech-driven FX solutions.
&nbsp;
<h2>AI as a strategic tool for FX risk management</h2>
AI is rapidly becoming a strategic priority for corporates on both sides of the Atlantic&mdash;especially as firms search for smarter ways to navigate currency volatility. Faced with ongoing <a href="https://www.economicsobservatory.com/how-are-geopolitical-risks-affecting-the-world-economy" target="_blank" rel="noopener">geopolitical tensions</a>, <a href="https://www.ft.com/content/f76884e9-bc66-4a5d-8445-4f842af5ef68" target="_blank" rel="noopener">diverging monetary policies</a> and a backdrop of <a href="https://www.weforum.org/press/2024/01/wef24-chief-economist-outlook-january-2024/#:~:text=Chief%20Economists%20Outlook%3A%20More%20Economic%20Uncertainty%20on%20the%20Horizon,-Published&amp;text=More%20than%20half%20(56%25),the%20latest%20Chief%20Economists%20Outlook." target="_blank" rel="noopener">macroeconomic challenges</a>, FX risk management is naturally emerging as a key area of interest for innovative technologies.
Corporates are beginning to take action:
<ul>
<li>46% of firms in North America are exploring how AI could help them anticipate and manage FX risk.</li>
<li>43% of UK corporates report a similar level of interest in using AI for FX management.</li>
</ul>
While these numbers reflect consideration rather than full-scale adoption, they signal a clear shift: AI is moving from theory to strategy in the world of corporate treasury.
<blockquote>
Commenting on the trend, Sam Hunt, CTO at MillTech, affirms:
&ldquo;The genie is well and truly out of the bottle with generative AI and any organisation not thinking about how this technology can enhance their offering risks being left behind. It&rsquo;s clear from the findings that CFOs realise that in today&rsquo;s fast-paced digital landscape, embracing AI-driven innovation is no longer optional but essential for staying competitive.&rdquo;
</blockquote>
<h3>Early-stage exploration beyond risk management</h3>
Building on this momentum, process automation and FX operations are also emerging as key areas of AI exploration among corporates in both North America and the UK:
<ul>
<li>39% of North American corporates and 41% of UK corporates are investigating how AI can streamline internal processes and drive greater operational efficiency.</li>
<li>36% in North America and 42% in the UK are focusing on applying AI within FX operations to reduce their reliance on manual procedures.</li>
<li>35% of corporates in North America and 26% in the UK are exploring AI to enhance trade execution, highlighting its growing potential to improve the speed, accuracy and consistency of FX transactions.</li>
</ul>
Together, these trends point to a broader shift: corporates are not only recognising the strategic value of AI, but actively seeking ways to <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">embed it across their FX management strategy</a>.
&nbsp;
<h2>AI use cases in FX</h2>
According to Justin Xu, Head of Quant and AI Strategy at MillTech, AI is unlocking new levels of precision and control in currency management.
<h3>Predictive analytics for FX risk management</h3>
Machine learning algorithms analyse diverse source of information, including historical price movements, macroeconomic indicators, and central bank policies, to predict the direction and magnitude of currency market risks. These insights enable CFOs and treasurers to make more informed hedging decisions, minimizing exposure to currency risk.
<h3>Natural language processing (NLP) for sentiment analysis</h3>
NLP-powered AI models process news articles, central bank statements, and social media sentiment to assess market conditions. By extracting insights from both structured and unstructured data sources, corporates can more effectively manage event-related currency risks, thereby gaining a competitive edge in FX risk management decisions.
<h3>AI-powered process automation</h3>
Many FX-related tasks, such as trade reconciliation, compliance reporting, and KYC/AML processes, are time-consuming and prone to human error. AI-driven automation tools can help to streamline these workflows, reducing manual effort and improving accuracy.
&nbsp;
<h2>Looking ahead: What's shaping the future of FX?</h2>
When it comes to the future of FX operations, corporates on both sides of the Atlantic are placing their bets on emerging technologies&mdash;but not always in the same order.
In North America, corporates are most optimistic about the impact of automation and data-driven tools, with notable interest in several other technologies:
<ul>
<li>Automation and Big Data analytics were each chosen by 26% as the most impactful technologies over the next five years.</li>
<li>18% expect quantum computing to play a significant role.</li>
<li>16% point to AI as a transformative force.</li>
</ul>
In the UK, corporates are leaning more heavily into blockchain and AI-led transformation:
<ul>
<li>23% cite blockchain as the most influential technology on the horizon.</li>
<li>21% highlight automation tools as a priority.</li>
<li>21% also believe AI will shape the future of FX operations.</li>
</ul>
While AI is a consistent theme across regions, the variation in top priorities likely reflects differences in market maturity, regulatory environments and innovation appetite. What&rsquo;s clear, however, is that FX functions are entering a transformative era&mdash;where advanced technologies are shifting from experimental to everyday use in FX strategies.
&nbsp;
<h2>Reimagining FX with AI: Inside MillTech&rsquo;s next-gen approach</h2>
At MillTech, we&rsquo;re applying AI in practical, targeted ways to streamline processes and improve efficiency across the business and for our clients.
<h3>Smarter compliance through document intelligence</h3>
To ease the burden of regulatory onboarding, we&rsquo;ve developed a generative AI solution that accelerates KYC and AML processes with our 15 counterparty banks. By extracting key information from complex legal documents, this tool significantly reduces manual effort and improves accuracy, transforming what was once a time-consuming task into a streamlined workflow.
<h3>Empowering developers with AI-Driven code search</h3>
Internally, we&rsquo;re using generative AI to supercharge our development process. Rather than relying on outdated or scattered documentation, we use generative AI to let developers query the codebase directly, allowing them to retrieve accurate, context-aware answers, saving valuable time.
<h3>Introducing Co-Pilot</h3>
We&rsquo;re now extending these AI capabilities to our clients through <a href="https://milltech.com/product/co-pilot">Co-Pilot</a>, our newly launched risk advisory solution, embedding intelligence directly into FX risk management decision-making.
By drawing on macroeconomic indicators and historical pricing data, Co-Pilot delivers intelligence-led insights that empower clients to:
<ul>
<li>Translate raw FX exposures into meaningful, actionable insights.</li>
<li>Simulate hedging strategies and explore alternative FX and liquidity scenarios.</li>
<li>Monitor cost and carry dynamics across currencies, instruments, and time horizons.</li>
<li>Assess the impact on cashflows, internal rate of return (IRR), and other key performance metrics.</li>
</ul>
<a href="https://milltech.com/contact">Get in touch</a> to discover how Co-Pilot&rsquo;s can help your business make smarter, faster decisions.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are corporates leveraging AI to improve FX decision-making and simplify processes?

Ai 2

The rise of AI in corporate FX risk management

<h2>Key takeaways:</h2>
<ul>
<li>MillTech has collaborated with BlackRock&rsquo;s CacheMatrix to launch its Cash Management offering to include simplified and automated Money Market Fund access for Investment Managers and Global Corporates</li>
<li>MillTech has also launched Co-Pilot: a Risk Advisory and Calculation Services platform designed to enhance client decision-making in optimising FX and Cash Management</li>
<li>The company brand has evolved to &lsquo;MillTech&rsquo; from &lsquo;MillTechFX&rsquo;, now reflecting it&rsquo;s more holistic treasury offering for clients.</li>
</ul>
&nbsp;
London, June 2025 - FX hedging specialist, MillTech, has launched a new <a href="https://www.milltech.com/product/cash-management" target="_blank" rel="noopener">cash management solution</a>, in collaboration with BlackRock&rsquo;s CacheMatrix, to help investment managers and global corporates optimise their excess cash. Its solution automates cash investments and enhances returns through direct access to an integrated marketplace of Tier-1 money market funds.
MillTech has experienced significant success in providing the investment community and global corporates with automated currency management and access to better FX rates.
The firm, which has an average annual group trading volume of $500bn+, over 250 client entities and $28bn in group hedging programmes, has now set its sights on solving another key problem within treasury management: the operational complexity of optimising excess cash.
&nbsp;
<h2>Cash management solution in collaboration with BlackRock&rsquo;s CacheMatrix</h2>
MillTech has launched a new Cash Management platform in collaboration with BlackRock&rsquo;s CacheMatrix, offering competitive returns from a range of AAA-rated <a href="https://www.milltech.com/resources/glossary/money-market-funds" target="_blank" rel="noopener">money market funds</a> while removing operational complexity.
<h3>Addressing key challenges for treasury teams:</h3>
<ul>
<li>Operational inefficiencies - Managing multiple money market fund relationships can be administratively heavy, often involving repetitive onboarding processes and fragmented reporting.</li>
<li>Idle cash drag &ndash; Cash left uninvested in bank accounts often generates little or no return, reducing potential yield.</li>
<li>Rate inconsistency - Without centralised access to multiple MMF providers, comparing yields and securing the most competitive rates can be challenging.</li>
</ul>
<h3>Platform features:</h3>
<ul>
<li>AAA-rated funds &ndash; Direct access to AAA-rated funds for maximum security and minimal credit risk.</li>
<li>Streamlined multi-bank onboarding - Quick access to tier-one liquidity providers through a simplified, multi-bank setup.</li>
<li>End-to-end automation - Fully automated investment workflows to save time and reduce risk.</li>
<li>Auto cash settlement via SWIFT - Seamless cash transfers with minimal manual input.</li>
<li>Enhances control and compliance - Rules-based framework to support informed, compliant cash allocation decisions.</li>
</ul>
<h2>&nbsp;</h2>
<h2>MillTech Co-Pilot Risk Advisory Platform</h2>
MillTech&rsquo;s <a href="https://www.milltech.com/product/co-pilot" target="_blank" rel="noopener">Co-Pilot</a> platform integrates advanced analytics, automation, and robust governance tools to help corporates and funds optimise liquidity management and foreign exchange (FX) strategies.
<h3>Key challenges addressed by Co-Pilot: </h3>
<ul>
<li>Complex FX risk assessment &ndash; Limitations in modelling exposures and evaluating hedging strategies in dynamic market conditions.</li>
<li>Limited governance oversight &ndash; Lack of robust tools to monitor policy compliance, market alerts, and performance analysis.</li>
<li>Cost-of-carry visibility gaps &ndash; Challenges in tracking and analysing cost-of-carry across different currencies, instruments, and time horizons.</li>
<li>Inefficient cash utilisation &ndash; Difficulty identifying and reallocating excess balances promptly, resulting in missed yield opportunities.</li>
<li>Manual and inconsistent hedging workflows &ndash; Fragmented processes and disconnected data sources hinder consistent, rules-based strategies.</li>
</ul>
<h3>Key features:</h3>
<ul>
<li>Hedging simulator &ndash; Models multiple FX hedging strategies and tests alternative FX or liquidity scenarios in a controlled environment.</li>
<li>Carry analysis tool &ndash; Tracks and evaluates cost/carry across currencies, instruments, and durations, with impact analysis on cash flows and IRR.</li>
<li>Governance &amp; Control - Institutional-grade oversight with custom hedge policies, counterparty monitoring, value-at-risk (VaR) metrics, macro-market alerts, and independent transaction cost analysis (TCA).</li>
<li>Auto‑hedging - Fully automates hedging workflows across assets, share classes, and balance sheets using rule-based calculations, intelligent tenor selection, and performance benchmarking.</li>
<li>Cash optimisation &ndash; Automatically identifies excess cash using customisable rules, deploys it based on best available returns, and tracks utilisation to ensure optimal yield.</li>
</ul>
&nbsp;
Eric Huttman, CEO of MillTech, commented: &ldquo;The challenge of optimising cash returns to maximise yields whilst reducing operational burden is a problem we have been repeatedly hearing about from our clients. Money markets are vital for funds and corporates, ensuring liquidity, risk mitigation, and efficient cash management. Building on our success in the FX market, we&rsquo;ve brought the same model to cash management: direct access to institutional-grade pricing from a marketplace of money market funds on a single platform, with best execution, full transparency, and frictionless transactions all embedded.
&ldquo;Recognising the critical role of analysis and stress-testing in risk management as well as the power of AI, our Co-Pilot offering empowers users with actionable and explainable insight. By simulating different strategies and their financial impact, Co-Pilot helps firms optimise outcomes, minimise risk and make more confident decisions that directly help them protect their bottom lines.
"The expansion of our business and the evolution of our brand are natural next steps, driven by our success to date. We remain committed to continuous innovation to solve key problems in the treasury landscape, with exciting further developments on the horizon."
&nbsp;
<h2>Core FXaaS offering remains central</h2>
MillTech&rsquo;s multi-award-winning <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FX-as-a-Service (FXaaS)</a> solution is trusted by some of the most established investment managers and global corporates to automate operational FX workflows and reduce costs through competitive rates from Tier-1 liquidity providers &mdash; all on a single platform.
<h3>Key challenges addressed by the FX Management solution: </h3>
<ul>
<li>Lack of transparency &ndash; Limited visibility of FX costs (spreads, fees, and market impact) makes achieving best execution difficult.</li>
<li>Lack of counterparty diversity &ndash; Over-reliance on a small number of providers reduces pricing competition and increases risk.</li>
<li>Manual processes &ndash; Manual instruction and post-trade reporting can increase error risk, slow execution, and limit scalability.</li>
<li>Cash flow constraints &ndash; High margin requirements on FX contracts restrict liquidity, and tie up working capital in volatile markets.</li>
</ul>
<h3>Key features:</h3>
<ul>
<li>Cost saving at scale - Over $500 billion traded annually, unlocking FX pricing typically reserved for the largest global institutions.</li>
<li>Broader market access &ndash; Compare FX rates from up to 15 Tier-1 liquidity providers to secure optimal pricing.</li>
<li>Automated workflows - <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">End-to-end automation</a> from multi-bank ISDA onboarding, through to, execution, settlement, and post-trade reporting.</li>
<li>Full transparency &ndash; Embedded, independent <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">transaction cost analysis</a> delivers clear visibility on execution quality and total trading costs.</li>
<li>No margin hedging - Aiming to provide FX hedging solutions without the need for initial or variation margin, helping to preserve working capital.*</li>
</ul>
* *Excludes any required regulatory margin

MillTech expands with Cash Management and Co-Pilot while rebranding to reflect a full treasury solution.

Waves

MillTech expands with Cash Management & AI Co-Pilot

Switzerland is more than just breathtaking alpine views and luxury watches&mdash;it&rsquo;s a financial powerhouse with a unique flair for attracting investors. Known for its stability, the Swiss franc (CHF) has earned a reputation as a safe haven during shaky global times. But even the Swiss economy isn&rsquo;t immune to volatility, as proved in 2024.
The Swiss National Bank (SNB) turned heads early in the year when it became the first major economy to cut rates. In March, the SNB trimmed its policy rate by&nbsp;<a href="https://www.elibrary.imf.org/view/journals/002/2024/180/article-A001-en.xml" target="_blank" rel="noopener">25 basis points to 1.5%</a>, despite inflation being under control. By December, the SNB doubled down with a , aiming to boost the economy further&mdash;a move bound to spark debate.
So, how are Swiss fund managers navigating this shifting monetary landscape? Our&nbsp;newdives into the innovative strategies they&rsquo;re using to hedge against market uncertainty. From adapting to economic changes to cutting back on outdated manual processes that&nbsp;devoured time and resources in 2023.
Curious? Let&rsquo;s take a closer look at the Swiss FX landscape.
&nbsp;
<h2>From hesitation to adoption: The evolution of hedging strategies</h2>
In 2023 94% of Swiss fund managers took proactive steps to hedge against forecastable currency risk, even those who initially chose not to, began reconsidering their stance. Fast forward to 2024, and every single respondent had embraced hedging strategies. Let&rsquo;s dig deeper&hellip;
The hedge game is changing, and fund managers are stepping up their strategy. In 2024, Swiss fund managers made a powerful pivot, adopting long hedge strategies that had previously been shunned. 7 in 10 now hedge 51-75% of their exposure&mdash;a striking move that echoes the 78% who hinted at ramping up hedge ratios back in 2023.
In 2024, a whopping 70% of fund managers were locking in hedges 4-6 months ahead&mdash;a dramatic leap from just 16% the year before, when most played it safe with shorter 1-3 month windows. Now? They're looking even further ahead, with another bold 70% gearing up to extend their hedge durations even more.
Is this confidence in the face of uncertainty or calculated caution? Either way, it&rsquo;s a shift that speaks volumes. Fund managers are moving beyond avoiding market volatility, focusing on smarter hedging strategies and preparing to navigate the unpredictable financial landscape.
&nbsp;
<h2>When markets tremble: How the Credit Suisse collapse reshaped liquidity</h2>
The <a href="https://www.reuters.com/business/finance/credit-suisse-how-did-it-get-crisis-point-2023-03-16/" target="_blank" rel="noopener">2023 Credit Suisse collapse</a> sent shockwaves through global markets, prompting Swiss regulators to strengthen liquidity rules to safeguard financial stability. <a href="https://www.bis.org/bcbs/publ/d555.pdf" target="_blank" rel="noopener">Authorities tightened oversight and introduced enhanced capital requirements</a>, taking effect in 2024. One standout move? Switzerland's&nbsp;financial regulator FINMA, now has the authority to hit banks with custom surcharges, ensuring they meet higher liquidity standards. Unsurprisingly, 70% of fund managers reported in 2024, credit providers had clamped down on lending criteria, making funding harder to secure.
50% of fund managers reported credit providers are slashing fees despite liquidity challenges. With lower interest rates comes fierce competition, consequently banks are likely cutting lending costs for those deemed creditworthy borrowers. A tale of two strategies.
&nbsp;
<h2>Saving time: Automating the chaos of manual processes</h2>
Manual processes have long been the arch-nemesis of fund managers&mdash;tedious, time-draining, and a serious manpower hog. In 2023, a staggering 84% of fund managers admitted to spending 2-3 days wrestling with FX tasks, and an unlucky 13% were stuck dealing&nbsp;it for as long as 4-5 workdays. With groundbreaking tech available to slash this workload, why are so many fund managers still stuck in the pit of manual processes?
It turns out that manual processes are not only still troubling many fund managers but are also becoming more widespread. 60% of Swiss fund managers now cite manual challenges as their biggest obstacle, a significant jump from 38% in 2023. But there&rsquo;s hope on the horizon. The tide is turning, with 6 in 10 fund managers now embracing APIs to handle FX transactions. What&rsquo;s driving this shift? The new T+1 settlement cycle might just be the nudge fund managers needed to finally <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">upgrade their technology</a>, with 60% upgrading to meet the reduced settlement demand.
The message is clear: the days of clunky, time-wasting processes are numbered. As technology sweeps through the industry, Swiss fund managers are starting to trade their old habits for faster, smarter solutions.
Half of asset managers surveyed are now outsourcing their FX operations to enhance , whilst 7 in 10 are now considering automating trade execution and risk identification. Only time will tell, who&rsquo;s prepared to embrace this wave of change&mdash;and who&rsquo;ll get left behind?
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are Swiss fund managers rethinking their hedging strategies to adapt to the evolving monetary landscape?

Swiss Image

Breaking down FX trends: What’s next for Swiss funds?

The relationship between the United Kingdom and the United States is rooted in a long-standing economic partnership. Both regions, as global financial powerhouses, play significant roles in international trade and investment. Their interconnected economies mean that the FX markets are critical to the efficient functioning of cross-border business activities.
Analysis of our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">UK</a> and<a href="https://milltechfx.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener"> US</a> Corporate CFO FX Reports 2024, combined with insights from our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-corporate-hedging-monitor-q4-2024/" target="_blank" rel="noopener">Q4 hedging monitor</a>, highlights that while both regions face common macroeconomic challenges, they encounter unique obstacles and have differing strategic priorities when managing FX operations. Tom Hoyle, Business Development Director here at MillTech, provides his insights into how corporates are adapting to these challenges and reshaping their FX strategies to remain competitive.
In this blog:
<ul>
<li><a href="#fxhedgeratiosanddurations">FX hedge ratios and durations</a></li>
<li><a href="#shifttowardsfxoptions">Shift towards FX options</a></li>
<li><a href="#keyexternalinflucences">Key external influences</a></li>
<li><a href="#driveforautomatedprocesses">Drive for automated processes</a></li>
</ul>
&nbsp;
<h2 id="fxhedgeratiosanddurations">FX hedge ratios and durations</h2>
In Q4, UK corporates raised their average hedge ratio significantly, with 57% of their FX exposure now hedged. This is a notable increase of 9% from Q3, suggesting a stronger emphasis on mitigating currency risk amid economic uncertainty including <a href="https://www.reuters.com/markets/currencies/sterling-falls-after-uk-gdp-unexpectedly-contracts-october-2024-12-13/" target="_blank" rel="noopener">pound fluctuations</a>. Meanwhile, US firms took a steadier approach to hedging in Q4, with an average hedge ratio of 45%.
Firms in both the UK and the US are expressing plans to extend the duration of their hedges, signalling a proactive approach to managing long-term currency risk. However, their strategies diverge when it comes to hedge ratios.
In the US, 39% of corporates intend to reduce their hedge ratios, whilst only 17% of UK firms plan to scale back, with most favouring an increase. This disparity suggests that UK corporates are under greater pressure to manage increased currency volatility and brace for potential economic changes. In contrast, US firms appear more cautious, likely influenced by expectations of a strong dollar. In fact last year, 90% of US corporates reported a positive impact on their bottom lines from the stronger dollar and 92% anticipated that the dollar will continue to strengthen into 2025.
&ldquo;UK corporates increasing their hedge ratios indicates a desire to add a higher level of certainty with their average hedge rates. In doing so, businesses are more protected against the short-term volatility we have seen across the end of 2024 and into 2025. While large FTSE businesses generally have a global footprint, which helps to limit exposure to volatility, on the whole the UK is a net importer of goods, as such, protecting to the downside is a necessity for most.&rdquo; Tom Hoyle, Business Development Director
&nbsp;
<h2 id="shifttowardsfxoptions">Shift towards FX options</h2>
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are rapidly gaining traction as a preferred hedging strategy, with 64% of UK firms last year reporting more frequent use. This surge has been driven by recent low implied volatility, which has made option pricing more affordable and attractive. For businesses navigating uncertain currency markets, FX options offer a flexible way to manage risk without locking in rates like FX forwards.
Looking ahead, this trend shows no signs of slowing down. In fact, 30% of UK and 35% of US firms plan to further increase their use of FX options in 2025, signalling a growing reliance on these instruments to handle currency fluctuations. This shift highlights the increasing importance of dynamic risk-management tools in protecting profit margins.
&nbsp;
<h2 id="keyexternalinflucences">Key external influences</h2>
Credit availability was the leading external factor influencing FX hedging decisions during Q4, in both the US (22%) and the UK (19%). Credit-related issues remain a major challenge, with 30% of UK businesses citing onboarding liquidity providers as their biggest FX challenge last year. Similarly, 31% of US firms pointed to securing credit lines as their top FX challenge, followed closely by obtaining competitive quotes (29%).
The struggles with FX don&rsquo;t end there, with 3 in 4 UK and US businesses reporting losses from unhedged FX risk in 2024. The UK saw a higher proportion of significant losses at 27%, compared to the US&rsquo;s 19%, indicating that while losses were widespread in both regions, they were more severe for UK firms.
&ldquo;We saw signals of a credit tightening cycle during the course of 2024 and it looks set to remain into 2025. The challenge for businesses is &ndash; if required &ndash; how quickly they can onboard / access new liquidity providers on terms that aren&rsquo;t prohibitive e.g. short tenors / high costs. Whether these credit headwinds force businesses to change their approach throughout the course of 2025 remains to be seen, but it is something we will be monitoring closely&rdquo;. Tom Hoyle, Business Development Director
&nbsp;
<h2 id="driveforautomatedprocesses">Drive for automated processes</h2>
The push to <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">automate FX Workflow</a> is gaining momentum, with 41% of UK corporates and % of American businesses naming automation of manual processes their top priority. Despite this focus, many corporates in both regions remain heavily reliant on outdated methods for instructing FX, with phone transactions still dominating&mdash;in the UK and in the US. This disparity highlights a disconnect between aspirations and existing practices, pointing to the challenges of modernising deeply ingrained workflows.
Interestingly, when asked about leveraging AI for FX purposes, every respondent indicated interest. FX risk management emerged as the leading application in both countries, reflecting the critical need for smarter, faster tools to navigate volatile markets.
Looking forward to the next five years, technology is set to revolutionise FX operations, with blockchain and big data analytics leading the charge. In the UK, 23% of industry professionals see blockchain as the most impactful, which can assist to streamline transactions, increase FX transparency, and reduce settlement times. Meanwhile, in the US, point to big data and analytics as the key driver of change, which can be used to deliver insights, enhance FX risk management, and refine trading strategies.
While corporates are still early in their transformation journeys, their enthusiasm for innovation is clear, and emerging technology is poised to play a key role in reshaping FX operations.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Explore how UK and US corporates are reshaping their FX strategies to remain competitive.

Uku Sblog 

FX face-off: How UK and US firms tackle currency risk

Managing FX risk is like maintaining your car&rsquo;s engine. You can skip the annual service and oil changes if everything seems fine, but eventually, a breakdown is inevitable. By the time the warning lights come on, the damage is already costly.
Just like with an engine, proactively managing FX risk keeps things running smoothly and prevents expensive, last-minute repairs. A well-thought-out FX risk management strategy is like traction control on a slippery surface, helping to maintain control and direction as market conditions shift. Without it, companies risk spinning out of control when currency volatility hits.
In this blog, we will delve into recent risk management trends and key strategies for managing FX risks in 2026. In an era of <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">heightened uncertainty</a>, the ability to steer through volatility isn&rsquo;t just a nice-to have &mdash; it&rsquo;s a necessity for survival and growth.
&nbsp;
<h2>FX risk management strategies</h2>
FX risk management is a comprehensive strategy employed by businesses to protect their profitability and mitigate potential financial losses caused by adverse currency fluctuations. For corporations dealing with multiple currencies, inadequate FX risk management can significantly affect key financial metrics, such as earnings before interest, tax, depreciation, and amortization (EBITDA), ultimately compromising profitability and financial stability.
Corporate treasurers and CFO&rsquo;s can manage FX risk effectively by leveraging a range of strategies, including financial hedging tools, to safeguard their financial positions against unfavourable exchange rate movements caused by currency volatility:
<ul>
<li><a href="#hedgingwithforwardcontracts">Hedging with forward contracts</a></li>
<li><a href="#options">Utilising options to limit downside risk</a></li>
<li><a href="#currencyswaps">Employing currency swaps for flexibility</a></li>
<li><a href="#naturalhedging">Minimising exposure through natural hedging</a></li>
<li><a href="#nettingandofsetting">Consolidating transactions with netting and offsetting</a></li>
<li><a href="#counterpartydiversification">Enhancing FX risk management through counterparty diversification</a></li>
</ul>
&nbsp;
<h3 id="hedgingwithforwardcontracts">Hedging with forward contracts:</h3>
<a href="https://www.milltech.com/resources/glossary/fx-forward" target="_blank" rel="noopener">FX forwards</a> are over-the-counter (OTC) derivatives, which means they are traded directly between two liquidity partners and can therefore be customised around mutual requirements.
Currency forward contracts allow a business to buy or sell an agreed amount of an asset on a future date, at a price determined today. By locking in an exchange rate for the future, businesses can protect their bottom lines against currency volatility.
&nbsp;
<h3 id="options">Utilising options to limit downside risk:</h3>
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are financial derivatives traded over-the-counter (OTC) or, less commonly, on exchanges. They grant the holder the right, but not the obligation, to exchange a specified amount of one currency for another at a predetermined exchange rate (strike price) on or before a specified expiration date, depending on the type of option.
FX option contracts allow businesses to mitigate downside risk while preserving some upside potential. These contracts often carry high premiums due to the option to exit the trade, which is not reimbursed if the trade is not settled.
&nbsp;
<h3 id="currencyswaps">Employing currency swaps for flexibility:</h3>
<a href="https://www.milltech.com/resources/glossary/currency-swap" target="_blank" rel="noopener">FX Swaps</a> are Over-The-Counter (OTC) derivatives used by two counterparties to manage their currency exposures. In an FX Swap, the parties agree to swap a specified notional principal amount in one currency for an equivalent in another currency at the current spot rate. This setup enables the counterparties to hedge against currency risk by securing exchange rates for future transactions.
An FX Swap normally involves two transactions: an immediate exchange of currencies via a spot transaction followed by a reverse exchange using an forward transaction a later predetermined date.
&nbsp;
<h3 id="naturalhedging">Minimising exposure through natural hedging:</h3>
Natural hedging is a strategy businesses use to minimise financial risk by offsetting potential losses with corresponding gains. This approach involves aligning cash flows, assets, or liabilities in the same foreign currency to reduce exposure to exchange rate fluctuations.
Unlike financial hedging, which relies on external instruments like forward contracts or options, natural hedging is an internal risk management technique that does not involve additional costs or reliance on financial markets. By carefully managing operations, such as sourcing materials locally or matching foreign currency loans with international revenues, businesses can effectively reduce their exposure to exchange rate risks while maintaining operational efficiency.
&nbsp;
<h3 id="nettingandofsetting">Consolidating transactions with netting and offsetting:</h3>
Netting simplifies foreign exchange management by consolidating multiple currency transactions into fewer, streamlined transactions. This approach reduces complexity, helps to minimise costs, and is often used within businesses or between subsidiaries to manage and align FX exposures more effectively.
Offsetting takes a different approach to managing FX risk. It involves creating a counter-position to an existing currency exposure, typically by entering into a transaction that offsets potential losses from adverse currency fluctuations, ensuring financial stability amidst market changes.
&nbsp;
<h3 id="counterpartydiversification">Enhancing FX risk management through counterparty diversification:</h3>
In <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a>, maintaining counterparty diversity is key to reducing credit risk and enhancing resilience. By working with a range of financial institutions, corporates can mitigate exposure to single-party failures, like the collapse of Credit Suisse, and better hedge against market volatility.
Counterparty diversity also promotes competitive pricing, enhanced access to market data, and informed decision-making. Corporates should perform thorough due diligence on counterparties, regularly reviewing their stability and performance to adapt to evolving market conditions.
&nbsp;
<h3>Aligning corporate governance with risk management strategies</h3>
Corporate governance is integral to the effectiveness of FX risk management. Robust governance structures ensure that FX risk management practices are aligned with the corporation's overall strategic objectives and comply with regulatory requirements. This alignment not only safeguards the business against currency volatility but also enhances stakeholder trust and confidence in its financial management practices.
&nbsp;
<h3>Establishing an FX risk management policy</h3>
Developing a comprehensive FX risk management policy enables corporations to address FX risks systematically. Such a policy should clearly define the organisation's risk appetite and incorporate a structured framework for ongoing risk assessment and management reviews. This framework should include regular stress testing and scenario analysis to assess the potential impact of market fluctuations on currency exposure.
To support these efforts, integrating advanced <a href="https://milltechfx.com/clients/corporate-treasurers/" target="_blank" rel="noopener">financial management software</a> can facilitate real-time monitoring of exchange rates, automate reporting, and enhance decision-making capabilities, saving a business valuable time.
&nbsp;
<h2>FX risk management: latest trends</h2>
<h3>Hedging amidst obstacles</h3>
Our recent FX reports indicate that <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">76% of UK</a> and <a href="https://milltechfx.com/resources/currency-insight-and-education/the-mill-tech-fx-north-america-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">82% of North American</a> corporates are employing hedging strategies to manage currency risk, despite facing higher costs and stricter lending criteria over the past year. 
Geopolitical tensions have notably influenced FX risk management in both the UK and North America. In the UK, 53% of businesses aim to lengthen their hedge duration due to global uncertainties. North America was responding even more strongly &nbsp;coming up to the US election, with 66% of firms planning to extend their hedge durations and 29% looking to increase their hedge ratios.
&nbsp;
<h3>Exploring AI for FX risk management</h3>
Manual and outdated FX processes can significantly hinder business efficiency. As a result, firms are increasingly shifting away from traditional providers and legacy infrastructure, replacing them with <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">tech-enabled solutions</a>.
Our research found that all UK and US corporate finance leaders polled (100%) are exploring artificial intelligence (AI) in some form. The main area for potential AI application is FX risk management, with 46% of North American and 43% of UK corporations concentrating on this field.
&ldquo;The genie is well and truly out of the bottle with generative AI and any organisation not thinking about how this technology can enhance their offering risks being left behind. It&rsquo;s clear from the findings that CFOs realise that in today&rsquo;s fast-paced digital landscape, embracing AI-driven innovation is no longer optional but essential for staying competitive&rdquo;. Sam Hunt, CTO at MillTech.
&nbsp;
<h3>Maximising FX efficiency through outsourcing</h3>
FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase often have their own complications and can be a huge administrative burden for some corporates, eating up much-needed time and resources. In fact, 29% of UK respondents said they use outsourcing as it provides greater scalability and flexibility in operations.
Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/">&nbsp;</a>, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met. This is why 29% of UK respondents say that they use outsourcing for risk management and compliance purposes.
&nbsp;
<h2>Managing FX risk through MillTech</h2>
We know that FX hedging is 90% operational and 10% strategy, FX execution infrastructure and <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">workflow automation</a> are critical to limiting hedging costs and ensuring long-term flexibility.
MillTech <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">risk management solution</a> provides an easily integrated fixed-fee service mode, designed for finance teams to effectively identify and manage FX risk. By centralising FX operations, automating trade and settlement workflows, and providing comprehensive downstream reporting, you can trade with confidence knowing your business's balance sheet and income statements are safeguarded.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Delve into recent risk management trends and key strategies for managing FX risks in 2026.

2026 FX risk guide for CFOs & Treasurers

Many fund managers treat FX like people treat dentistry. When there are no signs of pain, it&rsquo;s not a priority &ndash; but when the pain starts, it quickly becomes an emergency.
FX can make or break fund managers&rsquo; returns and have a serious impact on operational costs. In this blog post, we&rsquo;ll discuss the top three FX challenges UK fund managers are currently dealing with, as revealed by <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">our latest research</a>, along with strategies to address them.
&nbsp;
<h2>1.&nbsp;&nbsp;&nbsp;&nbsp; Cost calculation &ndash; 37%</h2>
In the world of fund management, calculating the costs associated with FX transactions remains the most significant challenge for fund managers, with 37% identifying it as an issue, an increase from <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-fund-manager-report-2023/" target="_blank" rel="noopener">33% in 2023</a>.
Managing multi-currency portfolios often means handling complex FX conversions, where minute discrepancies in rates can compound significantly over time, eroding overall returns. Unlike other cost elements that are more straightforward, FX costs are inherently dynamic, influenced by volatile currency movements and variable transaction fees.
This unpredictability means that fund managers are constantly seeking ways to more accurately forecast and control FX expenses to maintain their portfolios&rsquo; performance.
The calculation of FX costs is made more challenging by the absence of standardised practices in the industry. Many fund managers rely on multiple liquidity partners, each with unique pricing models, spread markups and fee structures. The lack of transparency in these FX markups can make it difficult for fund managers to understand the true cost of their FX transactions.
So what is the solution?
One possible approach is to implement a comprehensive FX risk management strategy, comprising regular reviews and comparisons of the pricing structures offered by different liquidity providers. This can help fund managers identify potential cost savings opportunities and negotiate better rates. Some solutions can provide fund managers with access to a <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX platform</a>, allowing them to compare live rates from multiple tier-1 liquidity partners, ensuring they gain full transparency on FX costs and helping them to achieve best execution.
Leveraging technology also enables fund managers to automate key FX processes, create detailed reports and analyses of past transactions, and identify patterns and trends in their FX costs.
For example, an independent <a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">transaction cost analysis</a> (TCA) can allow fund managers to assess the true cost of their FX trades by revealing hidden costs in the spread and evaluate their execution quality against market benchmarks, helping to drive more informed decision-making.
&nbsp;
<h2>2.&nbsp;&nbsp;&nbsp;&nbsp; Reliance on manual processes - 36%</h2>
Many fund managers continue to rely on outdated, manual processes for instructing FX transactions, with phone calls and emails remaining the primary methods among UK fund managers. In fact, 77% still depend on these traditional approaches to execute transactions. In North America, fund managers have <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">adopted more modern solutions</a>, with APIs (32%) and web apps (30%) being the most popular methods to transact, leaving only 50% still using phones or emails.
Operating FX processes via these manual processes is a huge drain on efficiency and can take up a significant portion of funds&rsquo; manpower and time. It makes no sense to operate with these processes when far more modern alternatives exist. It&rsquo;s the equivalent of sending someone a message via fax in this day and age, rather than a simple text message.
Managing manual processes has been highlighted as a key challenge for UK fund managers in 2024, with 36% reporting it to be a critical issue. However, this appears to be a particularly persistent challenge, with 39% saying this was an issue in 2023.
Smaller funds (&pound;40-80 million assets under management) also relied more heavily on manual processes than larger funds (&pound;9-16 billion AUM), with 38% instructing over email and 44% over the phone, in comparison to 21% and 36% respectively. This underscores a major gap between smaller and larger funds in adopting automation technology for their FX processes, likely due to limited resources, expertise and tighter budgets, creating constraints on investing in such technology.
For those looking for <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">alternatives</a>, they may find solutions in the below:
<ul>
<li>API&rsquo;s (31%): APIs serve as bridges, enabling different software systems to communicate and in turn exchange data. Leveraging APIs for FX transactions allows businesses to automate trade execution by integrating an FX platform into their own systems.</li>
<li>Online User interface (28%): 3rd Party Web Apps, are software applications, designed and built by 3rd parties, accessed through a web browser.</li>
<li>Instructing via your own IT system (26%)</li>
</ul>
&nbsp;
<h2>3.&nbsp;&nbsp;&nbsp;&nbsp; Onboarding new liquidity providers - 34%</h2>
The onboarding process for new liquidity partners is often still outdated and cumbersome, causing a great deal of trouble for fund managers. Protocols often require vast amounts of paperwork and securing ISDA agreements, a time consuming process which can take months, often draining time and manpower. This process can be even more challenging for small and medium-sized fund managers who do not have the resources to navigate through complex legal agreements and compliance requirements.
To solve this issue, 20% of fund managers are considering automating the onboarding of liquidity providers, to streamline the process. Partnering with FX technology providers can bring this lengthy process down to only a few weeks through express ISDA agreements. This not only enables faster setup of FX counterparties but also facilities FX cost savings by accessing multiple new liquidity streams more quickly.
&nbsp;
<h3>How can MillTech help?</h3>
Our FXaaS provides fund managers with an automated <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">FX workflow solution</a>, allowing them to seamlessly instruct trades and oversee their hedging programs. Fund managers can also choose to outsource FX operational functions, including hedging calculation, execution management, settlement, and trade reporting to save time.
Moreover, our free quarterly <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">transaction cost analysis</a> provides fund managers with full transparency into their FX costs and provides insights on how to optimise trade execution techniques.
If you&rsquo;d like to learn more about our solutions, you can request a demo <a href="https://milltechfx.com/demo-form/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Discover the top 3 FX challenges UK fund managers face today and strategies to overcome them, based on our latest research.

V1  

Top 3 FX challenges facing UK fund managers

With global inflation remaining <a href="https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024" target="_blank" rel="noopener">relatively high</a>, the cost of doing business has <a href="https://www.leasinglife.com/comment/the-rising-cost-of-doing-business-in-the-uk-a-snapshot-of-sme-financial-strain/" target="_blank" rel="noopener">continued to rise</a>. FX hedging was no exception to this, our <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">UK</a> corporate FX report revealed that 7 in 10 (70%) of corporates struggled with an increase in the cost of FX hedging over the last year.
Rising costs were also the primary reason for not hedging FX currency risk, with 76% stating that it was simply too expensive.
In this blog, we delve into the some of the key FX challenges confronting UK corporates and examine the strategies they are employing to overcome these hurdles:
<ul>
<li><a href="#risingcreditchallenges">UK Corporates facing rising credit challenges</a></li>
<li><a href="#hedgingstrategies">Hedging strategies amongst geopolitics tensions</a></li>
<li><a href="#FXoptions">Corporates are turning to FX options</a></li>
</ul>
&nbsp;
<h2 id="risingcreditchallenges">UK Corporates facing rising credit challenges</h2>
The majority of UK corporates reported that their current credit provider had tightened lending criteria over the past year, with 74% experiencing stricter lending conditions, of which 27% noted a significant tightening.
Smaller businesses felt the impact more acutely, with 87% facing&nbsp;stricter lending criteria compared to only 59% of larger businesses.
The tightening doesn't end there, as 79% of UK corporates have also reported recent hikes in interest rates and fees from their credit providers. This increase was notably observed among CFOs and finance managers, with 88% reporting a spike within both roles. While larger firms may not feel the impact of stricter credit terms as severely, they have experienced the highest increase in fees, with 4 in 5 businesses noting a rise.
Tighter lending criteria is a common feature of turbulent economic times. If the average corporate earnings take a downturn, then lenders perceive a higher risk of defaulting on loans, causing them to allow only the most creditworthy companies to borrow, particularly given higher interest rates. This tends to cause liquidity headaches and restricted investment opportunities.
&nbsp;
<h2 id="hedgingstrategies">Hedging strategies amongst geopolitics tensions</h2>
As an economic superpower, what happens in the US impacts the rest of the world. This is especially the case in the UK, with the US being their <a href="https://assets.publishing.service.gov.uk/media/672200084da1c0d41942a8ee/united-states-trade-and-investment-factsheet-2024-11-01.pdf" target="_blank" rel="noopener">largest trading partner</a>, so it is no surprise that their 2024 election caused additional concerns.
Prior to Trump being re-elected into The White House, when asked what their primary concerns were regarding currency risk in the context of the US election, UK corporates main responses were all focused around the idea of uncertainty; counterparty risk in hedging transactions (40%), the impact of policy changes on currency values (37%) and unpredictable market movements (37%). So now the election is over, how are UK corporates feeling?
Our latest <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-corporate-hedging-monitor-q3-2024/" target="_blank" rel="noopener">hedging monitor</a> revealed that 4 in 5 (81%) UK corporates feel optimistic about how the newly elected Trump administration will affect their operations and strategic plans in the US over the upcoming year, despite concerns around potential tariffs and trade tensions.
In response to the election results, 9 out of 10 (94%) have adjusted their FX hedging strategies. The majority of them opting to increase both their hedge ratios and the duration of their hedging activities, which essentially means buying more protection for longer, underscoring a desire among corporates to secure certainty amid market volatility.
&nbsp;
<h2 id="FXoptions">Corporates are turning to FX options</h2>
As finance leaders grow increasingly aware of the impact currency volatility has on their balance sheets, they are exploring new FX hedging strategies to protect their bottom lines against these fluctuations. One such strategy is to use FX options, which 64% of corporates have started utilising more frequently.
<a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">FX options</a> are financial derivatives traded over-the-counter (OTC) or exchange traded. They grant the holder the right, though not the obligation, to exchange two currencies at a pre-determined exchange rate (known as the strike price) on, or before, a specified expiration date.
FX options offer the benefits of hedging with limited downside risk, as the buyer is not obligated to buy or sell an asset, limiting the maximum loss to the premium paid for the option. However, this upfront premium is typically high due to the instrument's flexibility and is non-refundable if the trade does not go through.
<blockquote>
&ldquo;Historically corporates have experienced a negative impact on their balance sheet through currency fluctuations. As macroeconomic conditions evolve and potentially lead to increased currency volatility, they are becoming more aware of the effects on their balance sheets. Consequently, their decision to hedge using options is often influenced by the attractive (low) volatility levels observed in Q2/Q3 compared to the anticipated higher future currency movements.&rdquo; Nick Wood, Head of Execution at MillTech and Millennium Global.
</blockquote>
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Explore key FX challenges for UK corporates and the strategies used to tackle them.

Checklist Blog 

UK Corporate credit crunch: 74% report tighter FX lending

Over the years, outsourcing FX has emerged as a prominent trend in business operations, and this year has proven to be no exception. As UK CFOs have battled against <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">heightened currency volatility</a> and <a href="https://www.imf.org/en/Blogs/Articles/2024/04/16/global-economy-remains-resilient-despite-uneven-growth-challenges-ahead" target="_blank" rel="noopener">uneven global economic growth</a>, with advanced economies <a href="https://www.imf.org/en/Blogs/Articles/2024/04/16/global-economy-remains-resilient-despite-uneven-growth-challenges-ahead" target="_blank" rel="noopener">experiencing slowdowns.</a>
A recent <a href="https://yougov.co.uk/economy/articles/25965-seven-ten-british-businesses-outsource-third-parti" target="_blank" rel="noopener">YouGov study</a> revealed that 70% of British businesses are now turning to outsourcing solutions, this is backed up by our own survey in which all corporate respondents stated they outsourced FX processes in some capacity.
In this blog post, we will explore how businesses are outsourcing their FX to optimise operations and maintain a competitive edge:
<ul>
<li><a href="#flexibility">Achieving operational flexibility</a></li>
<li><a href="#drivefficiency">Drive efficiency and accelerate automation</a></li>
<li><a href="#fxriskmanagement">FX risk management</a></li>
<li><a href="#operationalcosts">Reducing operational costs without sacrificing quality</a></li>
<li><a href="#milltechfx">Outsourcing FX processes with MillTech</a></li>
</ul>
&nbsp;
<h2 id="flexibility">Achieving operational flexibility</h2>
FX is one of the <a href="https://www.reuters.com/markets/us/global-fx-trading-hits-record-75-trln-day-bis-survey-2022-10-27/" target="_blank" rel="noopener">largest and most liquid</a> markets in the world, but also one of the most complex. Managing a variety of hedging instruments to counter market volatility, undergoing lengthy ISDA onboarding processes, and ensuring adherence to regulatory compliance, can be daunting for some businesses, especially those lacking the necessary infrastructure for effective FX operations.
In fact, <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-uk-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">29% of UK corporates</a> have turned to outsourcing as it provides greater scalability and flexibility in operations. Outsourcing can provide the flexibility to scale FX services according to the business&rsquo;s needs, without committing to long-term resource allocation. This scalability ensures that firms only pay for the services they require, optimising cost-effectiveness as their foreign exchange volume fluctuates.
Increased scalability can be realised by corporates gaining access to specialised expertise and advanced technology without the need to invest heavily in in-house capabilities. This can enable them to handle larger currency volumes and mitigate FX risks more effectively as they grow.
&nbsp;
<h2 id="drivefficiency">Drive efficiency and accelerate automation</h2>
In today&rsquo;s highly competitive landscape, businesses that prioritise efficiency are often better equipped to adapt to changing markets. 26% of UK corporates delegate FX responsibilities to an external provider to increase efficiency, which typically includes overseeing the onboarding of new FX counterparties, centralising price discovery, and managing the post-execution phase.
Alongside the drive to increase efficiency, reducing manual tasks has become a key focus, with process automation emerging as a top priority in FX operations. Despite this, many businesses continue to rely on outdated technology for their in-house FX operations, with 42% of CFOs using phones as their main method for instructing FX transactions.
Additionally, fragmented service provision remains a challenge for 27% of corporates, with CFOs identifying it as one of their main FX hurdles.
By outsourcing FX operations to specialists, corporates can gain seamless access to real-time rates from a broad network of liquidity sources, all integrated into a single platform. This consolidation enables corporates to achieve best execution with improved transparency, frees up internal resources, and additionally ensures that regulatory governance requirements are met, providing assurance to key stakeholders.
&nbsp;
<h2 id="fxriskmanagement">FX risk management</h2>
Our findings indicate that 29% of UK corporates opt to outsource foreign exchange operations due of the complexities involved in risk management and compliance. Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/" target="_blank" rel="noopener">forex rate-rigging scandal</a> in 2014, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst these may be overall beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met.
In addition, significant market volatility and exchange rate fluctuations require sophisticated strategies to manage effectively. This often demands substantial resources, expertise, and technology, which can be especially challenging for small to medium-sized enterprises. Furthermore, the need to stay informed about geopolitical events and economic policies adds another layer of complexity, making it harder for businesses to plan long-term risk management strategies and predict future costs accurately.
&nbsp;
<h2 id="operationalcosts">Reducing operational costs without sacrificing quality</h2>
Across the UK, many individuals have felt the pinch of tighter budgets, and businesses are no exception. 70% of corporates reported an increase in the cost of hedging over the last year. In addition, a stagging 79% reported a recent increase in interest rates and fees from credit providers, noticed most by accountants and CFOs, with 88% reporting a spike within both roles.
Businesses are highly likely to be exploring various cost-cutting strategies, with 22% opting for outsourcing. By leveraging advanced platforms that provide competitive pricing from multiple partners, firms can be confident they are achieving best execution on every trade, from spot to forwards.
Some providers include free transaction cost analysis in their services, revealing hidden costs in the spread and offering corporates insights into their trading performance. This analysis provides guidance on improving FX execution techniques and identifies risks and inefficiencies in trading, allowing for proactive strategy refinement and risk mitigation.
&nbsp;
<blockquote>
&ldquo;It is no surprise to see that corporates seek to outsource their FX execution and operational requirements to a dedicated and tech-enabled FX expert. This can provide them with transparency into their execution quality via transaction cost analysis and to manage all their FX operational requirements, allowing them to focus on their core product expertise and processes.
James Hull, COO at MillTech&rdquo;
</blockquote>
&nbsp;
<h3 id="milltechfx">Outsourcing FX processes with MillTech</h3>
Our multi-award winning independent <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">FXaaS solution</a> is designed to significantly reduce FX hedging costs for corporates and ensure they achieve FX transparency.
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Building on this heritage we are able to provide corporates with direct access to preferential FX rates from up to 15 Tier-one counterparty banks.
By outsourcing your FX processes with MillTech, you can:
<ul>
<li>Enhance FX risk management through diversifying counterparties</li>
<li>Automate end-to-end FX processes including execution, settlement and trade reporting</li>
<li>Obtain express ISDA onboarding</li>
<li>Auto-settle trades via SWIFT</li>
<li>Audit the quality of your FX execution and demonstrate good governance with free third-party TCA&rsquo;s.</li>
</ul>
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

How are businesses outsourcing their FX to maintain a competitive edge?

Fx Outsource

The power of FX outsourcing & automation

In today's economic landscape, UK businesses are grappling with a significant dilemma&mdash;how best to manage the financial risks associated with currency volatility.
With <a href="https://www.imf.org/en/Blogs/Articles/2023/10/10/higher-for-longer-interest-rate-environment-is-squeezing-more-borrowers" target="_blank" rel="noopener">higher borrowing costs</a> squeezing margins, businesses must weigh the advantages of hedging against the operational and financial challenges it presents.
A well-thought-out hedging strategy is like traction control on a slippery surface, helping to maintain control and direction as market conditions shift. Without it, businesses risk spinning out of control when volatility hits.
This blog explores these challenges and offers insights into how corporates can effectively safeguard their bottom lines:
<ul>
<li><a href="#hedginglandscape">Understanding the current hedging landscape</a></li>
<li><a href="#benefits">Benefits of hedging in a volatile market</a></li>
<li><a href="#constraints">High costs and credit constraints</a></li>
<li><a href="#futurehedging">Navigating the future of hedging</a></li>
<li><a href="#outsourcing">Outsourcing FX Functions</a></li>
</ul>
&nbsp;
<h2 id="hedginglandscape">Understanding the current hedging landscape</h2>
Our revealed that hedging remains prevalent among UK corporates, with 76% of firms hedging their forecastable currency risk.
Interestingly, large businesses with over 500 employees are the least likely to hedge (68%), possibly due to their larger reserve capital, which cushions them from currency fluctuations. Conversely, smaller firms, which often lack such buffers, are more inclined to hedge.
In today's <a href="https://londonlovesbusiness.com/fx-volatility-surges-to-a-15-month-high-amid-market-chaos/" target="_blank" rel="noopener">volatile economic climate</a>, corporates are increasingly seeking stability, the mean hedge length has increased to 5.55 months, up from 3.78 months last year, indicating a growing desire among firms to secure longer-term certainty. Whilst the average hedge ratio remained stable at 45%.
&nbsp;
<h2 id="benefits">Benefits of hedging in a volatile market</h2>
<a href="https://www.milltech.com/resources/glossary/fx-hedging" target="_blank" rel="noopener">FX hedging</a> is an effective risk management strategy for businesses exposed to foreign currency, helping to safeguard financial positions against adverse exchange rate fluctuations. Given current market conditions, 68% of UK corporates that don&rsquo;t current hedge, are now considering this strategy.
<h3>Enhancing financial stability through forecasting</h3>
Hedging offers businesses the flexibility to plan ahead and safeguard their balance sheets against anticipated currency fluctuations. By improving forecasting accuracy, it provides greater predictability in financial planning.
It is therefore understandable that 53% of UK corporates are now planning to extend their hedge duration due to rising political tensions. By locking in exchange rates for future transactions, firms can improve budgeting with accurate cash flow estimates, enabling informed strategic decisions and leading to more stable financial results.
<h3>Variety of hedging instruments</h3>
With the various hedging instruments available, corporates have the flexibility to choose how to manage their currency risks.
<a href="https://www.milltech.com/resources/glossary/fx-forward" target="_blank" rel="noopener">Forward contracts</a>, for instance, allow corporates to exchange two different currencies at a predetermined rate on a specific future date, with the rate being set at the start of the contract, providing certainty in costs and revenues despite market fluctuations.
On the other hand, <a href="https://www.milltech.com/resources/glossary/fx-options" target="_blank" rel="noopener">option contracts</a> offer more flexibility, giving businesses the right, but not the obligation, to exchange currency at a predetermined rate, which can be beneficial if market conditions change favourably, although they often come with pricey premiums.
Each hedging instrument has distinct features and requirements, allowing businesses to tailor their <a href="https://www.milltech.com/resources/glossary/fx-risk-management" target="_blank" rel="noopener">FX risk management</a> strategies to suit specific needs and market conditions.
&nbsp;
<h2 id="constraints">High costs and credit constraints</h2>
<h3>Increased cost of hedging</h3>
70% of UK corporates have reported an increase in the cost of FX hedging over the past year. Of those firms that don&rsquo;t hedge their currency risk, 76% cited high costs as the primary deterrent.
This issue is particularly pronounced among smaller companies with 50-99 employees, with 85% experiencing rising hedging costs compared to 59% of larger firms with over 500 employees. This may be due to smaller companies having less negotiating power and fewer resources to manage financial risks effectively.
The increasing costs of hedging are not just affecting decision-makers; they directly influence corporate priorities. For 31% of UK corporates, reducing costs is a top priority, while 29% emphasise the need for cost transparency. These figures underscore the weight of FX costs on corporate strategies and how they can even discourage proactive risk management.
<h3>Stricter credit market</h3>
Concurrently, UK businesses are facing a tightening credit market. An overwhelming 74% of corporates report that credit providers have made it harder to access hedging in the last year. This trend has been most acute for accountants and CFOs, with 85% experiencing stricter lending criteria. Smaller companies are again at a disadvantage, with 87% reporting tougher credit conditions, compared to 59% of larger firms.
Additionally, 79% of corporates have noticed a rise in interest rates and fees, a sentiment echoed by 88% of accountants and CFOs. This financial environment adds another layer of complexity for businesses contemplating hedging as a strategy to mitigate currency risk.
&nbsp;
<h2 id="futurehedging">Navigating the future of hedging</h2>
<h3>Corporates turn to options</h3>
Diversifying hedging instruments is crucial to reducing FX risk, by spreading exposure across different assets, corporates can minimise the impact of market volatility, and enhance the potential for more stable returns.
FX options are a financial derivative that grants the holder the right, but not the obligation, to exchange a specified amount of one currency for another at a predetermined exchange rate (strike price) on or before a specified date (expiration date).
Options can provide the reassurance of hedging with capped downside risk, it is therefore unsurprising that 64% of corporates have started utilising FX options more frequently.
<h3>Leveraging FX technology</h3>
Many corporates still cling to outdated, manual processes like phone calls (34%) and emails (32%) to instruct FX trades.
Leveraging technology can help businesses <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">automate their entire FX workflow</a>, from execution to reporting, freeing up resources to focus on core business activities and enhancing team efficiency. For UK corporates, automating manual processes is a priority in FX management, as 41% emphasise its significance.
<h3>Engaging with various credit providers</h3>
Relying on one or two counterparties for liquidity is like putting all your eggs in one basket. As seen in the <a href="https://www.bis.org/bcbs/publ/d555.htm">2023 banking crisis</a>, the loss of a key counterparty can leave businesses stranded, unable to trade. Businesses should explore technology-driven alternatives that diversify their liquidity providers, ensuring they&rsquo;re never vulnerable to a single point of failure.
Additionally, working with various counterparties allows you to leverage competitive pricing, helping to drive down costs and ensuring you best execution.
&nbsp;
<h2 id="outsourcing">Outsourcing FX Functions</h2>
<a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Outsourcing FX functions</a> can be a strategic move for corporates looking to focus on their core operations while managing currency-related risks efficiently. By partnering with specialised FX service providers, businesses can access expert insights, advanced technology, and comprehensive market analyses without the need to maintain an extensive in-house FX team.
Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase often have their own complications and can be a huge administrative burden for some corporates, eating up much-needed time and resources. In fact, 34% of UK respondents said they use outsourcing as it provides greater scalability and flexibility in operations.
Following episodes like the <a href="https://www.reuters.com/article/markets/the-global-fx-rigging-scandal-idUSL5N1F14VV/" target="_blank" rel="noopener">forex rate-rigging scandal</a> in 2014, many market principles and regulations were introduced, such as the <a href="https://www.globalfxc.org/uploads/fx_global.pdf" target="_blank" rel="noopener">FX Global Code of Conduct</a> and <a href="https://www.esma.europa.eu/publications-and-data/interactive-single-rulebook/mifid-ii" target="_blank" rel="noopener">MiFID II</a>, to avoid crises like this again. Whilst overall beneficial to the ecosystem, these rules and regulations require a lot of work in order to be met. This is why 29% of respondents say that they use outsourcing for risk management and compliance purposes.
&nbsp;
<h2>Conclusion</h2>
In a world of economic uncertainty, hedging remains a powerful tool for protecting your bottom line. However, rising costs and credit constraints present significant challenges that require strategic navigation. By adopting a comprehensive approach that balances risk management with financial agility, UK corporates can position themselves to thrive amidst volatility.
If your organisation is grappling with these decisions, you can contact us here to discuss how can provide a tailored <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">FX workflow solution</a> to meet the needs of your business. In these times, the right guidance can make all the difference.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

This blog offers insights into how corporates can safeguard their bottom lines through hedging.

Hedge or Not

To hedge or not? Navigating FX market swings

<a href="https://www.milltech.com/resources/glossary/transaction-cost-analysis-tca" target="_blank" rel="noopener">Transaction Cost Analysis (TCA) </a>plays a crucial role in modern FX risk management, offering insights into execution quality, cost efficiency, and overall performance. Whether you're a corporate treasurer or CFO at a fund manager, the ability to assess trade execution across a portfolio and identify cost-saving opportunities is invaluable.
Despite the obvious benefits, there are still a lot of misconceptions preventing CFOs and Treasurers from implementing TCA. In this article, we will dispel some of the top myths surrounding TCA.
In this article:
<ul>
<li><a href="#tcaistooexpensive">TCA is too expensive</a></li>
<li><a href="#mybankpartnerstcaisindependent">My banking partner's TCA is independent</a></li>
<li><a href="#tcaisonlyaboutcost">TCA is only about cost</a></li>
<li><a href="#tcaonlyneedstobedoneonce">TCA only needs to be done once</a></li>
<li><a href="#tcaisawasteoftime">TCA is a waste of time</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="tcaistooexpensive">TCA is too expensive</h2>
Transaction Cost Analysis (TCA) is often perceived as too expensive, but in reality, it offers significant value that justifies its cost.
TCA provides firms with detailed insights into the true costs of their foreign exchange (FX) transactions, including hidden fees, poor execution timing, and uncompetitive spreads. By identifying these inefficiencies, firms can make more informed decisions and improve execution, ultimately saving money over time.
CFOs and treasurers often misunderstand the ROI of TCA. The long-term value of TCA, which is the potential savings and optimisation of FX execution, can be difficult to quantify upfront. This leads to a common misconception that the costs of TCA are too high compared to the immediate, visible benefits.
For example, even a small improvement in FX execution&mdash;such as better timing or a reduced spread&mdash;can translate into substantial savings, particularly for firms with high FX volumes. Over time, TCA helps reduce slippage and improve trade execution, potentially allowing firms to make a quick return on their initial investment.
There is a way to avoid these initial setup costs &ndash; by outsourcing your TCA. Outsourcing TCA is often more cost-effective than maintaining an in-house team. Independent providers offer specialised expertise and advanced tools, allowing businesses to focus on their core activities while still benefiting from high-quality TCA services. External providers, such as MillTech, offer a host of FX risk management products, with TCA built into this offering.
&nbsp;
<h2 id="mybankpartnerstcaisindependent">My banking partner&rsquo;s TCA is independent</h2>
If firms wish to implement TCA into their workflow, they must first decide whether to conduct TCA in-house or independently, as there are key differences between the two. Banking partners often provide TCA as part of a relationship but is this really independent? It&rsquo;s akin to a student marking their own homework.
Independent TCA provides an outsider&rsquo;s perspective, ensuring that the analysis is free from internal biases or conflicts of interest. This impartiality is crucial when presenting data to external stakeholders, regulators or auditors. Moreover, independent providers specialise in TCA and are equipped with advanced analytical capabilities, ensuring that clients benefit from the most up-to-date technology and industry practices.
Independent TCA providers also have access to a broader range of market data and industry benchmarks, which enables them to conduct more comprehensive analysis. Their rigorous data validation and quality control processes help to optimise the reliability of the results, aiming togive clients confidence in the accuracy of the analysis. Additionally, many independent TCA providers adhere to regulatory standards, helping firms meet compliance requirements and reduce regulatory risks.
Independent TCA also serves as third-party verification, providing an added layer of transparency and accountability that is especially valuable during audits or external reviews and for maintaining stakeholder trust.
&nbsp;
<h2 id="tcaisonlyaboutcost">TCA is only about cost</h2>
You would be forgiven for thinking that TCA just covers costs, after all, it is called Transaction Cost Analysis. However, TCA in FX goes far beyond just simple cost analysis. While its primary function is to examine and reduce the direct costs of trading, TCA also plays a broader role in enhancing overall FX execution strategy, risk management, and transparency.
One of the key benefits of TCA is its ability to improve execution quality. By analysing the timing of trades, market conditions, and liquidity, TCA provides insights that help firms optimise when and how they execute transactions, leading to better pricing and reduced market impact. This strategic advantage can significantly enhance a firm&rsquo;s FX operations.
Furthermore, TCA contributes to governance and compliance. In an increasingly regulated environment, firms need to demonstrate that their FX trading practices align with best execution policies. TCA provides the necessary data to validate that trades are being executed efficiently and in the best interest of the firm, ensuring compliance with regulatory requirements.
TCA also offers benchmarking capabilities, allowing firms to compare their execution performance against market standards or peers. This continuous evaluation helps refine trading strategies, improving both cost and operational efficiency over time.
&nbsp;
<h2 id="tcaonlyneedstobedoneonce">TCA only needs to be done once</h2>
For TCA to work effectively, it must be done regularly. Market conditions, liquidity, and spreads fluctuate frequently, which means past trade performance may not reflect current realities. By keeping TCA as a regular part of their operations, firms can consistently enhance performance and manage FX risks effectively.&lt;/p&gt; &lt;p&gt;You should be provided with independent TCA on a quarterly basis, acting as a regular audit of all trades executed through our platform. This ongoing analysis enables clients to monitor their FX execution costs and assess their trading performance over time. By observing historical trends, our clients gain insights into long-term performance, which helps them refine their strategies and make adjustments as needed. We provide not only the data but also the opportunity for clients to discuss their TCA results with an FX specialist, ensuring transparency and addressing any concerns or areas for improvement.
<h2>&nbsp;</h2>
<h2 id="tcaisawasteoftime">TCA is a waste of time</h2>
TCA is far from a waste of time &ndash; as proven by all the points above. It provides critical insights into the efficiency of FX transactions, helping to eradicate hidden costs and inefficiencies, allowing CFOs and treasurers to optimise their trade execution and ultimately reduce their costs and enhance FX performance.
&nbsp;
<h3>Get your free TCA with MillTech</h3>
If you currently do not conduct <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">TCA </a>analysis at your firm, we can help. For prospective clients, we offer a free, independent TCA, which provides an in-depth analysis of their current trading setup. This uncovers any hidden costs and inefficiencies in their trading strategies, offering a clear cost comparison between MillTech&rsquo;s execution quality and the client&rsquo;s current setup.
This free analysis empowers prospects to make data-driven decisions and improve their trading setup, whether they choose to onboard with us, or not. Like with existing clients, prospective clients also get access to one of our specialist FX consultants, to provide further guidance.
These full FX audits are incredibly comprehensive and begin to give prospective clients an idea of how their TCAs could look if they choose to onboard. Our expert FX consultants talk through each aspect of the analysis, giving an opportunity for prospective clients to ask questions about their FX setups, ensuring they completely understand their FX workflows and the best ways to reduce costs and enhance efficiency.
If you are interested in a free TCA report for your company, speak to us directly or reach out to a member of the team at: <a class="Link-module--link--464dc link" title="Send us an email" href="mailto:info@milltechfx.com" target="_blank" rel="noopener">info@milltech.com</a>
<h2 id="tcaonlyneedstobedoneonce"></h2>

Despite the obvious benefits, there are still misconceptions preventing businesses from implementing TCA.

V1   

The truth behind the 5 biggest myths about TCA

MillTechFX was named &lsquo;The World&rsquo;s Best FX Risk Management Solution&rsquo; in the <a href="https://www.euromoney.com/awards/foreign-exchange-awards" target="_blank" rel="noopener">Euromoney Foreign Exchange Awards 2024,</a> held on Thursday 26th of September 2024 at the Mandarin Oriental Hyde Park in London.
The Euromoney FX Awards represent the next iteration of the&nbsp;Euromoney Foreign Exchange Survey, which for more than 44 years stood as the most comprehensive representation of the wholesale FX market. The awards bring together the industry&rsquo;s best and brightest to celebrate excellence in the global FX market.
The award entries were judged by a <a href="https://www.euromoney.com/awards/foreign-exchange-awards-judging-panel" target="_blank" rel="noopener">panel of global experts</a> representing banks, providers and buy-side corporations who sought robust examples of excellence and innovation in the market.
Eric Huttman, CEO at MillTech, said: &ldquo;With <a href="https://www.weforum.org/press/2024/01/wef24-chief-economist-outlook-january-2024/#:~:text=Chief%20Economists%20Outlook%3A%20More%20Economic%20Uncertainty%20on%20the%20Horizon,-Published&amp;text=More%20than%20half%20(56%25),the%20latest%20Chief%20Economists%20Outlook." target="_blank" rel="noopener">rising&nbsp;global economic uncertainties</a>,&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.ft.com_content_f76884e9-2Dbc66-2D4a5d-2D8445-2D4f842af5ef68&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=ZaHlUkhTCnqlKdmo89kgn0rNNeSj0kI9WMVDdDBVDqF-J1zxIJJ783Z8BVp6boHm&amp;m=V4ki6JiW1CC7OdDVtXBhqTTLoumupiyP11yXrOzr7PXmKkSDgdIe-JMTBeKpdQtI&amp;s=J1r2Nulh18CCen2x-qcttoN5KkPKrKjxXw5aX9Q2gqQ&amp;e=" target="_blank" rel="noopener">shifting monetary policies</a>, and&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.economicsobservatory.com_how-2Dare-2Dgeopolitical-2Drisks-2Daffecting-2Dthe-2Dworld-2Deconomy&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=ZaHlUkhTCnqlKdmo89kgn0rNNeSj0kI9WMVDdDBVDqF-J1zxIJJ783Z8BVp6boHm&amp;m=V4ki6JiW1CC7OdDVtXBhqTTLoumupiyP11yXrOzr7PXmKkSDgdIe-JMTBeKpdQtI&amp;s=i0gkyVwan8wruF-_CfFHvsiTUDhn90w1gUTa9ce5sxw&amp;e=" target="_blank" rel="noopener">geopolitical events</a>, the significance of tech-enabled FX risk management cannot be overstated. Winning this award is a powerful testament to the MillTechFX team's unwavering dedication and commitment. It also underscores the enhanced transparency, robust governance and efficiency benefits that our FX-as-a-Service model delivers."
<a href="https://www.bloomberg.com/news/articles/2024-04-15/usd-currency-volatility-is-back-as-geopolitics-adds-to-dollar-bets?sref=ix7Z3iHU" target="_blank" rel="noopener">As volatility returns to the FX market</a>, it&rsquo;s vital that corporates and fund managers take a proactive approach to FX risk management to protect their returns. However, when it comes to FX risk management, these firms have historically struggled due to a lack of transparency, limited market access, inconsistent pricing and manual operational tasks.
At MillTech, we are levelling the playing field for these firms by automating the FX process from initial price discovery right through to reporting at the end of the trade lifecycle.
We provide:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to a multi-bank marketplace and transact within weeks with up to 15 Tier 1 counterparty banks.</li>
<li>Best execution and hedging management &ndash; Clients benefit from multi-bank access without having to manage multiple relationships and processes. They can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings &ndash; MillTech&nbsp;has saved clients up to 70% on their execution costs.</li>
<li>Transparency &ndash; MillTech offers a fixed fee service, including third-party Transaction Cost Analysis (TCA) to ensure total cost transparency.</li>
</ul>
As a result of the growing priority of FX risk management from senior finance decision-makers across the globe, combined with their desire for a transparent, operationally simple solution, we have experienced rapid growth in recent years.
MillTech&rsquo;s annualised client FX volumes now exceed $200 billion, while our revenue grew 6x year on year in 2023 and is expected to double this year.
If you&rsquo;re interested in finding out more about the &lsquo;The World&rsquo;s Best FX Risk Management Solution&rsquo;, get in touch today: <a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">https://milltech.com/contact/</a>&nbsp;&nbsp;

We are delighted to announce we have been named ‘The World’s Best FX Risk Management Solution’ in the Euromoney Foreign Exchange Awards 2024!

Euromoney 4

MillTechFX wins 'World’s Best FX Risk Management Solution'

Michael King

The day-to-day reality of software delivery is often a lot less glamorous than is portrayed by start-up hustle-culture influencers.
A new business with a good idea might spend 20% of its time on developing the features that make it unique. The remaining effort is usually spent removing blockers for new customers to say yes. These blockers are often unsexy, standard features of platform maturity - think user permissions, or ISO security requirements, or data export functionality.
But in amongst the less newsworthy items, there are still some exciting things to shout about. Here&rsquo;s a round-up of new functionality from the last year.
&nbsp;
In this blog:
<ul>
<li><a href="#automaticcounterpartyassignment">Automatic counterparty assignment</a></li>
<li><a href="#assessingpositionimpactpretade">Assessing position impact pre-trade</a></li>
<li><a href="#flexiblereports">Flexible reports</a></li>
<li><a href="#approvalsandselectinganexecutiontime">Approvals and selecting an execution time</a></li>
<li><a href="#fatfingerlimits">Fat finger limits</a></li>
<li><a href="#wherenext">Where next?</a></li>
</ul>
&nbsp;
<h2 id="automaticcounterpartyassignment">Automatic counterparty assignment</h2>
Whilst the name is not the sexiest, this is one of our best &ldquo;do the work so that the user doesn&rsquo;t have to&rdquo; features.
We&rsquo;re very proud of the transparency and competition that our multi-bank platform brings to our clients. Many of them did not previously have access to more than one bank or broker. However, no good deed goes unpunished - access to multiple counterparties comes with possible settlement headaches.
If you open a position via MillTech and subsequently close it, you would expect to only pay or receive a lower order Profit and Loss payment. But what if the open and close trades go to different banks? No-one wants to have to move substantial amounts of cash around on settlement date, for a net payment that is several orders of magnitude less.
With our automated counterparty assignment (ACA) logic, we remove this potential cash movement nightmare. Close trades are systematically split and allocated across banks with open positions, to ensure that cash movements are minimised. Clients don&rsquo;t need to do anything - just upload their trades as usual and away we go.
&nbsp;
<h2 id="assessingpositionimpactpretade">Assessing position impact pre-trade</h2>
Every file of trades that gets uploaded to our platform is rigorously checked by our validation &amp; compliance engine. This checks for inconsistent data or disallowed activity.
But one of the hardest things for us to validate is the trade amount. Other than limit ceilings, it&rsquo;s hard to assess the validity of the numbers without understanding the intent.
So instead we added position impact information to the trade review screen for clients. Users can see what their current position is, their uploaded trade amount, the new position that would be created if executed, and a text summary of the impact.
<img src="https://directus.corp.milltechfx.com/assets/8d3e5d97-53ab-4be4-979b-cbd3be82b556" alt="Assessing FX position impact pre-trade" width="650" height="202" />
It&rsquo;s much easier to scan down a column of words like &ldquo;New&rdquo;, &ldquo;Increase&rdquo; or &ldquo;Close out&rdquo; than it is to compare numbers across multiple screens!
&nbsp;
<h2 id="flexiblereports">Flexible reports</h2>
We offer a range of standardised reports for clients, which can be accessed in the portal or sent via email or SFTP.
However, sometimes clients need data exports in a particular structure (often to match an import format for an existing system). In the past this would have represented a bespoke build for us, which is tricky to manage alongside an already full product development roadmap.
So instead we&rsquo;ve built a flexible reporting module, that allows us to easily map any of our data to a client spec. And crucially, it&rsquo;s all driven by config - no need for writing, testing or deploying code each time we get a new client request.
&nbsp;
<h2 id="approvalsandselectinganexecutiontime">Approvals and selecting an execution time</h2>
For a long time we used a rather simple method for selecting benchmark execution times - a free text field to write in their preferred fix, which our Operations team would read and assign accordingly. Very easy to deliver; not so easy to scale!
Adding in proper benchmark selection is a non-trivial problem, however. What happens if a client submits a file only a few minutes before the benchmark? Or uploads a draft batch before the cut-off, but fails to approve and submit in time?
We wanted to preserve the flexibility that came with our original human-driven process, so we settled on two cut-offs: one for guaranteeing a benchmark (1 hour before) and another for submission entirely (20 minutes before).
<img src="https://directus.corp.milltechfx.com/assets/3910ce4b-fa9e-4df0-8c6a-1fcd5522dd17" alt="Selecting an FX execution time through our Multi-bank Marketplace" width="650" height="270" />
New email reminders for draft batches still awaiting approval completes a comprehensive upgrade of approval and submission of orders on our platform.
&nbsp;
<h2 id="fatfingerlimits">Fat finger limits</h2>
Sometimes the smallest features can have the largest impact on users. Fat finger limits are (optional) thresholds that prevent clients from accidentally executing trades above their typical ticket size.
Clients can opt for different limit sizes per portfolio and can also select certain super users to be able to approve above the limits, for exceptional trades.
As a SaaS finance platform, we always need to balance removing UX friction with not introducing risk. A little friction can go a long way to preventing typos from turning into trading errors.
&nbsp;
<h2 id="wherenext">Where next?</h2>
Look out for upcoming updates on our exciting round of next products and features - such as REST APIs &amp; FIX connectivity to allow for automated orders submission and post trade integrations. Along with new services to calculate services to automatically determine hedge trades.

Explore the new functionalities we have implemented to our FX Multi-bank Marketplace over the last year.

Michael Blog 

FXaaS just got smarter: 5 updates you should know

Having operated using the Belgian Franc since as far back as 1832, Belgium made the decision to <a href="https://economy-finance.ec.europa.eu/euro/eu-countries-and-euro/belgium-and-euro_en" target="_blank" rel="noopener">adopt the euro upon its launch in 2002</a>.
Belgium's contribution to the European Union cannot be understated, and it is often named &lsquo;the heart of Europe&rsquo; with good reason. Home to the European Parliament, European Council and European Commission, <a href="https://belgian-presidency.consilium.europa.eu/en/presidency/belgium/#:~:text=Official%20languages-,Belgium%3A%20the%20heart%20of%20Europe%20and%20a,member%20of%20the%20European%20Union&amp;text=Belgium%2C%20one%20of%20the%20founding,and%20evolution%20of%20European%20cooperation." target="_blank" rel="noopener">Belgium was a key player</a> in establishing the European Coal and Steel Community and the European Economic Community. These organisations went on to become the European Union we know today.
It therefore comes as no surprise that Belgium is heavily reliant on and invested in the value of the euro, and has experienced the currency&rsquo;s highs and lows, including the value height of <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">1.6 EUR</a>&nbsp;to 1 USD in 2008 and its gradual decline to <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">roughly 1.1 EUR to the</a> dollar today.
Despite its core role within the EU, Belgium maintains strong trade figures with the rest of the world, with <a href="https://european-union.europa.eu/principles-countries-history/eu-countries/belgium_en" target="_blank" rel="noopener">43.1% of imports and 32%</a> of exports derived from outside of the Union. This makes foreign exchange a key element of the Belgian economy. The country also comes <a href="https://european-union.europa.eu/principles-countries-history/eu-countries/belgium_en" target="_blank" rel="noopener">sixth in the EU in terms of GDP per capita</a>, and accounts for 3.4% of the Union&rsquo;s total GDP, making it a key business, trade and finance centre.
MillTech recently surveyed 250 senior finance decision-makers at fund managers across Europe to gain insight into how different countries operate FX resourcing, risk management and hedging strategies.
The report shows us that FX management is high on the priority list for fund managers in Belgium. This blog delves into the research&rsquo;s insights into Belgian fund managers&rsquo; FX risk management, including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<h3>In this blog:</h3>
<ul>
<li><a href="#importanceofFXtofundmanagersinbelgium">The importance of FX to fund managers in Belgium</a></li>
<li><a href="#relianceonmanualprocessesandappetiteforautomation">Reliance on manual processes and appetite for automation</a></li>
<li><a href="#belgiumfundmanagersstrugglewithalackoftransparency">Belgium fund managers struggle with a lack of FX transparency</a></li>
<li><a href="#hedgingtrendsinbelgium">Hedging trends in Belgium</a></li>
<li><a href="#belgiumsneedtodiversifyfxcounterparties">Belgium's need to diversify FX counterparties</a></li>
<li><a href="#esgprioritiesinbelgium">ESG priorities in Belgium</a></li>
<li><a href="#fxshouldbeapriority">FX should be a key priority for Belgium's fund managers in 2024</a></li>
</ul>
&nbsp;
<h2 id="importanceofFXtofundmanagersinbelgium">The importance of FX to fund managers in Belgium</h2>
The MillTech European Fund Manager CFO FX Report 2024 found that:
<ul>
<li>90% of fund managers in Belgium said that FX was significant to their business, higher than the European average of 88%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/a7e3e372-c3ba-4f9b-9ff7-b9f6c69d13b1" alt="Significance of FX to fund managers in Belgium " width="540" height="350">
<ul>
<li>Belgium also had the second highest percentage of fund managers that said FX was very significant to their business (32%).</li>
<li>The report also found that 74% of fund managers in Belgium said their returns had been affected by EUR volatility, lower than the European average of 89%.</li>
<li>Interestingly, 57% of Belgian fund managers&rsquo; business activity is exposed to foreign currency risk. This was the second highest of any European country surveyed, behind Luxembourg (60%), and higher than the average of 51%, demonstrating the importance of FX to fund managers in the country.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="relianceonmanualprocessesandappetiteforautomation">Reliance on manual processes and appetite for automation&nbsp;</h2>
<ul>
<li>Belgium still has work to do when it comes to embracing FX automation and its fund managers are still dependent on outdated manual processes that significantly reduce efficiency.</li>
<li>An average of 2.3 days a week are spent on FX-related activities by fund managers in Belgium, slightly below the European average of 2.61 days.</li>
<li>However, Belgium was found to have the highest number of team members tasked with FX-related activities (3.1), more than the European average of 2.8.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/02db568c-f888-4b1b-94b7-d5cfa88fcb18" alt="Team members tasked with FX related activities" width="540" height="350">
<ul>
<li>Belgium&rsquo;s fund managers were also found to have an above-average reliance on some manual processes, with 35% using phones to instruct financial transactions. Such manual processes are a burden on human capital for fund managers and significantly reduce the efficiency of foreign exchange activity.</li>
<li>However, the report did find the country to have the lowest usage of email - only 29% compared to an average of 43%.</li>
<li>This, on top of the fact that 84% of Belgian fund managers are exploring new technology to automate FX operations, shows that the industry is moving in the right direction towards increased efficiency.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="belgiumfundmanagersstrugglewithalackoftransparency">Belgian fund managers struggle with a lack of FX transparency</h2>
<ul>
<li>Nearly four-fifths (77%) of Belgian fund managers said there is a lack of transparency in the FX market.</li>
<li>This proportion was lower than the European average of 82%, but still showed transparency to be a highly significant issue.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="hedgingtrendsinbelgium">Hedging trends in Belgium</h2>
<ul>
<li>Although 74% of Belgian fund managers said their returns had been impacted by EUR volatility, the country had one of the lowest proportions of fund managers that hedge their forecastable currency risk (71%), below the European average of 77%.</li>
<li>That said, 89% of unhedged fund managers in Belgium are now considering hedging due to market volatility, broadly in line with the average of 88%.</li>
<li>Belgium also has the highest percentage of fund managers that hedge all or a large proportion of their FX exposure - 91%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/9e73aa3a-f771-4762-a5ad-aeaec145d3de" alt="FX hedging amongst Belgium fund managers" width="484" height="350">
<ul>
<li>This was high above the 76% average. In addition, the country had the second-highest hedge ratio and 68% said that their hedge ratio was higher than last year.</li>
<li>It&rsquo;s clear that rising costs are challenging fund managers across Europe, with 84% saying the cost of hedging had risen. This rose slightly to 86% in Belgium.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="belgiumsneedtodiversifyfxcounterparties">Belgium&rsquo;s need to diversify FX counterparties</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. Credit Suisse, a globally systemic bank,&nbsp;<a href="https://www.ft.com/content/18278291-772e-4caa-8910-1d7b8563ed42" target="_blank" rel="noopener">stood on the brink</a>&nbsp;for the first time since Lehman Brothers and, in the US, three regional and specialised banks failed in&nbsp;<a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li>Our research found that 90% of European fund managers are looking to diversify their FX counterparties.</li>
<li>Only 84% of fund managers in Belgium, however, said they were exploring counterparty diversification, the joint-lowest proportion.</li>
</ul>
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="599" height="90"></a>
<h2>&nbsp;</h2>
<h2 id="esgprioritiesinbelgium">ESG priorities in Belgium</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;
<ul>
<li>94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.</li>
<li>Belgium, however, was found to have the second-lowest proportion of fund managers that said the ESG credentials of fund managers impact their selection &lsquo;to a great extent&rsquo; &ndash; 45%. This was significantly lower than the average of 56%.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="fxshouldbeapriority">FX should be a key priority for Belgium&rsquo;s fund managers</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in Belgium in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a>&nbsp;&ndash; TCA was specifically created to highlight hidden costs and enable fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;
Comparing the market&nbsp;&ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;
Outsourcing&nbsp;&ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;
Strong governance&nbsp;&ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;
Diversification of liquidity providers&nbsp;&ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">exploring technology-driven alternatives</a> to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;
Automation&nbsp;&ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer<a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener"> end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2>How MillTech can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Find out more at&nbsp;<a href="https://www.milltechfx.com/" target="_blank" rel="noopener">https://www.milltech.com</a>&nbsp;&nbsp;
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

57% of Belgium fund managers’ business activity is exposed to foreign currency risk, how do they approach hedging to combat market volatility?

Belgium Big

Belgian Fund Managers’ approach to managing FX volatility

Despite its small size, Luxembourg has developed into a European financial hub and, having listed the <a href="https://www.luxembourgforfinance.com/en/publication-article/the-green-capital-of-the-world/#:~:text=The%20world's%20first%20green%20bond,been%20adopted%20in%20markets%20worldwide." target="_blank" rel="noopener">world&rsquo;s first green bond</a>, has a particularly strong reputation surrounding green finance. The country&rsquo;s finance sector <a href="https://luxembourg.public.lu/en/invest/competitiveness/portrait-luxembourg-economy.html#:~:text=Main%20sectors%20of%20Luxembourg's%20economy,for%20many%20international%20financial%20institutions." target="_blank" rel="noopener">accounts for 25%</a> of its GDP, and it is also <a href="https://www.luxembourgforfinance.com/en/financial-centre/asset-management/" target="_blank" rel="noopener">Europe's largest investment fund centre</a> (the second largest in the world).
As a founding member of the European Union, Luxembourg is one of only 11 countries that first adopted the euro, in place of the Luxembourgian franc.
As such, the country has witnessed the entirety of the currency&rsquo;s history, including the value height of <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">1.6 EUR</a>&nbsp;to 1 USD in 2008 and its gradual decline to <a href="https://www.macrotrends.net/2548/euro-dollar-exchange-rate-historical-chart" target="_blank" rel="noopener">roughly 1.1 EUR to the dollar</a>. Geopolitical and economic instability have brought increased levels of volatility for the euro in recent years, with the currency&rsquo;s value <a href="https://www.ft.com/content/1d7fede7-b559-46eb-b1b6-ee4a3cf8dd51" target="_blank" rel="noopener">dropping below the dollar</a> for the first time in 2022.
Being a small country in the heart of Western Europe, Luxembourg relies on the European Union for <a href="https://www.lloydsbanktrade.com/en/market-potential/luxembourg/trade-profile#:~:text=In%202022%2C%20its%20main%20customers,3.1%25%20%2D%20data%20Comtrade)." target="_blank" rel="noopener">roughly 90%</a> of its trade. This makes the country and its fund managers extremely dependent on the euro and vulnerable to its fluctuations.
MillTech recently surveyed 250 senior finance decision-makers at fund managers across Europe to gain insight into how different countries operate FX resourcing, risk management and hedging strategies.
The report shows us that FX management is a top priority for fund managers in Luxembourg. This blog delves into the research&rsquo;s insights into Luxembourgian fund managers&rsquo; FX risk management, including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<ul>
<li><a href="#FXhasstrongsignificanceforLuxembourg">FX has strong significance for Luxembourg fund managers</a></li>
<li><a href="#StrongappetiteforFXautomation">Strong appetite for FX automation hasn't translated into action</a></li>
<li><a href="#hedgingtrendsinluxembourg">Hedging trends in Luxembourg</a></li>
<li><a href="#LuxembourgsneedtodiversifyFXcounterparties">Luxembourgs need to diversify FX counterparties</a></li>
<li><a href="#LuxembourgprioritsesESG">Luxembourg prioritses ESG</a></li>
<li><a href="#FXshouldbeakeypriorityforLuxembourg">FX should be a key priority for Luxembourg's fund managers in 2024</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="FXhasstrongsignificanceforLuxembourg">FX has strong significance for Luxembourg's fund managers</h2>
<ul>
<li>Our research found that 93% of fund managers in Luxembourg said that FX was significant to their business, higher than the European average of 88%.</li>
<li>It also found that 93% of fund managers in Luxembourg said their returns had been affected by EUR volatility, higher than the average of 89%.</li>
<li>Interestingly, 60% of Luxembourg fund managers&rsquo; business activity is exposed to foreign currency risk. This was the highest of any European country surveyed, and nine percentage points higher than the average of 51%, demonstrating the importance of FX to fund managers in the country.</li>
<li>Despite its importance, 85% of fund managers in Luxembourg struggle with a lack of FX transparency. This proportion was higher than the European average, demonstrating that this could be a more pressing issue for them.</li>
</ul>
<a title="The MillTechFX European Fund Manager CFO FX Report 2024" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024/"><img src="https://directus.corp.milltechfx.com/assets/3835b15f-bf98-46d9-8744-0114b41361c3" alt="Download the MillTechFX European Fund Manager CFO FX Report 2024" width="600" height="77"></a>
<h2>&nbsp;</h2>
<h2 id="StrongappetiteforFXautomation">Strong appetite for FX automation hasn't translated into action</h2>
When it comes to using manual processes to instruct FX-related activity, Luxembourg still has work to do in moving towards more efficient automated processes.
<ul>
<li>An average of 2.5 days a week are spent on FX-related activities by fund managers in Luxembourg</li>
<li>9 people per team are tasked with FX activities, one of the highest figures in Europe, second only to Belgium at 3.1.</li>
</ul>
Luxembourg fund managers&rsquo; reliance on phones and email was also higher than the European average:
<ul>
<li>44% still instructing financial transactions over email</li>
<li>37% doing so over the phone.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/58205a0b-4344-4baa-b88e-4c57ab184368" alt="How do you currently conduct financial transactions" width="466" height="350">
Such manual processes are a burden on human capital for fund managers and significantly reduce the efficiency of foreign exchange activity.
<ul>
<li>The good news is that 93% of fund managers in Luxembourg are looking into new technology and platforms to automate their FX operations.</li>
<li>This was one of the highest figures in Europe and above the 87% average.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="hedgingtrendsinluxembourg">Hedging trends in Luxembourg</h2>
<ul>
<li>Although 93% of fund managers in Luxembourg said their returns had been impacted by EUR volatility, surprisingly the country had the lowest proportion of fund managers that hedge their forecastable currency risk (56%), far below the European average of 77%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/e4b164e6-ef7d-4c6c-ae9a-50323e2e7b42" alt="Do you hedge your forecastable currency risk?" width="468" height="350">
<ul>
<li>However, the report discovered that 87% hedge all or a large proportion of their FX exposure, the second highest in Europe. They also have a relatively high average hedge ratio of 63%, the highest in the group, while 60% said that this was higher than the previous year.</li>
<li>The majority of fund managers across Europe stated that their hedging costs had increased over the last year.</li>
<li>However, Luxembourg&rsquo;s fund managers felt it more than others, may have risen with 93% reporting them to be higher. This was the second highest in the group, behind the Netherlands (100%), and significantly above the 84% European average</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/4a5fe796-855a-4d8f-bb73-34435da7ffa4" alt="Has the cost of your hedging gone up over the past year?" width="425" height="350">
<h2>&nbsp;</h2>
<h2 id="LuxembourgsneedtodiversifyFXcounterparties">Luxembourg's need to diversify FX counterparties</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. Credit Suisse, a globally systemic bank, <a href="https://www.ft.com/content/18278291-772e-4caa-8910-1d7b8563ed42" target="_blank" rel="noopener">stood on the brink</a>&nbsp;for the first time since Lehman Brothers and, in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li>Our research found that 90% of European fund managers are looking to diversify their FX counterparties.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/3554e2fd-5c17-47e7-9dc2-8f5468127f6e" alt="Diversify FX counterparties" width="454" height="350">
<h2 id="LuxembourgprioritsesESG"></h2>
<ul>
<li>A healthy 85% of fund managers in Luxembourg said they were exploring counterparty diversification, but this was one of the lowest proportions in Europe.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="LuxembourgprioritsesESG">Luxembourg prioritses ESG</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers.
<ul>
<li>Our survey found that 94% of European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;</li>
<li>Luxembourg had the highest percentage of fund managers that said ESG credentials impacted FX counterparty selection to a great extent (67%), which is unsurprising given its reputation as a green finance hub.</li>
</ul>
<h2>&nbsp;</h2>
<h2 id="FXshouldbeakeypriorityforLuxembourg">FX should be a key priority for Luxembourg&rsquo;s fund managers in 2024&nbsp;</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in Luxembourg in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<ol>
<li><a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a> &ndash; TCA was specifically created to highlight hidden costs and enable fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;</li>
<li>Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;</li>
<li>Outsourcing<a href="https://milltechfx.com/product/outsourced-execution-services/" target="_blank" rel="noopener"> </a>&ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;</li>
<li>Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;</li>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Diversification of liquidity providers</a> &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.</li>
<li>Automation&nbsp;&ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.&nbsp;</li>
</ol>
<h3>&nbsp;</h3>
<h2>How MillTech can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Download the full report <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-corporate-cfo-fx-report-2024/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

93% of fund managers in Luxembourg stated FX was significant to their business, higher than the European average. How do their levels of hedging compare?

V3  

Luxembourg Fund Managers put FX risk in focus

In our latest blog, we take a deep dive into what our research uncovered about fund managers in Switzerland including their FX exposure, pain points, hedging strategies and priorities.&nbsp;
<ul>
<li><a href="#Switzerlandrelationshipwiththeeuro">Switzerland's relationship with the euro</a></li>
<li><a href="#fximportanceforswiss">FX importance for Swiss fund managers</a></li>
<li><a href="#GreaterautomationinterestamongstSwiss">Greater automation interest amongst Swiss fund managers</a></li>
<li><a href="#swissfundmanagersstugglewithtransparency"> Swiss fund managers struggle with transparency</a></li>
<li><a href="#swisshedgingtrends">Swiss hedging trends</a></li>
<li><a href="#counterpartyriskinswitzerland">Counterparty risk in Switzerland</a></li>
<li><a href="#ESG">ESG is a priority for Swiss fund managers</a></li>
<li><a href="FXshouldbeakeypriorityforswiss">FX should be a key priority for Swiss fund managers in 2024</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="Switzerlandrelationshipwiththeeuro">Switzerland's relationship with&nbsp;the euro</h2>
Following a referendum in 1992, the Swiss public decided against joining the European Economic Area (EEA), opting to keep using the Swiss franc as opposed to the euro.
However, in September 2011 the Swiss National Bank (SNB) pegged the Swiss franc to the euro at a rate of 1.20 francs to 1 euro. Less than four years later, in January 2015, the SNB announced it was going to scrap its currency peg to the euro, causing the Swiss franc to immediately skyrocket by 20%.
In the years that have followed this shock decision, the Swiss franc weakened back to <a href="https://www.bloomberg.com/news/articles/2018-04-19/swiss-franc-weakens-below-key-level-once-protected-by-snb?sref=ix7Z3iHU" target="_blank" rel="noopener">1.20 euro</a> in 2018 completing a full reversal, before gradually strengthening to an eight-year high of <a href="https://www.bloomberg.com/news/articles/2023-12-07/swiss-franc-strongest-against-euro-since-swiss-national-bank-cap-scrap-in-2015?sref=ix7Z3iHU" target="_blank" rel="noopener">0.94 euro</a> in December 2023, amidst bets that the European Central Bank would cut rates before the SNB.
It&rsquo;s clear that currency management in Switzerland has always been an important consideration.
&nbsp;
<h2 id="fximportanceforswiss">FX importance for Swiss fund managers</h2>
Fund managers in Switzerland consider FX to be of greater importance than the rest of Europe:
<ul>
<li class="s5">&nbsp;97% stated FX was significant to their business compared to the European average of 88%.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/234e35c0-9f5e-450e-a404-d28571b8b14c" alt="How significant, if at all, is foreign exchange (FX) to your business?" width="614" height="350">
<ul>
<li class="s5">Our research also found that the vast majority of fund managers in Switzerland (94%) had their returns affected by euro volatility, which was higher than the European average of 89%.</li>
<li class="s5">Further to this, 50-59% of Swiss fund managers&rsquo; business is exposed to foreign currencies, highlighting the significance of FX to their business.&nbsp;</li>
</ul>
&nbsp;
<h2 id="GreaterautomationinterestamongstSwiss">Greater automation interest amongst Swiss fund managers</h2>
Our research revealed there is still a heavy reliance on manual FX execution in Switzerland:
<ul>
<li class="s5">50% of fund managers relying on email to instruct financial transactions</li>
<li class="s5">38% reporting it is the most challenging aspect of their FX operations.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/09f4c485-59c4-4385-8069-f1786519b7e7" alt="How do you currently instruct financial transactions?" width="534" height="350">
This process is a huge drain on human capital, with our research finding that on average, fund managers in Switzerland have nearly three team members tasked with FX activities and spend almost three days per week on FX-related matters.
<ul>
<li class="s5">Fortunately, the overwhelming majority of Swiss fund managers (91%) are looking into new technology and platforms to automate their FX operations.</li>
<li class="s5">This puts them ahead of the rest of European fund managers, 87% of which are exploring automation.</li>
</ul>
&nbsp;
<h2 id="swissfundmanagersstugglewithtransparency">Swiss fund managers struggle with transparency</h2>
We asked fund managers if they thought there was a lack of transparency in the FX market:
<ul>
<li class="s5">The answer was a resounding yes, with over four-fifths of respondents saying so. &nbsp;</li>
<li class="s5">Switzerland certainly didn&rsquo;t buck this trend, with 94% of Swiss fund managers stating they thought there was a lack of transparency in the FX market. </li>
</ul>
This was backed up by the fact that after manual processes, our research found that the two biggest challenges for Swiss fund managers&rsquo; FX operations are:
<ul>
<li class="s5">Getting comparative quotes (31%)</li>
<li class="s5">Forecasting and cost calculation (28%).</li>
</ul>
<a title="Download the MillTechFX European Fund Manager CFO FX Report 2024" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/3835b15f-bf98-46d9-8744-0114b41361c3" alt="The MillTechFX European Fund Manager CFO FX Report 2024" width="600" height="90"></a>
&nbsp;
<h2 id="swisshedgingtrends">Swiss hedging trends</h2>
<ul>
<li class="s5">With a high proportion of respondents in Switzerland (94%) saying that their returns had been impacted by EUR volatility, the same share also hedge their forecastable currency risk (94%).</li>
<li class="s5">Of the Swiss fund managers that don&rsquo;t, 100% responded saying that they are now considering hedging given market volatility.</li>
<li class="s5">17% of fund managers in Switzerland reported that they hedge all of their FX exposure, with 67% stating that they hedge a large proportion.</li>
<li>This is in line with the rest of Europe, which reported 17% and 60% respectively.</li>
<li>Swiss fund managers reported one of the highest current hedge ratios with 50-59% and 70% stated their hedge ratio is higher than the previous year.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/179772ea-cbb1-4b77-9433-31f6bc04a5ee" alt="Do you hedge your forecastable currency risk?" width="412" height="350">
<ul>
<li class="s5">Interestingly, this is higher than any other European country, with 61% of European fund managers reporting their hedge ratio increased this year compared to the previous.</li>
<li class="s5">Hedging costs for fund managers across Europe rose in the past 12 months and this is the same case in Switzerland. Overall, 84% of European fund managers said their hedging costs had risen, rising to 90% in Switzerland.</li>
</ul>
&nbsp;
<h2 id="counterpartyriskinswitzerland">Counterparty risk in Switzerland</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. In Switzerland, a globally systemic bank stood on the brink, for the first time since Lehman Brothers and in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/" target="_blank" rel="noopener">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of Spring 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
<ul>
<li class="s5">Our research found that 90% of fund managers are looking to diversify their FX counterparties.</li>
<li class="s5">Perhaps unsurprisingly given it was the home of Credit Suisse, Switzerland had one of the highest percentages of fund managers exploring diversification at 94%.</li>
</ul>
&nbsp;
<h2 id="ESG">ESG is a priority for Swiss fund managers</h2>
Driven by increased pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;
<ul>
<li class="s5">94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;&nbsp;</li>
<li class="s5">Switzerland matches this general trend, with 94% of fund managers responding that ESG credentials impact their selection of FX counterparties and 63% saying it impacts their decision to a great extent.</li>
</ul>
&nbsp;
<h2>FX should be a key priority for Swiss fund managers in 2024&nbsp;</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for Swiss fund managers in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
<ul>
<li><a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">Transaction cost analysis (TCA)</a> &ndash; TCA was specifically created to highlight hidden costs and enables fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;</li>
<li>Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;</li>
<li>Outsourcing &ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;</li>
<li>Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;</li>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Diversification of liquidity providers</a> &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;</li>
<li>Automation &ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.</li>
</ul>
&nbsp;
<h2 class="s5">How MillTech&nbsp;can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Download the full report <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Our latest research found that the vast majority of Swiss fund managers (94%) had their returns affected by euro volatility.

Swiss Blog 1

FX trends & challenges facing Swiss fund managers

MillTech recently <a href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-european-fund-manager-cfo-fx-report-2024/" target="_blank" rel="noopener">surveyed 250 fund managers</a> and senior finance decision makers across Europe to provide a window into their FX resourcing, risk management and hedging strategies and views on trends such as automation and ESG and it revealed some fascinating trends and geographic differences.&nbsp;&nbsp;
In this blog, we take a deep dive into what our research uncovered about fund managers in the Nordic countries of Denmark and Sweden, including their FX exposure, pain points, hedging strategies and priorities.
&nbsp;
<h2 class="s5">Recent currency history in Denmark and Sweden&nbsp;</h2>
&nbsp;In the early 2000's, both Denmark and Sweden refused to adopt the euro after national referendums, choosing to maintain free-floating currencies. &nbsp;
Denmark, participating in the Exchange Rate Mechanism II (<a href="https://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanism" target="_blank" rel="noopener">ERM II</a>), is required to trade within 2.25% either side of a specified rate of 1 euro equal to 7.46038 krone. <a href="https://www.eurofound.europa.eu/en/resources/article/2000/denmark-votes-no-euro" target="_blank" rel="noopener">Polls show</a> that the majority of the&nbsp;Danish population opposes joining the Eurozone, given the zone&rsquo;s debt crisis.&nbsp;&nbsp;
In Sweden, however, opposition to the eurozone has <a href="https://research.sebgroup.com/macro-ficc/reports/42009" target="_blank" rel="noopener">gradually diminished</a> given the weakening of the Swedish krona, which is roughly 20% undervalued against the euro as of the <a href="https://sebgroup.com/our-offering/reports-and-publications/nordic-outlook-highlights/theme-the-krona-and-flows" target="_blank" rel="noopener">summer of 2023</a>. This has led to the rise in costs of imported goods from the Eurozone which, if the imports are intermediate goods, can have unintended consequences on future exports.
&nbsp;
<h2 class="s5">Importance of FX to the Nordics&nbsp;</h2>
When asked how significant foreign exchange was to their businesses, fund managers in Denmark and Sweden responded saying that FX was of less importance than the rest of the European pack (88%), coming in at 67% and 63% respectively.&nbsp;&nbsp;
The slight majority is even more surprising when it comes to the impact EUR volatility had on Danish and Swedish fund managers&rsquo; returns. In Denmark, 83% of fund managers said FX had an impact on their returns, while in Sweden this rose to 90%.&nbsp;&nbsp;
Further, 34.84% of Swedish fund managers and 47.96% of Danish fund managers&rsquo; business on average is exposed to foreign currencies, highlighting the significance of FX to their business.
&nbsp;
<h2 class="s5">Reliance on manual processes driving automation exploration&nbsp;&nbsp;</h2>
Our research revealed there is still a reliance on manual FX execution, especially in Denmark where 40% of fund managers rely on phone calls to instruct financial transactions, while 43.33% rely on email. In Sweden, it&rsquo;s still a problem with 30% relying on phone calls and 30% on email.&nbsp;
This process is a huge drain on human capital, with our research finding that on average, fund managers in Denmark and Sweden have nearly three team members tasked with FX activities and spend nearly three days per week on FX-related matters.&nbsp;&nbsp;&nbsp;
The good news is that the vast majority of fund managers in Denmark (83%) and Sweden (70%) are looking into automating their FX operations. However, they are still lagging behind the rest of European fund managers, 87% of which are exploring automation.
&nbsp;
<h2 class="s5">Nordic fund managers are struggling with transparency</h2>
We asked EU fund managers if they thought there was a lack of transparency in the FX market and the answer was a resounding yes, with over four-fifths of respondents saying so.&nbsp;&nbsp;
In the Nordics, it was a bit more mixed with a definitive 97% of Danish fund managers struggling with FX transparency, compared to a below-average 73% in Sweden. That said, they both represent healthy majorities in both countries, potentially implying that hidden costs and an inability to compare the market are hampering Nordic fund managers when it comes to FX.&nbsp;
Another critical pain point for both Swedish and Danish fund managers was managing multiple providers, with both reporting this as the most challenging aspect of their FX operations. Getting comparative quotes was the next most difficult task for fund managers, with 37% in Sweden and 30% in Denmark selecting this as a key issue.
&nbsp;
<h2 class="s5">Hedging against volatility&nbsp;</h2>
Despite a high proportion of respondents in Sweden (90%) saying that their returns had been impacted by EUR volatility, only 63% hedge their FX risk, compared to 93% in Denmark. 100% of fund managers that don&rsquo;t hedge their FX risk in Denmark and Sweden are now considering doing so given market volatility.&nbsp;
Sweden had the highest percentage of fund managers hedging all of their FX exposure (47%), while Denmark was above average at 18%. In addition, both Sweden and Denmark had the lowest proportion of fund managers who said that their hedge ratios were higher (net) than the previous year: 47% and 54% respectively.&nbsp;&nbsp;
Interestingly, the two countries had the lowest proportion of fund managers increasing their hedge ratios: 23% in Sweden and 40% in Denmark. This is compared with an average across the surveyed European countries of 50%.&nbsp;&nbsp;
Hedging costs for fund managers across Europe rose in the past 12 months and this is the same case in Denmark and Sweden albeit less ubiquitously. Overall, 84% of European fund managers said their hedging costs had risen, compared to 63% and 68% in Sweden and Denmark respectively, the two lowest of the countries surveyed.
&nbsp;
<h2 class="s5">Counterparty diversity in the Nordics&nbsp;</h2>
The banking crisis in 2023 sent shockwaves throughout the finance industry. In Switzerland, a globally systemic bank stood on the brink, for the first time since Lehman Brothers and in the US, three regional and specialised banks failed in <a href="https://www.reuters.com/business/finance/ubs-mulls-credit-suisse-takeover-amid-us-bank-fallout-what-you-need-know-2023-03-19/">rapid sequence</a>.&nbsp;
Whilst the banking sector has seemingly stabilised since the turmoil of the Spring of 2023, many senior finance decision-makers at European fund managers are taking lessons from the crisis on board.&nbsp;
Our research found that 90% of fund managers are looking to diversify their FX counterparties. Sweden had the highest percentage of fund managers exploring diversification (97%), while Denmark came in below average at 83%.&nbsp;
&nbsp;
<h2 class="s5">ESG is a priority&nbsp;</h2>
Driven by pressure from investors, governments and consumers, ESG criteria are now central to the decision-making process for many fund managers. Our survey found that the trend has also begun to play an increasingly important role in selecting FX counterparties and service providers.&nbsp;&nbsp;
94% of senior finance decision-makers at European fund managers said that ESG credentials impact their selection of FX counterparties, while 56% said they have a big impact.&nbsp;&nbsp;
In Sweden, 93% of fund managers said that ESG credentials have an impact, higher than Denmark (90%), while 60% said they have a big impact, over two times more than in Denmark (23%).
&nbsp;
<h2 class="s5">FX should be a key priority for Nordic fund managers</h2>
With uncertainty set to stay, we believe the management of FX currency risk should be considered a top priority for fund managers in the Nordics in the year ahead.&nbsp;
Fortunately, there are several ways they can improve their FX risk management infrastructure and protect their returns in these uncertain times:&nbsp;&nbsp;
Transaction cost analysis (TCA) &ndash; <a href="https://www.milltech.com/product/transaction-cost-analysis" target="_blank" rel="noopener">TCA </a>was specifically created to highlight hidden costs and enables fund managers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.&nbsp;&nbsp;
Comparing the market &ndash; We believe that fund managers should seek alternatives to the traditional single bank-based approach. Instead, they should look for solutions that enable them access to live rates from multiple banks and execute at the best rate, all whilst reducing the operational burden traditionally associated with this kind of market access.&nbsp;&nbsp;
Outsourcing &ndash; There is a growing recognition that outsourcing does not necessarily mean a loss of control, less transparency or reduced quality of FX activities, but when using the right partner outsourcing can improve transparency and execution quality. Outsourcing can therefore enable fund managers to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.&nbsp;&nbsp;
Strong governance &ndash; FX is one of the largest and most liquid markets in the world, but also one of the most complex. Setting up and onboarding new FX counterparties, centralising price discovery and navigating the post-execution phase require a team of people and often have their own complications. Harnessing solutions which can enhance transparency and governance can help fund managers improve the cost, quality and transparency of their FX execution.&nbsp;&nbsp;
Diversification of liquidity providers &ndash; Recent events in the banking sector show that reliance on one or two counterparties can be an extremely risky strategy, as the loss of a major FX counterparty could render firms unable to trade. We believe fund managers should begin exploring technology-driven alternatives to the single bank-based approach that enable them to transact in FX in a way that addresses risks associated with a single point of failure.&nbsp;
Automation &ndash; Despite the rising threat of currency movements, many fund managers continue to rely on manual processes like phone and email to execute FX trades which may make it harder to mitigate the impact of currency volatility. Harnessing automated solutions can offer <a href="https://www.milltech.com/product/trade-workflow-automation" target="_blank" rel="noopener">end-to-end workflow</a>, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2 class="s5">How MillTech&nbsp;can help&nbsp;</h2>
MillTech is an FX-as-a-Service (FXaaS) pioneer that enables fund managers to access <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX rates</a> via an independent marketplace.&nbsp;&nbsp;
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for senior finance decision-makers at fund managers.&nbsp;&nbsp;
It is end-to-end at no additional cost, offering easy and quick onboarding, multi-bank best execution and FX risk hedging management, and connectivity into clients&rsquo; bank accounts, internal systems, administrators or custodians.&nbsp;&nbsp;
Find out more at <a href="https://www.milltechfx.com/">https://www.milltech.com</a>&nbsp;&nbsp;
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

What moves the FX dial in Sweden & Denmark? Uncovered the pain points, hedging strategies and priorities of the Nordic Fund Managers

Nordic Image

The intensifying FX challenges for Nordic fund managers

For most pension funds, FX may not be a conscious investment choice. Many invest internationally to gain exposure to the diversification benefits inherent in other assets, meaning the currency exposure they get from investing in foreign markets is usually an unintended by-product of buying the asset.
In addition, pension funds that allocate to international external investment managers for both private and public market strategies can be subjected to capital calls in a foreign currency.
For example, a US pension fund might invest in a European private equity fund that can issue capital calls in EUR at various times over the deployment period of the fund. The pension fund must therefore convert USD into EUR in order to physically satisfy the capital call. Ensuring best execution for this kind of transaction is just as important as for a hedging transaction.&nbsp;
When managing this currency risk, it is therefore important for pension funds to get the best possible conversion rate, or face potentially overpaying for their FX execution. Despite this, many pension funds may have traditionally paid too much for their FX transactions, whether in spot, forward or other products.
&nbsp;
<h2>An environment lacking transparency</h2>
One of the key reasons for this struggle is likely because of the nature of pension funds&rsquo; custodial relations. The single-party custodial format means that pension funds can feel as though they have little choice but to accept the FX rates offered to them by their custodian, often leaving them unsure whether they&rsquo;re getting the best possible rate.
Pension funds, unwittingly, may therefore be significantly overpaying for their FX execution.
There is little recent research into pension funds overpaying, but reports that exist point in one direction. One <a href="https://www.pensionfundsonline.co.uk/content/pension-funds-insider/investment/fx-fee-worries-spread-to-the-uk/194" target="_blank" rel="noopener">study</a> from 2010, for example, claimed pension funds may be paying more than 24 basis points above market rates per trade. Similarly, a paper published in the <a href="https://www.ft.com/content/46ce0dc2-e9e5-11e0-a149-00144feab49a" target="_blank" rel="noopener">Financial Times</a> argued that FX revenues for custodians are significantly greater than those of other banks and that the execution process lacks integrity or transparency.&nbsp;
Despite efforts to increase transparency over the past decade, a pension fund&rsquo;s ability to get the best possible rate is ultimately left down to the custodian. This means that it will, to a degree, always be left in the dark over whether it is accessing the best price.
&nbsp;
<h2>Looking beyond the single-party custodial format</h2>
Fortunately, there is now an alternative to the status quo that enables best execution whilst reducing the operational burden traditionally associated with trying to achieve it. Technology has enabled new entrants to offer an alternative way to transact in FX that seeks to address the inequalities and opacity pension funds may currently experience.
The first step is for pension funds to access a greater pool of pricing:
<ol>
<li><a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">Multibank marketplaces</a> offer pension funds access to multiple liquidity providers from a single interface. Rather than being offered one single rate like their existing set up, this enables them to see live rates of institutional grade quality on a single screen and to automatically execute at the best available rate. Having the ability to reach multiple counterparties is essential from a best execution perspective and can help ensure pension funds aren&rsquo;t being overcharged. FX-as-a-Service delivers these multi-bank marketplace benefits whilst also streamlining onboarding and integration for pension funds.</li>
<li>The next step is to get more transparency on pricing. The use of <a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">independent transaction cost analysis (TCA)</a> exposes any hidden costs in the spread and enables pension funds to see exactly how much they are being charged for their execution.</li>
<li>The final step is to provide all of these benefits from a single location which offers streamlined workflow, real-time reporting and TCA to demonstrate best execution. This has the potential to drastically reduce execution costs and operational burden.</li>
</ol>
&nbsp;
<h2>How MillTech can help</h2>
MillTech provides access to a <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks tier-one, while harnessing a unique and significant pricing efficiency for our clients. Rather than having little choice but to accept the rates offered to them by their custodians, pension funds can automatically execute at the best available rate with the simple click of a button.
MillTech&rsquo;s market access, pricing power and operational resource enable it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for pension funds.
<a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

For most pension funds, FX may not be a conscious investment choice. Many invest internationally to gain exposure to the diversification...

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How pension funds can get a better FX deal

In our newest blog post, we are highlighting some of the costs associated with FX execution and hedging that fund managers should be aware of and rank them in order of transparency.
<h2>&nbsp;FX Execution Costs</h2>
Execution costs are often the first thing fund managers will reference when speaking about FX costs. Think of a bank as a currency wholesaler, who will then discount away from their wholesale rate to incorporate a profit margin or &lsquo;spread&rsquo; when they quote their clients.
The spread will be impacted by various factors including, but not limited to:
<ul>
<li>how much a fund manager trades per annum</li>
<li>the size of a particular transaction</li>
<li>the liquidity of the currency pair</li>
<li>the tenor of a hedge</li>
<li>any other revenue generating products within the broader, holistic relationship with that fund manager</li>
</ul>
In theory, this cost should be easier to monitor and manage than all the other costs in this list. However, in practice, and even to this day, many fund managers cannot say explicitly what they are being charged.
One of the best ways for a fund manager to understand their current execution costs is by carrying out regular Transaction Cost Analysis (TCA) via an independent specialist. TCA is to FX execution what an audit is to annual accounts &ndash; third party analysis ensures that your FX counterparties are not &lsquo;marking their own homework&rsquo;.
<h2>Forward points</h2>
Forward points arise in certain FX risk management products such as forward contracts or FX swaps and are a universal market cost that is largely influenced by the interest rate differential between two currency jurisdictions.
Forward points can be negative or positive, and may be to the hedgers&rsquo; favour or detriment, depending on which currencies are being bought or sold.
Nothing can be done to avoid forward points, but fund managers should understand that the forward curve isn&rsquo;t always linear.
The tenor of a hedge can be altered to take advantage of a non-linear forward curve in certain circumstances such as when the trade expiry date doesn&rsquo;t need to match a pre-defined exit date.
Any spread that is incorporated into a forward rate, or the far-leg of a swap, can be monitored using TCA, in much the same way as other Over The Counter (OTC) FX products.
<h2>&nbsp;The Cost of Cash Drag</h2>
If you&rsquo;re a fund manager who hedges FX risk using products such as swaps, forwards or non-deliverable forwards, then you may have experienced first-hand a hidden cost of hedging that isn&rsquo;t often spoken about &ndash; the cash drag associated with placing margin.
When placing a hedge, a bank may request cash collateral (initial margin) to be held as security until the hedge matures and is settled.
Further, movements in the FX market may result in more collateral (variation margin) being requested, to cover the new mark-to-market of the hedge.
If a funds&rsquo; investible capital is held back for initial margin, variation margin, or contingent liquidity to cover potential variation margin requests at short notice, then deployed capital must work even harder to hit the target internal rate of return (IRR).
It&rsquo;s almost impossible to know, with any degree of certainty, where FX markets will move and to forecast total margin requirements throughout the life of a hedge &ndash; this means, that on day 1, it&rsquo;s impossible to forecast how placing margin will impact a funds&rsquo; investment returns.
For this reason, fund managers tend to seek out uncollateralized hedging facilities with each of their FX counterparties with a view to freeing up investible capital.
However, hedging on an uncollateralized basis might introduce additional costs that are built into the exchange rate in the form of a credit valuation adjustment (CVA).
<h2>Credit Valuation Adjustment (CVA)</h2>
If a fund manager successfully negotiates uncollateralised hedging facilities with their counterparty banks, they should be mindful of the potential for additional FX charges when hedging.
Uncollateralised hedging means that the executing bank is taking additional risk on a client when they hedge.
After all, that bank has no security against that hedge and in the event of a client default the bank could potentially face a mark-to-market (MTM) loss. CVA is an adjustment in the FX rate to account for the possibility of default. CVA is not zero when FX hedges are collateralized, but it is heavily negated when compared to uncollateralised hedging.
CVA will vary from bank to bank, for different clients and might be influenced by prevailing market conditions. This means when a fund manager is executing a longer-dated trade that induces CVA, they can&rsquo;t know exactly what their hedging costs will be in advance.
Although, generally speaking, as the tenor of a hedge increases, so does the potential mark-to-market loss and, therefore, the CVA charge.
In order to maintain FX transparency and cost control, fund managers could explore using shorter trade tenors (e.g. 6-months or less) that don&rsquo;t incur CVA.
<h2>Historic Rate Rollovers (HRR)</h2>
HRRs have been around for a while but get a mixed reception from different global regulators and are not generally considered best practice.
The appeal of HRRs for fund managers comes from the fact that in theory there will be no cash movements that might normally arise from rolling FX forwards.
Standard practice is for any mark-to-market (MTM) gain or loss to be crystallised at each roll date and for the fund manager to receive or instruct a cashflow accordingly.
Instead, with HRRs, the single FX counterparty that holds the current hedge incorporates any potential MTM loss into the new hedge rate and the hedge &lsquo;roll&rsquo; is performed &lsquo;off-market&rsquo;. It&rsquo;s the FX equivalent of kicking the can down the road.
HRRs should be considered more of a lending product than an FX product, because any accrued MTM losses are subject to a lending rate being applied to them before the new, off-market hedge rate is decided.
HRRs are not considered best practice for the following reasons::
<ul>
<li>The fund manager foregoes transparency of execution costs and cost oversight through TCA, because the new rate is agreed off-market.</li>
<li>All subsequent rolls must stay with the original counterparty that traded the hedge, meaning the fund manager may also forego best achieving the best price from the available counterparties.</li>
<li>Crucially, banks will trade HRRs at their own discretion and they can be withdrawn at any time potentially leaving a fund manager open to a large liquidity risk at short notice.</li>
</ul>
Fund managers should pay particular attention to the discretionary nature of continued access to HRRs every time a hedge is rolled forward, because it relies entirely on the credit appetite of the FX counterparty.
HRRs are at their most valuable to a fund manager when they carry a significant MTM loss in the hedge rate, which is conversely when the FX counterparty&rsquo;s credit appetite will come under most pressure.
For example, a &lsquo;Black Swan&rsquo; event that has led to significant volatility in FX markets (and a large MTM loss on a hedge) might also be the time an FX counterparty reassesses how much FX credit they extend to their book of clients as risk appetite decreases and they adopt a more conservative stance to weather the storm.
<h2>Operational Overheads</h2>
In our view, the FX cost centre that is the least transparent and most challenging to quantify is the &lsquo;opportunity cost&rsquo; of the time and operations associated implementing and managing the FX function day-to-day. Here are just some of the potential operational costs:
<ul>
<li>Onboarding a new FX counterparty &ndash; KYC, AML, ISDA and CSA negotiation, reverse due diligence, all put significant strain on legal and compliance resources.</li>
<li>FX transactions&ndash; cumbersome price discovery, navigating multiple systems or platforms, trade approvals, data entry and payments / settlements all could potentially take their toll on finance and operations teams.</li>
<li>Manual processes and human error &ndash; if FX transactions are managed manually then this can place more strain on finance teams and often makes the process more prone to errors. Errors can be extremely costly, especially if they involve cancelling and rebooking trades, or if a deadline is missed.</li>
<li>IT systems and integration &ndash; to help overcome the operational drag that arises from manual processes, a fund manager might decide to invest in various IT systems. However, to truly &lsquo;future proof&rsquo; the FX function, systems need to be integrated to help ensure that workflows are automated.</li>
<li>Counterparty monitoring &ndash; Following the collapse of Credit Suisse, SVB and First Republic Bank - something that captures the FX zeitgeist of 2023, is counterparty diversity and due diligence. Some resource must go towards monitoring counterparties, otherwise a fund manager risks going back to step 1).</li>
</ul>
To overcome these operational hurdles, fund managers could explore new solutions in the market which provide access to a multibank FX execution framework, while minimising operational burdens through automation.
<h2>How MillTech can help</h2>
MillTech by Millennium Global is the FinTech affiliate of Millennium Global Investments, one of the largest specialist currency managers globally. Our FX-as-a-Service model helps fund managers significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="get in touch today" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch today</a> to find out more.
URN MT100217

We highlight some of the costs associated with FX execution and hedging that fund managers should be aware of and rank them in order of transparency.

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6 hidden FX costs every fund manager should know about

Although volatility has decreased since peaking towards the end of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://thefullfx.com/fx-volatility-remains-high-after-event-driven-2022-bofa/#:~:text=Bank%20of%20America's%20latest%20FX,significantly%20higher%20over%20the%20year." target="_blank" rel="noopener">2022</a>, it is still a persistent threat to fund managers in Canada due to a combination of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://think.ing.com/articles/boc-surprise-with-hikes-and-hints-at-more-to-come" target="_blank" rel="noopener">rising interest rates</a>, <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.ft.com/content/088d3368-bb8b-4ff3-9df7-a7680d4d81b2" target="_blank" rel="noopener">high global inflation</a> and <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.imf.org/en/Blogs/Articles/2023/04/05/geopolitics-and-fragmentation-emerge-as-serious-financial-stability-threats" target="_blank" rel="noopener">geopolitical uncertainty</a>.
After making consistent gains against the greenback <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.bloomberg.com/news/articles/2023-05-05/canadian-dollar-having-its-best-day-this-year-on-job-growth-oil?sref=ix7Z3iHU" target="_blank" rel="noopener">earlier this year</a>, the Canadian dollar hit a six-month low in October 2023 only to then <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/canadian-dollar-tracks-wall-street-higher-ahead-cpi-data-2023-10-16/" target="_blank" rel="noopener">rebound slightly</a> later in the month.
The US dollar itself has also fluctuated over the past year. Having reached a <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/europe/dollar-ascendant-investors-gear-up-fed-2022-09-21/" target="_blank" rel="noopener">two-decade high</a> against other major currencies in September 2022, it slid to a <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/dollar-pauses-ahead-fed-rate-decision-2023-02-01/" target="_blank" rel="noopener">nine-month low in February 2023</a> and continued to dip until it rebounded again in <a title="Four key FX trends facing fund managers in Canada - blog" href="https://www.reuters.com/markets/currencies/dollar-hovers-above-3-month-low-euro-ecb-decision-looms-2023-09-14/" target="_blank" rel="noopener">September 2023</a>.
This backdrop, in addition to the broader macro environment, could create uncertainty on returns for fund managers in Canada with exposure to foreign currencies. As a result, many are now reviewing their foreign exchange (FX) set up so that they can readily navigate this uncertain climate.
Here are four key FX trends that are likely to affect how Canadian fund managers manage their currency exposures over the next 12 months.
<h2>1. Changing face of FX hedging</h2>
&nbsp;Our own <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">CFO FX report</a> found that 84% of fund managers in Canada have been impacted by US dollar volatility, whilst 98% said that FX was significant to their business.
Fund managers are subsequently renewing their focus on hedging, with <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">82%</a> having a formal hedging program in place. Out of those that do not, half are considering implementing one.
Firms are adapting their hedging strategies to protect themselves against mounting uncertainty in the market. The average hedge ratio amongst Canadian fund managers was between <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">50-59%</a>, with over <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">eight out of ten</a> citing this as higher compared to last year. This suggests that fund managers in Canada are moving to hedge more of their FX risk to protect their bottom lines from currency movements.
Likewise, rather than using long-dated FX forwards of up to a year or two, fund managers are opting for shorter hedge windows of six months or less, with the average hedge length at <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">five months</a>. This can help add an extra layer of flexibility and nimbleness, enabling them to adapt quickly should the market move against them.
Looking ahead, 51% of fund managers in Canada plan on shortening their hedge windows, whilst 53% plan on increasing their hedge ratio.
 
<h2>2. Counterparty diversification</h2>
&nbsp;One of the biggest lessons for fund managers from the banking crisis earlier this year is the importance of having access to multiple counterparties.
For fund managers who trade FX for payment or hedging purposes, FX can be seen as second-order: they transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; due to international exposure. It is thus often operationally inefficient for them to set up and manage multi-bank relationships.
This means they are often reliant on one or two counterparties, and it can often take months to onboard others, which leaves them open to risk should another bank run occur. The loss of a major FX counterparty could render firms unable to trade, potentially impacting their ability to manage FX risk across their portfolios and share classes.
Our <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">survey</a> found that 82% of fund managers in Canada are looking to diversify their FX counterparties following the banking crisis earlier this year.
As well as enhancing risk management, having multiple counterparties can also have a positive impact on pricing. At any given time, fund managers may not be able to trade at the best available rate as they have no other access point to the market. Getting competitive quotes from multiple counterparties can enable fund managers to compare the market so they can ensure they get the best rate and achieve best execution.&nbsp;
 
<h2>3. Automation drive</h2>
&nbsp;For many fund managers in Canada, FX processes can be manual, cumbersome and time-consuming.
FX price discovery can often involve multiple phone calls, emails, or online platforms to log in to just to get comparative quotes from your counterparties. Because the market is constantly moving, price discovery often requires a team of people calling, emailing and logging in simultaneously before they can collectively decide who offered the best quote.
As a result, many are beginning to consider moving away from legacy infrastructure and instead embrace automated, tech-enabled solutions which digitise the FX process from initial price discovery right through to reporting at the end of the trade lifecycle.
Our <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">research</a> found that more than nine out of ten fund managers in Canada are looking into new technology and platforms to automate their FX operations.
The benefits of automated digital infrastructure include centralized price discovery, end-to-end workflow, enhanced transparency and faster onboarding.
<h2>4. Rising importance of ESG</h2>
&nbsp;Environmental, Social and Governance (ESG) criteria have begun to play an increasingly important role in the FX industry. <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">89%</a> of fund managers in Canada report that ESG has grown in importance to their business over the past year, whilst more than half <a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">(53%)</a> believe that their FX counterparties must have strong ESG credentials.
When transacting in FX, fund managers can take the following steps to enhance their ESG credentials:
Adopting the Global FX Code (GFXC) - The BIS Foreign Exchange Working Group published this in 2017 to set out best practices across the wholesale FX market and is beginning to embed the code into firms&rsquo; ESG practices. Its members recently supported the possibility of a partnership with rating agencies so that anyone who signs the code can be recognised as having fulfilled the governance element of their ESG commitments. Signing up to the code is therefore a key step for fund managers seeking to demonstrate their ESG credentials.
Consider ESG credentials of partners - It&rsquo;s not just a company&rsquo;s own infrastructure that reflects strong ESG credentials but also that of any partner or affiliate organisation. When transacting in FX, we feel fund managers should seek to use FX providers which adhere to internationally recognised ESG standards, such as the Principles for Responsible Investment (PRI).
<h2>How MillTech can help</h2>
Looking ahead, we believe that FX risk management should be considered a top priority for fund managers in Canada and beyond.
MillTech by Millennium Global is the FinTech affiliate of <a title="Four key FX trends facing fund managers in Canada - blog" href="https://investments.millenniumglobal.com/" target="_blank" rel="noopener">Millennium Global Investments</a>, one of the largest specialist currency managers globally. Our FX-as-a-Service model provides an end-to-end solution, from onboarding with up to 15 counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
Having recently become members of the <a title="Four key FX trends facing fund managers in Canada - blog" href="https://caasa.ca/" target="_blank" rel="noopener">Canadian Association of Alternative Strategies and Assets</a>, we collaborate closely with fund managers in Canada to help them reduce their FX costs and the operational burden associated with FX execution and rolling hedge requirements.
To find out more about how we can help you navigate your FX challenges in 2023, get in touch with us&nbsp;<a title="Four key FX trends facing fund managers in Canada - blog" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Canadian fund managers are dealing with ongoing volatility due to various factors; we explore what these are and how to manage them effectively.

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Four key FX trends facing fund managers in Canada

The original version of this article first appeared in <a title="The CFO website" href="https://the-cfo.io/2023/08/29/corporates-are-not-out-of-the-woods-when-it-comes-to-fx-volatility/" target="_blank" rel="noopener">The CFO</a> on the 29th of August 2023.
Foreign exchange (FX) risk management has risen to the top of the agenda for many senior finance decision-makers at corporates throughout 2023.
Although volatility has decreased in recent months, it is still a persistent threat due to a combination of <a title="rising interest rates" href="https://www.bbc.com/news/business-65474456" target="_blank" rel="noopener">rising interest rates</a>, <a title="high inflation" href="https://www.bbc.co.uk/news/business-64639662" target="_blank" rel="noopener">high inflation</a> and <a title="geopolitical uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/04/05/geopolitics-and-fragmentation-emerge-as-serious-financial-stability-threats" target="_blank" rel="noopener">geopolitical uncertainty</a>.
This is particularly the case for North American firms transacting in the US dollar. Having slid to a <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-pauses-ahead-fed-rate-decision-2023-02-01/" target="_blank" rel="noopener">nine-month low</a> in February 2023, it <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-front-foot-after-robust-us-jobs-data-yen-falters-2023-02-06/" target="_blank" rel="noopener">rebounded</a> slightly before once again falling to its <a title="Reuters website" href="https://www.reuters.com/markets/currencies/dollar-slides-ahead-us-inflation-data-sterling-hits-15-month-peak-2023-07-12/" target="_blank" rel="noopener">lowest</a> level in more than a year in recent weeks.
Fluctuations in the US dollar have had a major impact on North American firms who, according to Kyriba&rsquo;s <a title="July 2023 Currency Impact Report" href="https://www.businesswire.com/news/home/20230718675856/en/Kyriba%E2%80%99s-Quarterly-Currency-Impact-Report-Multinationals%E2%80%99-FX-Headwinds-Wipe-Out-22B-in-Revenue" target="_blank" rel="noopener">July 2023 Currency Impact Report</a>, reported $21.24 billion in FX headwinds in Q1 2023 &ndash; up 45% from the same time last year.
While firms are likely to welcome the recent drop in FX volatility, it is vital that they don&rsquo;t become complacent. With <a title="IMF" href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023#:~:text=The%20outlook%20is%20uncertain%20again,at%203.0%20percent%20in%202024." target="_blank" rel="noopener">uncertainty</a> set to stay, we believe corporates need to adapt their FX risk management strategies to stay ahead of the curve.
&nbsp;
<h2>The shifts in hedging practices</h2>
According to MillTech&rsquo;s own <a title="2023 CFO FX survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">2023 CFO FX survey</a>, over two-thirds (68%) of North American firms have experienced heightened FX risk as a result of US dollar volatility.
CFOs are adapting their hedging strategies to make sure this risk is managed as effectively as possible, typically hedging a higher amount of their exposure to increase their protection. <a title="MillTechFX Survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">Our survey</a> found that the average hedge ratio was between 60% - 69%, with nearly eight out of ten (79%) corporates citing this as higher compared to this time last year.
Similarly, rather than using long-dated FX forwards of up to two years, many are now locking in rates of six months or less with the average length of hedges at <a title="Currency NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">five and a half months</a>. This suggests that corporates are opting for shorter hedge lengths to add an extra layer of nimbleness and flexibility should the market move against them, enabling firms to adjust their exposure if they need to.
About <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">three-quarters of firms</a> report that the cost of hedging has increased over the past year. This means that looking ahead, corporate treasurers may consider balancing the cost of hedging against the risk of not hedging and the potential impact this may have on the bottom line.
&nbsp;
<h2>From past to present</h2>
Despite the renewed focus on managing the threat of currency movements, many firms still lack the necessary tools and infrastructure to mitigate this risk, with a <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">third</a> rating their FX set-up as below average or worst in class.
One of the main reasons for this is the persistence of manual legacy systems which can be extremely cumbersome and inefficient. Our <a title="Milltechfx survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">survey</a> found that 40% of corporate treasurers have to manually send or upload files for instructing financial transactions, with 35% relying on phone and 34% on email.
FX price discovery can often involve multiple phone calls, e-mails or online platforms to log in to just to get a quote from your counterparties. If its best rate wins, because the market moves by the half second, price discovery requires a team of people; calling, e-mailing and logging in simultaneously before they can collectively decide who offered the best quote.
Price discovery is just the first step in the FX booking process. After a rate is booked in, trade confirmations usually arrive by e-mail. Settlement must then be processed, payment details entered and checked and approval from different layers of seniority can be required.
All of this internal, manual and siloed communication is extremely inefficient. And this is just for one, single trade. Many organizations execute tens or hundreds of trades every month with different products and mechanics, making the entire process a huge drain on time and resources. Corporate treasury teams spend on average <a title="na survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">2.31 days</a> per week on FX-related matters, while <a title="NA survey 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">72%</a> have three or more people tasked with FX activities.
It is therefore unsurprising that many firms are seeking to embrace digitization to improve operational efficiency, with <a title="Milltechfx NA survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">81%</a> of corporate treasurers looking into new technology and platforms to automate their FX operations.
<h2>&nbsp;</h2>
<h2>How MillTech can help&nbsp;</h2>
Much of the recent focus has been on whether volatility will resurge during the second half of 2023, but the more important factor at play is the <a title="IMF website" href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023#:~:text=The%20outlook%20is%20uncertain%20again,at%203.0%20percent%20in%202024." target="_blank" rel="noopener">uncertain economic outlook</a> itself.
Hedging currency risk is one of the primary ways that firms can mitigate the risk posed by this uncertain climate, and while there will always be some that don&rsquo;t hedge their FX risk at all, many are now considering doing so to protect their bottom lines.
MillTech's FX-as-a-Service model helps corporates and global businesses significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an <a title="FX multi-bank platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">end-to-end solution</a>, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

Foreign exchange (FX) risk management has risen to the top of the agenda for many senior finance decision-makers at corporates throughout 2023.

Usblog

US corporates face FX uncertainty amid volatility

In a <a title="ChatGPT and We &ndash; Exploring generative AI use cases for MillTechFX" href="https://milltechfx.com/resources/blog/chatgpt-milltechfx-exploring-generative-ai-use-cases" target="_blank" rel="noopener">previous blog,</a> I discussed how the tech team here at MillTech were exploring generative artificial intelligence (AI) for a number of use cases. I discussed our early exploration, checking out ChatGPT&rsquo;s code writing abilities, testing if it could draft strong policy boilerplates and, most importantly, asking it how to dress for a smart casual-themed party.
In the six months since, our exploration has turned into implementation. We continued to tinker with the technology and are implementing tools which are accelerating our work, ultimately benefiting our customers.
&nbsp;
<h2>Building on our AI heritage</h2>
The Millennium Group had a long track record of using AI to deliver business value. Systematic (or quantitative) investment processes were a core part of the service offering at Millennium for many years, so it&rsquo;s safe to say we&rsquo;re comfortable with the technology.
We applied the same institutional approach to generative AI, that we do with all emerging technology &ndash; analysing the risks as we explore the opportunities of the new technology.
Data loss, hallucinations and entrenching bias are just some of the very real risks of generative AI. To manage these, we set out a policy that allows us to identify and mitigate risks that come with a specific use case or generative AI technology choice.
&nbsp;Key areas of this policy are:
<ul>
<li>Input information: Scrutinising the quality and source of input data to ensure its reliability.</li>
<li>Algorithm choice: Carefully selecting the appropriate algorithm for each use case.</li>
<li>Output information: Evaluating the output for accuracy.</li>
<li>Legal and regulatory compliance: Staying informed about evolving regulations and adapting their practices accordingly.</li>
<li>Human oversight: Maintaining a level of human oversight to ensure responsible AI use.</li>
</ul>
&nbsp;
<h2>Rolling out generative AI tools</h2>
Our AI heritage combined with an institutional approach to the technology enabled us to rapidly explore and adopt generative AI in a safe, compliant manner. So far, we have focused our initial efforts on two internal use cases:
Speeding up compliance &ndash; Part of our offering is to deliver express onboarding with our 15 counterparty banks. We have a unique advantage in that we have significant experience in KYC and AML in foreign exchange (FX). However, even with this experience, it&rsquo;s still a laborious process. It typically involves reviewing complicated legal documents and finding specific information from within these documents. It can be a bit like finding a needle in a haystack. To improve this process, we built a generative AI tool that allows us to rapidly find these answers and further accelerate the onboarding process.
Creating development efficiencies - As our business grows our code base grows too. As it grows, an individual developer might need to create a feature that requires them to understand a part of the system they have not worked with before. Businesses typically overcome this problem by writing and maintaining documentation, though these efforts create an overhead and are rarely accurate. Instead, we feed parts of our code base to a Generative AI model to allow developers to ask questions to the code and return the true answers rather than searching through documentation, saving valuable time.
Given it offers affordable access, generative AI can solve a whole new class of problem. As a high growth business, there is always much more to do than can be done. Generative AI is enabling our team members to automate time-consuming tasks and accelerate their work, freeing them up to focus on higher value activities.
&nbsp;
<h2>What&rsquo;s next for generative AI at MillTech?</h2>
The pace of change in generative AI is so fast. Open source models that performed poorly when first released, take only days to overtake their competitors. Keeping up with this pace of change is only possible if you get hands-on and work with real use cases.
Regulators are working hard to keep up but, in the meantime, the focus must be on organisations using the technology, acting responsibly and managing the risks.
Beyond operational efficiencies, we are also in the earlier stages of analysing how we can incorporate generative AI into decision-making enhancement tools for our clients. We are using certain machine learning (ML) algorithms to combine macroeconomics, market dynamics, price changes and alternative data sources to generate signals that our clients could use to help them with when and how they execute for their transactional or hedging FX requirements.
We plan to continue exploring the technology as the more we work with it, the more ideas it sparks for applications within our business. We run hackathons to rapidly allow us to explore different use cases and technology variants.
The genie is well and truly out of the bottle with generative AI and any organisation that&rsquo;s not thinking about how this technology can enhance their offering risks being left behind.
&nbsp;

In the six months since, our exploration has turned into implementation. MillTech continued to tinker with the AI technology and are implementing tools...

Sam Thumbnail Generative Ai

How MillTech is embracing generative AI in FX operations

On the 23rd of August, <a title="the Securities and Exchange Commission (SEC)" href="https://www.sec.gov/" target="_blank" rel="noopener">the Securities and Exchange Commission (SEC)</a> adopted new rules that aim to <a title="bring more transparency to the $20 trillion private fund industry" href="https://www.reuters.com/markets/us/us-sec-votes-overhaul-20-trillion-private-fund-industry-2023-08-23/#:~:text=The%20new%20rules%20require%20private,funds%20to%20perform%20annual%20audits" target="_blank" rel="noopener">bring more transparency to the $20 trillion private fund industry</a>.
The changes, which mark the biggest overhaul of the private fund industry rules since the implementation of the Dodd-Frank Act in 2010, will shine a light on private equity and hedge fund expenses and fees.
Private funds are now required to issue quarterly fee and performance reports and to disclose certain fee structures while barring giving some investors preferred treatment. They also require funds to perform annual audits.
These requirements will aim to increase transparency, fairness and accountability in the rapidly growing private funds industry.
SEC Chair Gary Gensler told reporters after the panel's vote, "Investors, large or small, benefit from greater transparency, competition and integrity.&rdquo;
&nbsp;
<h2>Parallels with the FX market</h2>
This is a positive move to bring fairness, equality and transparency to an industry that has been skewed towards the biggest players and suffered with opacity for years.
There are parallels with the foreign exchange industry too. Many corporates and asset managers continue to significantly overpay for their currency execution and hedging requirements.
This is because of two long-standing problems that they typically face when it comes to FX.
1. Lack of transparency - Transaction costs can be hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. Moreover, corporates and fund managers tend to only work with a small number of counterparties for their FX due to the operational complexity of setting up multiple banking relationships, making it harder for them to compare prices.
2. Inconsistent pricing - Banks and brokers reserve their most competitive rates for institutions that transact the highest volumes, meaning small and mid-sized asset managers and corporates often struggle to get the best possible deal. This is no secret. The European Central Bank produced a&nbsp;<a href="https://urldefense.proofpoint.com/v2/url?u=http-3A__www.haraldhau.com_wp-2Dcontent_uploads_FX-5FPriceDiscrimination-5Fin-5FFX-5FOTC-5Fmarkets.pdf&amp;d=DwMF-g&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=GxCFhM6iNKWjeQST976yqvOt2zXyabGDFFtQHe7NKFM&amp;s=JW0123zfnc17HXBxVJR3i32LdOCOh-OYFRc7JZ8E2Kw&amp;e=">report</a>in 2019 that found that banks were overcharging their smaller corporate customers for FX services with hedging rates as much as 25 times higher than for their larger clients.
&nbsp;
<h2>The FX Global Code</h2>
In a bid to bring more transparency to the FX market and tackle the issues above, the BIS Foreign Exchange Working Group&nbsp;<a title=" FX Global Code of Conduct" href="https://www.globalfxc.org/press/p170525b.htm" target="_blank" rel="noopener">published the FX Global Code of Conduct</a>&nbsp;on the 25th of May 2017. It aims to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange (FX) market.&nbsp;
It is a set of global principles of good practice in the FX market, covering ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement.&nbsp;
The FX Global Code has largely been adopted and driven by the sell-side. Banks have agreed upon standard practices and helped drive out controversial practices such as last look.
But it hasn&rsquo;t had the same success with buy-side firms and corporates, many of whom don&rsquo;t know of its existence. It&rsquo;s vital that we keep working together as an industry to promote fairness, equality and transparency and encourage adoption of the FX Global Code.
&nbsp;
<h2>How MillTech is bringing transparency to FX</h2>
MillTech is levelling the playing field for mid-sized corporates and fund managers by digitising the FX process from initial price discovery right through to reporting at the end of the trade lifecycle, ensuring total transparency. The benefits of this include:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to MillTech&rsquo;s <a title="multi-bank FX marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank marketplace</a> and transact within weeks with multiple counterparty banks.</li>
<li>Best execution and hedging management&nbsp;&ndash; Firms benefit from multi-bank access without having to manage multiple relationships and processes. Firms can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings - This model has been proven to save clients up to 70% on their execution costs.</li>
<li>Transparency &ndash; MillTech offers a fixed fee service, including third-party <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction Cost Analysis</a> (TCA) to ensure total cost transparency.</li>
</ul>
MillTech is enabling its clients to have access to live rates from multiple banks and execute at the best rate available from its counterparty banks, all whilst reducing the operational burden traditionally associated with this kind of market access.
If you&rsquo;re interested in learning more about MillTech and our commitment to best practice, <a title="contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">get in touch today.</a>

On the 23rd of August, the Securities and Exchange Commission (SEC) adopted new rules that aim to bring more transparency to the $20 trillion private fund industry.

Thumbnail Private Funds

SEC fund overhaul underscores need for FX transparency

London, 6 September 2023 - The new report from FX-as-a-Service pioneer, MillTech, has revealed that 81% of fund managers in North America are looking to diversify their FX counterparties due to the recent banking crisis. Issues at Credit Suisse, First Republic Bank, Signature Bank and Silicon Valley Bank highlighted potential risks associated with having only one or two banking partners and as a result, fund managers are moving to add more FX counterparties to protect their business.
&lsquo;<a title="The MillTechFX North America CFO FX Report 2023: The intensifying FX challenges for fund managers" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">The MillTech North America CFO FX Report 2023: The intensifying FX challenges for fund managers</a>&rsquo; carried out by Censuswide, also found that FX risk management is a top priority for fund managers. Nearly nine in ten (89%) said FX was significant to their business while 82% said US dollar volatility had impacted their business. Over 70% already have a hedging program in place, while over half (54%) of those without a hedging program are now considering implementing one.
Other hedging findings include that the average hedge ratio was between 50-59%, with almost seven out of ten (69%) fund managers stating their hedge ratio is higher than it was last year. The average length of hedges was just under five months (4.96), with 55% of fund managers citing their hedge length as longer compared to a year ago. This suggests that fund managers are moving to hedge more of their FX risk to protect their bottom lines from currency movements.
Over two-thirds (67%) of those surveyed said that the cost of hedging has gone up over the past year. Looking ahead, 47% of fund managers plan on shortening their hedge window over the next 12 months, whilst 46% plan on increasing their hedge ratio.
ESG has also continued its rise up the fund manager priority list with 79% stating that it has grown in importance to their business over the past year, whilst 35% said that the ESG practices of their counterparties were the most important factor in FX. The vast majority (97%) said ESG credentials are a consideration when selecting FX counterparties, while almost half (48%) said that their FX counterparties must have strong ESG credentials
Other notable findings include:
FX management is resource-intensive &nbsp;- 61% of fund managers task three or more people with FX-related activities. Despite the resources dedicated to setting up and maintaining their FX processes, only 9% of fund managers said their FX set-up was best in class.
Automation and digitization - 78% of those surveyed said they were looking into new technology and platforms to automate their FX operations, while automation of manual processes was the most important factor for fund managers in FX.
FX challenges &ndash; The top challenges facing senior finance decision-makers at fund managers in their FX operations are onboarding new liquidity providers (34%) and securing credit lines (33%). Unsurprisingly, transparency is also a major issue for fund managers, with cost calculation (33%) and getting comparative quotes (31%) the third and fourth biggest challenges they face.
Mapping FX exposures &ndash; Fund managers&rsquo; FX exposures come from a range of sources including investor share classes (51%), management fees (48%), foreign currency assets (44%) and within portfolio companies (43%).
<a title="Eric Huttman bio" href="https://milltechfx.com/company/leadership-team/eric-huttman" target="_blank" rel="noopener">Eric Huttman</a>, CEO of MillTech commented: &ldquo;Our research shows that fund managers are taking positive action to diversify their counterparty base to avoid having all their eggs in one (or two) baskets. This not only mitigates counterparty risk, but also provides them with more options, enabling them to compare prices, get more transparency and achieve best execution.
&ldquo;While currency volatility has fallen in recent months, the data shows that fund managers have learnt from last year which saw currency swings erode returns. An increasing number are looking to implement hedging programmes while those which already have them are adding a layer of flexibility by shortening hedge windows which helps reduce costs and the potential for margin.
&ldquo;That such a small minority of fund managers felt their FX setups were best-in-class is testament to the fact that many see significant room for improvement, especially in light of the fact that the vast majority stated FX was important to their business. Fund managers should look towards tech-enabled, automated solutions to help improve their FX processes.
&ldquo;Stakeholders are demanding progress on ESG and, in FX, fund managers are taking this seriously. It&rsquo;s an important consideration for them when selecting FX counterparties and we have found that many of our clients now ask about our own ESG practices before deciding to work with us which we think is a positive development.
&ldquo;Overall, the research has reinforced the importance of fund managers having a transparent view of their FX execution, simplifying their workflows and implementing a strong risk management strategy to protect their future returns.&rdquo;
To learn more about the FX challenges facing fund managers as well as the hedging strategies and solutions they are implementing, read the full report <a title="The MillTechFX North America CFO FX Report 2023: The intensifying FX challenges for fund managers" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-fund-manager-fx-report-2023" target="_blank" rel="noopener">here</a>.

New report reveals 82% of Fund Managers have seen USD volatility their business, with 81% looking to diversify their FX counterparties.

Thumbnail Na Fund Manager Survey 2023

FX challenges grow for North American fund managers

According to the <a title="World Tourism Organisation" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">World Tourism Organisation</a>, international travel plunged by 72% in 2020 - the worst year on record - causing the global tourism and travel sector an estimated <a title="$2 trillion in lost revenue in 2021" href="https://news.un.org/en/story/2021/11/1106712#:~:text=Coronavirus%20pandemic%20could%20cost%20global%20tourism%20%242%20trillion%20this%20year,-29%20November%202021&amp;text=The%20coronavirus%20pandemic%20will%20likely,fragile%22%20and%20%22slow.%22" target="_blank" rel="noopener">$2 trillion in lost revenue in 2021</a>.
While travel is gradually <a title="climbing back to pre-pandemic levels" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">climbing back to pre-pandemic levels</a>, inflationary pressures are hampering its recovery and it&rsquo;s predicted that the industry won&rsquo;t fully recovery until <a title="2024" href="https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism" target="_blank" rel="noopener">2024</a>.
Amongst the growing number of challenges facing these firms is the threat of adverse currency movements. Their overseas exposure makes them highly susceptible to fluctuations in foreign exchange (FX) rates, but many may have traditionally seen FX as second order. They transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; given their international nature.
We believe that now is the time for travel companies to assess the FX challenges they typically face and implement effective risk management strategies against these threats.
&nbsp;
<h2>What are the FX challenges?</h2>
Travel companies face several challenges on the FX front:
<ul>
<li>International service chain &ndash; They are particularly exposed to currency movements due to the international distribution of the tourism service chain. Tour operators, hotel chains and transport providers may all be based in different countries and therefore require payments in multiple currencies, heightening exposure to fluctuations in exchange rates.</li>
<li>Long invoice processing periods &ndash; When selling customers tours or flights, destination management companies and travel agencies often set their price well ahead of time, sometimes up to 18 months ahead. This means that if currencies fluctuate between a customer&rsquo;s advance payment and the moment foreign suppliers need to be paid, the travel company may find itself having to cover the difference.</li>
<li>Visitor-weighted exchange &ndash; Visitor weighted-exchange measures a destination&rsquo;s currency market with those of its primary visitor market. Countries that rely on a large proportion of tourists coming from one specific country are susceptible to changes in the exchange rate between these two countries. In Mexico, for example, the World Travel and Tourism Council estimates that <a title="84% of international arrivals come from countries using the US dollar" href="https://worldtraveltourismcouncil.medium.com/the-effect-of-exchange-rate-trends-on-travel-tourism-performance-8a74b3fb1233" target="_blank" rel="noopener">84%</a> of international arrivals come from countries using the US dollar. This means where the visitor-weighted exchange is high, fluctuations in exchange rate may have a particularly large impact on the destination country&rsquo;s travel sector.</li>
</ul>
&nbsp;
<h2>A more strategic approach to FX risk management</h2>
Whilst FX management cannot change the external environment, there are several steps that travel companies can take to reduce the associated costs and minimise volatility risk. These include:
1. Use of Transaction Cost Analysis (TCA) - TCA was specifically created to highlight hidden costs and enables firms to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
2. Compare the market - Many travel firms may be hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements which can be a barrier to best execution. Having the ability to put trades up for competition is central to ensuring access to the best price, which is key to effective risk management.
3. Outsourcing &ndash; When using the right partner, outsourcing can improve transparency and execution quality. This can enable travel firms to dedicate more time to core business matters, which is all the more important given the current <a title="high operating costs" href="https://www.cips.org/supply-management/news/2022/august/business-travel-costs-set-to-rise-throughout-2023/#:~:text=The%20report%2C%20by%20the%20Global,year%20and%208.2%25%20in%202023." target="_blank" rel="noopener">high operating costs</a>.
4. Strong governance &ndash; The tourism service chain can be logistically complex, from tour operators to accommodation and transport providers, with each potentially requiring payment in different currencies. Harnessing solutions which can strengthen governance may help travel firms improve the cost, quality and transparency of their FX execution.
5. Diversification of liquidity providers - One of the big lessons from recent banking failures is the importance of having access to multiple counterparties. Many CFOs have taken this lesson onboard and are now making changes for the better, with <a title="88% exploring diversifying their FX across more counterparties" href="https://milltechfx.com/resources/blog/corporates-%20move-to-diversify-fx-counterparties-following-banking-crisis/" target="_blank" rel="noopener">88%</a> exploring diversifying their FX across more counterparties. This means if one counterparty becomes unavailable, a travel company can continue to manage and execute FX trades.
6. Automation &ndash; Many travel firms may still lack the necessary tools to mitigate the impact of FX volatility and continue to rely on manual processes like phone and email to execute FX trades. Harnessing automated solutions can offer end to end workflow, greater transparency and faster onboarding, helping finance departments streamline their FX functions.
&nbsp;
<h2>How MillTech can help</h2>
With&nbsp;<a title="uncertainty fx" href="https://urldefense.proofpoint.com/v2/url?u=https-3A__www.imf.org_en_Publications_WEO_Issues_2023_04_11_world-2Deconomic-2Doutlook-2Dapril-2D2023-23-3A-7E-3Atext-3DThe-2520outlook-2520is-2520uncertain-2520again-2Cat-25203.0-2520percent-2520in-25202024.&amp;d=DwMFaQ&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=MYAd916oVsVZOrjyVzwe1y1I2sgOEair37CtA1IW9aCSwPvr1rRRx1PWFlWNWdMs&amp;s=JeAZ1j7-pGH8BSoPTGoWk3-lpzdjicmkSv-JpjVYQkA&amp;e=" target="_blank" rel="noopener">uncertainty</a>&nbsp;set to stay, we believe it is vital that travel firms get the right tools and processes in place to protect their bottom lines against the threat of currency movements.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for travel companies.
We provide access to a <a title="transparent fx marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing a unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, travel firms can sign up and begin transacting within weeks.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

There are several steps that travel companies can take to reduce the associated FX costs and minimise volatility risk...

Thumbnail   How Can The Travel Industry Adapt to Mounting Fx Challenges

How the travel industry can adapt to mounting FX challenges

London, 13 July 2023 - A new report from FX-as-a-Service pioneer, MillTech, has revealed that many corporates in North America are looking to diversify their FX counterparties after the recent banking crisis highlighted the potential risks associated with having only one or two banking partners.
The report entitled &lsquo;<a title="MillTechFX North America CFO FX Report 2023" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">The MillTech North America CFO FX Report 2023: The intensifying FX challenges for corporates&rsquo;</a> carried out by Censuswide found that 88% of corporates are exploring diversifying their FX counterparties after the banking crisis at Silicon Valley Bank, Credit Suisse, First Republic Bank and Signature Bank. The crisis highlighted that a bank&rsquo;s failure can cause <a title="serious short-term liquidity issues" href="https://www.standard.co.uk/business/we-can-t-make-payroll-scores-of-tech-firms-in-cash-crisis-amid-silicon-valley-bank-collapse-fintech-insolvency-b1066554.html" target="_blank" rel="noopener">serious short-term liquidity issues</a> which can affect vital expenditure such as payroll and supplier invoices, even if it&rsquo;s only for a few days.
Managing currency exposures is also at the top of corporate&rsquo;s priority list with 68% experiencing increased risk as a result of US dollar volatility. &nbsp;Over four-fifths of corporates already have a hedging program in place, and out of the 19% that do not, 69% are considering doing so given market volatility. The average hedge ratio was 60-69%, and nearly eight out of ten (79%) corporates cited their hedge ratio as higher compared to this time last year. The vast majority (75%) said the cost of hedging had increased in the past year.
Looking ahead, half of corporates plan on increasing their hedge ratio over the next 12 months, while 43% plan on lengthening their hedge window.
Other notable findings include:
Persistence of legacy systems &ndash; Many corporates&rsquo; FX processes are manual, cumbersome and time-consuming with 40% of senior finance decision-makers sending or uploading files, 35% relying on phone and 34% using email to instruct financial transactions.
Time-consuming processes - Corporate treasury teams spend on average 2.3 days per week on FX-related matters, while nearly one in five of those surveyed (19%) said they spent four to five days. Nearly three-quarters (72%) of treasury teams have three or more people tasked with FX activities.
Barriers to best execution &ndash; The most important aspect of corporates&rsquo; FX operations is transparency of costs (37%) and the top two most challenging aspects of corporates&rsquo; FX operations were forecasting exposure (35%) and cost calculation (34%).
Automation - 81% of those surveyed said they were looking into new technology and platforms to automate their FX operations, while 32% said automation of manual processes was the most important factor in FX.
Rising importance of ESG - 90% of those surveyed said that ESG has grown in importance to their business over the past year, whilst 31% said that the ESG practices of their counterparties were the most important factor in FX. Over half (54%) said that their FX counterparties must have strong ESG credentials.
Eric Huttman, CEO of MillTech commented: &ldquo;The recent banking crisis has acted as a wake-up call for the industry and it&rsquo;s positive to see corporates looking to diversify their counterparties to enhance their risk management. This has the added benefit of providing them with the ability to compare prices, aiding transparency and enabling best execution.
&ldquo;The combination of currency market swings and a difficult macro environment has created uncertainty for CFOs who are now prioritising risk management. Our research shows that in FX this has led to corporates hedging more of their risk, whilst also prioritising transparency and high-credit quality counterparties.
&ldquo;Despite the existence of tech-enabled FX solutions, many corporates are still relying on manual processes, phone calls and emails to transact in FX. This can be both extremely inefficient and a huge drain on time and resources. It&rsquo;s clear corporates are starting to move away from this model and are increasingly exploring tech-enabled, automated solutions.
&ldquo;The broad rise in ESG as a key priority, applying to corporates and the FX market as a whole, is more than just box-ticking. Stakeholders including shareholders, clients and employees are demanding progress in this critical area. Many of our clients now ask about our own ESG practices before deciding to work with us, and a majority actually mandate that their counterparties have strong ESG credentials. It&rsquo;s important to our clients, and it&rsquo;s important to us.
&ldquo;Ultimately, the research has highlighted that it is more important than ever that corporates gain a transparent view of their FX execution, streamline their operational workflows and implement a carefully thought-out risk management strategy to manage their currency exposures throughout the rest of 2023 and beyond.&rdquo;
To learn more about the FX challenges facing corporates as well as the hedging strategies and solutions they are implementing, <a title="MillTechFX NA CFO FX report" href="https://milltechfx.com/resources/currency-insight-and-education/the-milltechfx-north-america-cfo-fx-report-2023" target="_blank" rel="noopener">read the full report here</a>.

A new report has revealed that many corporates in NA are looking to diversify their FX counterparties after the recent banking crisis.

Thumbnail   Diversify Fx Counterparties

Why Corporates are rethinking FX counterparties

MillTechFX took home three prestigious awards in June, highlighting the success of our independent FX-as-a-Service offering in significantly reducing both FX costs and operational burdens associated with FX execution and hedging requirements.
We are very pleased to have won:
<ul>
<li>Best FX Provider at the <a title="Hedgeweek and Private Equity Wire US Credit Awards" href="https://www.hedgeweek.com/2023/06/22/320942/hedgeweek-and-private-equity-wire-announce-winners-inaugural-us-credit-awards" target="_blank" rel="noopener">Hedgeweek and Private Equity Wire US Credit Awards</a></li>
<li>Best e-FX Solution for Corporates at the <a title="FX Markets e-FX Awards" href="https://events.fx-markets.com/efxawards/winners" target="_blank" rel="noopener">FX Markets e-FX Awards</a></li>
<li>Startup of the Year at the <a title="Business Awards UK" href="https://business-awards.uk/2023-fintech-awards-results/" target="_blank" rel="noopener">Business Awards UK</a></li>
</ul>
We were also a finalist in the Best FX Trading Platform and a runner-up in the Startup of the Year categories at the <a title="Financial News Trading and Technology Awards" href="https://www.fnlondon.com/articles/winners-in-pictures-industry-stars-celebrate-at-fns-trading-and-tech-awards-cboe-jpmorgan-state-street-morgan-stanley-rosenblatt-securities-20230607" target="_blank" rel="noopener">Financial News Trading and Technology Awards</a>.
Eric Huttman, CEO of MillTech, commented: &ldquo;The award wins and nominations across a number of client industries are testament to our team&rsquo;s hard work and validate progress we have made to level the playing field in the FX market.
&ldquo;Fund managers and corporates continue to overpay for their FX needs due to an inherent lack of transparency and inconsistent pricing in the FX market. We are tackling these issues head on by automating the entire FX workflow and ensuring transparent best execution &ndash; saving clients time and costs.
&ldquo;We have just scratched the surface of our global ambitions and so look forward to building on our success achieved so far.&rdquo;
<h2>Increasing demand for MillTech&rsquo;s FXaaS offering</h2>
MillTech has seen a large increase in client demand with monthly revenue and committed client numbers rapidly increasing over the past six months.
This has been driven by increasing recognition of the importance of FX risk management for senior-finance decision makers across the globe combined with their desire for a transparent, operationally efficient solution.
Many mid-sized asset managers and corporates continue to significantly overpay for their currency execution and hedging requirements. This is typically because of two long-standing problems that they face when it comes to FX:
Lack of transparency - Transaction costs can be hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. Moreover, corporates tend to only work with a small number of counterparties for their FX due to the operational complexity of setting up multiple banking relationships, making it harder for them to compare prices.
Inconsistent pricing - Banks and brokers tend to reserve their most competitive rates for institutions that transact the highest volumes, meaning small and mid-sized corporates struggle to get the best possible deal. This is no secret. The European Central Bank produced a&nbsp;<a title="report" href="https://urldefense.proofpoint.com/v2/url?u=http-3A__www.haraldhau.com_wp-2Dcontent_uploads_FX-5FPriceDiscrimination-5Fin-5FFX-5FOTC-5Fmarkets.pdf&amp;d=DwMF-g&amp;c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&amp;r=j7VXD-4Es1waXAgaYb7Re-QQ8ygLtMPmxMCKeBiRR0_M-VcKT_6MTrGARQDJQln0&amp;m=GxCFhM6iNKWjeQST976yqvOt2zXyabGDFFtQHe7NKFM&amp;s=JW0123zfnc17HXBxVJR3i32LdOCOh-OYFRc7JZ8E2Kw&amp;e=" target="_blank" rel="noopener">report</a> that found that banks were overcharging their smaller corporate customers for FX services with hedging rates as much as 25 times higher than for their larger clients.
MillTech is levelling the playing field for these firms by digitising the FX process from initial price discovery right through to reporting at the end of the trade lifecycle. The benefits of this include:
<ul>
<li>Easy and quick onboarding &ndash; Rather than spending months (even years) setting up multiple FX facilities with different counterparties, firms can sign up to MillTech&rsquo;s multi-bank marketplace and transact within weeks with multiple counterparty banks.</li>
<li>Best execution and hedging management&nbsp;&ndash; Firms benefit from multi-bank access without having to manage multiple relationships and processes. Firms can transparently compare and execute FX rates from multiple providers on a single marketplace and ensure best execution with a simple click of a button.</li>
<li>Cost savings - This model has been proven to save clients up to 70% on their execution costs.</li>
<li>Transparency&nbsp;&ndash; MillTech&nbsp;offers a fixed fee service, including third-party Transaction Cost Analysis (TCA) to ensure total cost transparency.</li>
</ul>
MillTech is enabling its clients to have access to live rates from <a title="multiple banks platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple banks</a> and execute at the best rate available from its counterparty banks, all whilst reducing the operational burden traditionally associated with this kind of market access.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;today to find out more.

MillTechFX took home three prestigious awards in June, highlighting the success of our independent FX-as-a-Service offering in significantly reducing both FX costs...

Startup of The Year MillTechFX

Best FX Provider & e-FX Solution for Corporates

The BIS Foreign Exchange Working Group <a title="FX Global Code of Conduct" href="https://www.globalfxc.org/press/p170525b.htm" target="_blank" rel="noopener">published the FX Global Code of Conduct</a> on 25 May 2017 with the aim of providing a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange (FX) market.&nbsp; 
It is a set of global principles of good practice in the FX market, covering ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement.&nbsp; 
The FX Global Code has improved practices across the industry while promoting transparency and spurring debate in key areas such as transaction cost analysis. &nbsp; 
But a lot has changed in the past six years and if it&rsquo;s to remain relevant, it&rsquo;s important the FX Global Code is a living code of conduct that continues to adapt to this everchanging market.&nbsp;
<h2>Boosting adoption&nbsp;</h2>
The FX Global Code was published with the aim of promoting integrity and setting out best practice across the wholesale FX market. &nbsp; 
The code is voluntary, and out of the 1,150+ signatories who have registered, there are currently only 84 asset managers, 30 corporates and 15 pension funds according to the <a title="GFXC&rsquo;s public register" href="https://www.globalfxc.org/global_index.htm" target="_blank" rel="noopener">GFXC&rsquo;s public register</a> 
Convincing end users in the FX market to sign up to the code has always been an issue but the GFXC has been working to further strengthen FX Global Code adherence. &nbsp; 
To support market participants with less complex FX activities, in December 2022, <a title="GFXC members agreed to commission" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">GFXC members agreed to commission</a> a Digital Proportionality Tool for facilitating FX Global Code adherence.&nbsp; 
The GFXC Chair Andr&eacute;a M. Maechler <a title="The GFXC expressed her expectation" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">expressed her expectation</a> that this mechanism will give new impetus to the promotion of the Code: &ldquo;I am convinced that the Digital Proportionality Tool will attract more new signatories to the Code, especially from the still underrepresented buy-side community.&rdquo;&nbsp;
At MillTech, we believe it is vital to heighten awareness of the code among buy-side firms and corporates as it enables them to scrutinise their liquidity providers and partners&rsquo; processes against best practice, leading to a fairer and more transparent FX market.&nbsp;
<h2>The rising importance of ESG </h2>
Slowly but surely ESG is filtering into FX. According to MillTech&rsquo;s own <a title="2022 fund manager FX survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">2022 fund manager FX survey</a>, 58% of fund managers said that their FX counterparties must have strong ESG credentials while 36% said that it was an important consideration.&nbsp;
A lot of the focus has however, been on the first two letters of the acronym &ndash; &lsquo;E&rsquo; (environmental) and &lsquo;S&rsquo; (social), while the &lsquo;G&rsquo; (governance) may often be seen as the less important of the three letters.&nbsp;&nbsp;
Strong governance in areas such as regulatory compliance, transparency and implementation of industry best practices must form a central element of any business seeking to be a good corporate citizen.&nbsp;
The GFXC has moved to embed the FX Global Code in firms&rsquo; ESG practices. Its members supported the possibility of a partnership with rating agencies so that anyone who signs the code can be recognised as having fulfilled the governance element of their ESG commitments&nbsp;
<a title="The FX global code website" href="https://www.globalfxc.org/press/p221206.htm" target="_blank" rel="noopener">Stefanie Holtze-Jen said</a>: "Creating tangible benefits and lowering barriers to adherence for the buy side are key for further anchoring the Code in the FX market."&nbsp;
If made by the GFXC, this move would be a great way to enable &lsquo;G&rsquo; to catch up with &lsquo;E&rsquo; and &lsquo;S&rsquo; which remain well ahead.&nbsp;
<h2>Renewing commitment to the code</h2>
The FX Global Code has largely been adopted and driven by the sell-side. Banks have agreed upon standard practices and helped drive out controversial practices such as last look.&nbsp;
But its future relies upon its ability to appeal to other important parts of the market. Many buy-side firms and corporates don&rsquo;t even know of its existence and it&rsquo;s vital the GFXC works to raise awareness and adoption among this core segment.&nbsp;
We need more initiatives like the Digital Proportionality Tool and potential link ups with the ESG rating agencies to continue to drive the FX Global Code forward and ensure it&rsquo;s relevant for years to come.&nbsp;
If you&rsquo;re interested in learning more about MillTech and our commitment to best practice, <a title="contact us" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">get in touch today.</a>

The FX Global Code has improved practices across the industry while promoting transparency and spurring debate in key areas such as transaction cost analysis...

Thumbnail Six Years after Its Introduction, How Can The Fx Global Code Remain Relevant

Is the FX Global Code still relevant in 2025?

The recent woes of Silicon Valley Bank, Credit Suisse and First Republic Bank has brought counterparty diversity and due diligence back into the spotlight for many <a title="fund managers" href="https://milltechfx.com/clients/fund-managers-and-institutional-investors/" target="_blank" rel="noopener">fund managers</a>. When it comes to FX risk management, many fund managers are considering the best way to implement a more robust FX infrastructure and insulate themselves from future shocks.
<ul>
<li><a href="#risksassociatedwithlimitedfxcounterparties">The risks associated with limited FX counterparties</a></li>
<li><a href="#lessonslearnedinthefxmarket">Lessons learned in the FX market</a></li>
<li><a href="#duediligencemonitoring">FX due diligence monitoring</a></li>
<li><a href="#importanceofcounterpartydiversity">The importance of counterparty diversity</a></li>
<li><a href="#reducingdirectcounterpartyrisk">Reducing direct counterparty risk</a></li>
<li><a href="#barrierstomultiplecounterparties">Barriers to having and maintaining multiple counterparty relationships</a></li>
<li><a href="#thesolution">The solution</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="risksassociatedwithlimitedfxcounterparties">What are the risks?</h2>
Firstly, it&rsquo;s important to frame what the risks to a fund manager are, should a banking counterparty no longer be able to function as their FX provider. There are obvious business continuity issues and if you are a fund manager who overlooks different share classes, invests overseas or converts management fees into foreign currencies - then you will not be able to perform these functions until you have a new facility open with a different FX counterparty.
Other risks to consider might include&hellip;
<ul>
<li>In-the-money FX hedges &ndash; if a fund manager has open <a href="https://milltechfx.com/resources/glossary/fx-forward/" target="_blank" rel="noopener">FX forwards</a> with a failing counterparty and those positions have a positive mark-to-market (i.e. they make a profit if they were to be sold back into the market today at the prevailing spot rate), then the manager might be at risk from not realising that mark-to-market gain.</li>
<li>Loss of collateral &ndash; if a fund manager has had to post collateral with their counterparty in order to book an FX forward, then that collateral may be at risk, in a similar way to cash deposits.</li>
<li>Not being able to maintain the FX hedge &ndash; crucially, there is a risk that any pre-existing forward contract will not be honoured. If the purpose of that forward was to mitigate the effect of FX volatility on a portfolio of foreign currency assets, then fund level returns could be negatively impacted.</li>
</ul>
<h2 id="lessonslearnedinthefxmarket">Lessons learned in the FX market</h2>
Spanish philosopher, George Santayana is famously quoted as saying &ldquo;Those who cannot remember the past are condemned to repeat it&rdquo; which was ironically paraphrased and repeated by many other prominent historical figures.
The 2008 Global Financial Crisis is one event in recent history that brought to light many faults and failings in the banking world.
One key takeaway for any fund manager should have been - don&rsquo;t put all your eggs in one basket when it comes to banking relationships.
Still, that&rsquo;s not particularly helpful advice for a fund manager that isn&rsquo;t currently well diversified and has overlooked this potential business risk.
As the dust settles on the recent turmoil in the banking market, fund managers can learn several lessons from this event and help &lsquo;future proof&rsquo; their organisation should similar shocks reoccur. &nbsp;
&nbsp;
<a title="Request a free TCA" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
<h2>&nbsp;</h2>
<h2 id="duediligencemonitoring">FX due diligence &amp; monitoring</h2>
Recent events underscore the importance of due diligence when selecting banking counterparties.
It is essential to thoroughly vet potential banking partners and assess their financial stability, risk management practices, and reputation before beginning a relationship.
Ongoing due diligence should be carried out regularly, until that relationship comes to an end, which might involve:
<ul>
<li>Daily monitoring of CDS levels and AML/compliance alerts.</li>
<li>Checking for updates from ratings agencies.</li>
<li>Regular communication with the front office at each bank and annual reviews.</li>
</ul>
It is vital to keep track of any changes in the financial stability of banking counterparties and adjust a panel of banks accordingly. By doing so, fund managers can help ensure they are partnering with financially stable banks that can provide reliable services.
<h2>&nbsp;</h2>
<h2 id="importanceofcounterpartydiversity">The importance of counterparty diversity</h2>
Counterparty diversity is a pre-requisite for FX best execution and best execution should be a priority for any fiduciary firm. By having a panel of banks at their disposal, fund managers can ensure they have access to a variety of liquidity providers, which can improve the efficiency and execution of your trades.
However, for some fund managers, FX might be considered a non-core business activity meaning counterparty diversity may have been overlooked.
When it comes to foreign exchange trading, counterparty diversity means having relationships with <a title="multiple banks" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple banks</a> and not relying on just one to execute trades. In the context of recent events, this is important because if one bank were to fail, it could have serious consequences for your fund's trading activities, and potentially lead to significant losses.
<h2>&nbsp;</h2>
<h2 id="reducingdirectcounterpartyrisk">Reducing direct counterparty risk</h2>
The ability to hedge foreign exchange risk without having to post collateral in the form of initial margin or variation margin offers numerous benefits to almost any type of investor.
No margin hedging allows fund managers to remain fully invested while mitigating their FX risk.
It also enables fund managers to better forecast future cash flows as they are not at risk of daily margin calls. They can therefore focus on the core task at hand, maximising returns.
Fund managers should also consider, that because capital hasn&rsquo;t been deposited with their banking counterparties in the form of initial margin or variation margin, their collateral isn&rsquo;t at risk if their bank faces hard times.
<h2>&nbsp;</h2>
<h2 id="barrierstomultiplecounterparties">Barriers to having and maintaining multiple counterparty relationships?</h2>
To summarise, fund managers should consider three things to help insulate their FX function from future turmoil in the banking market:
<ul>
<li>Raise the bar on counterparty dye diligence and monitoring.</li>
<li>Have a <a title="multi-bank FX panel" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX panel</a> at your disposal.</li>
<li>Seek to negotiate no-margin hedging terms with your FX panel.&nbsp;</li>
</ul>
However, in our opinion this is easier said than done.
In a post from 2021, we wrote about <a title="the roadblocks to fund managers accessing FX best execution" href="https://milltechfx.com/resources/blog/approach-to-FX-best-execution/" target="_blank" rel="noopener">the roadblocks to fund managers accessing FX best execution</a>, and best execution is synonymous with counterparty diversity.
We commented that setting up new FX relationships can be labour intensive and difficult which was recently supported by the MillTech CFO FX Survey <a title="&ldquo;The intensifying FX challenges for Fund Managers&rdquo;." href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">&ldquo;The intensifying FX challenges for Fund Managers&rdquo;.</a>
In our survey of 250 fund managers we should also note that -
<ul>
<li>88% of respondents said it took them between 6 months and 1 year to setup their current FX infrastructure meaning fund managers should plan ahead and should not assume they can quickly set up FX facilities elsewhere.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/148dab86-73a2-4142-98a5-9fe320a9ade8" alt="Graph representing time taken to setup current FX infrastructure" width="492" height="350">
<ul>
<li>35.6% of those surveyed said that onboarding liquidity providers (i.e. getting setup with FX counterparties) was the most challenging aspect of their FX operation which is directly related to having a multi-bank FX panel.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/35f6ff92-3278-440b-94e6-382e8e0bc851" alt="Graph representing challenges of FX operations" width="518" height="350">
<ul>
<li>34% said that securing credit lines was their biggest challenge when dealing with FX, meaning that negotiating no-margin hedging terms is difficult to achieve.</li>
</ul>
<img src="https://directus.corp.milltechfx.com/assets/40e40b9f-7b3f-4a2d-947e-15fe8ff52d81" alt="Graph representing biggest challenges when dealing with FX" width="517" height="350">
<h2 id="thesolution">The Solution</h2>
The good news is that MillTech solutions can facilitate multibank execution on day one. Rather than having to manage multiple onboarding processes simultaneously, fund managers can plug into our ready-made marketplace that offers counterparty diversity as well as no-margin hedging.
At MillTech we carry out strict, ongoing due diligence of counterparties so the end client doesn&rsquo;t have to. This means they have a second pair of eyes to monitor performance and potentially move exposures away from that counterparty in good time.
Onboarding timeframes are drastically reduced compared to our <a title="observations from the survey" href="https://milltechfx.com/resources/currency-insight-and-education/the-intensifying-fx-challenges-for-fund-managers" target="_blank" rel="noopener">observations from the survey</a> and fund managers can set up facilities in as little as 4 weeks. Transitioning to a multibank framework can often seem like a daunting task but this can allow fund managers to pivot quickly if they are not currently well diversified.
If you are interested in find out more about our solutions, get in touch <a href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

When it comes to FX risk management, many fund managers are considering the best way to implement a more robust FX infrastructure and insulate themselves from future shocks.

Fund Managers Need to Rethink Their Fx Infrastructure

Why fund managers must rethink FX infrastructure

FX has become a key consideration for many private equity firms. The combination of exposure to foreign currency assets, management fees and investor capital amongst other factors means that many private equity firms may run a high risk of being negatively impacted by currency movements. As a result, we believe private equity firms should prioritise FX risk management to protect their returns.
Here are four of our top tips to help private equity firms strengthen their FX risk management strategy.
&nbsp;
<h2>1. Transaction Cost Analysis (TCA)</h2>
Despite being one of the largest markets in the world, FX is also notoriously one of the most opaque. Transaction costs are hidden in the FX spread, typically calculated as the difference between the traded rate at the point of execution and the mid-market rate at that time. <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA </a>was specifically created to highlight hidden costs and enables firms to understand how much they are being charged for the execution of their FX transactions. It can calculate:
<ul>
<li>The cost on a trade-by-trade basis or the total portfolio cost of a dataset</li>
<li>Cost inconsistencies across product, currency pair, tenor and counterparty</li>
<li>Evidence of best execution.</li>
</ul>
Ongoing, quarterly <a title="TCA analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA analysis</a> can also be embedded to ensure consistent FX execution performance.
&nbsp;
 
<h2>2. Efficient use of capital</h2>
Having the ability to put trades up for competition is typically central to best execution, but FX pricing shouldn&rsquo;t be the only thing a private equity firm considers.
Private equity firms that hedge using forward contracts, for example, must also consider that placing a hedge typically requires margin to be posted against that position as collateral. Any capital posted as collateral, sitting dormant in a margin account and not invested, potentially earning higher returns, can cause a drag on fund performance. The FX risk, being mitigated with forward contracts, has been replaced with a potential liquidity risk.
One way around this issue is to trade via an uncollateralised FX facility so that a private equity firm can hedge (using forwards) and not worry about posting margin. If the facility is uncollateralised up to a pre-determined figure, there is a cap on how far in the red your mark-to-market can go before your counterparty has no further appetite to trade with you and starts calling for variation margin. This can result in private equity firms spreading trades between different counterparties, with FX rates being a secondary consideration, to keep sufficient headroom on trading facilities and eliminate the need to post margin altogether.
To get set up with an uncollateralised hedging facility, private equity firms can expect to share similar background information to that required for a subscription line. After all, the bank involved will have to cover any negative mark-to-market themselves.
&nbsp;
 
<h2>3. Operational Efficiency</h2>
For private equity firms, we know that <a title="best execution" href="https://www.milltech.com/resources/glossary/best-execution" target="_blank" rel="noopener">best execution</a> requires multiple counterparties, but before price discovery comes the search for eligible FX counterparties. Incumbent banking relationships are the logical place to start, and custodians, prime brokers or lenders may be able to offer FX trading services too. Where it could get challenging is establishing new relationships for FX only, as there is no guarantee a counterparty will want to onboard a client that only requires one of their services.
And then there&rsquo;s the setup phase. After negotiating the finer points of a non-disclosure agreement, a private equity firm must fill out paperwork, locate and share &lsquo;know-your-customer&rsquo; documents and then go through a credit approval process. Respective legal teams will need to work through ISDAs, CSAs and any other trading agreements before setup can even begin.
Once setup is complete, the process of price discovery can happen in several different ways &ndash; telephone dealing, onscreen quotes, chat messages and e-mails. With multiple counterparties at a private equity firm&rsquo;s disposal, it can soon turn into a time-consuming team operation to get the best available price.
For these reasons, the private capital market is moving towards solutions that assist in the onboarding of multiple banking counterparties. Private equity firms might also consider more centralised, <a title="digitised solutions" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">digitised solutions</a> that consolidate price discovery in one place at one time.
&nbsp;
 
<h2>4. Outsourcing</h2>
Research published by the investment consultant Russell Investments &ldquo;<a href="https://russellinvestments.com/-/media/files/nz/insights/1207-overpayingfx.pdf">Still Overpaying for FX&rdquo;</a> analysed 173,000 FX trades conducted on assets totalling approximately $76 billion.
It concluded that for an average $1 billion fund, savings of $330,000 per annum would have been achievable from the adoption of an agency approach where FX trading is outsourced to a third-party specialist. In some cases, funds could have saved much more.
The Russell study explicitly suggested the consideration of a model whereby a third-party specialist agent is appointed to manage FX trades and pursue competition among a panel of counterparties to achieve the best possible price.
<a title="Outsourcing" href="https://milltechfx.com/product/outsourced-execution-services/" target="_blank" rel="noopener">Outsourcing</a> can free up resources for more effective use elsewhere, enabling private equity firms to dedicate more time to core business matters. Turning to a specialist often means that the end product is also more likely to be of higher quality, leading to improved execution, saving money in the long run.
&nbsp;
<h3>How MillTech can help</h3>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our FX-as-a-Service model helps private equity firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">end-to-end solution</a>, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a href="https://milltechfx.com/contact/">Get in touch</a>&nbsp;today to find out more.

FX has become a key consideration for many private equity firms. We believe PE firms should prioritise FX risk management to protect their returns.

Thumbnail How Can Private Equity Firms Improve Their Fx Risk Management

FX risk management strategies for private equity firms

On April 2, 2025&mdash;"Liberation Day"&mdash;the US unleashed a wave of tariffs that&rsquo;s sending shockwaves through global trade. UK exporters are now grappling with a <a href="https://lordslibrary.parliament.uk/trump-and-us-tariffs-what-might-the-impact-be-on-the-uk/" target="_blank" rel="noopener">10% tariff on goods</a> and a staggering <a href="https://www.uksteel.org/steel-news-2025/us-25-tariffs-on-uk-steel-imports-come-into-effect" target="_blank" rel="noopener">25% tariff on steel heading to the US</a>, slashing their competitiveness overnight. Experts caution that Trump&rsquo;s tariffs could result in a significant&nbsp;<a href="https://www.bbc.co.uk/news/articles/cz9x32eeegko" target="_blank" rel="noopener">&pound;22 billion export loss</a> for the UK, leaving industries scrambling to adapt.
While freight transport and logistics services aren&rsquo;t directly hit by these tariffs, the potential ripple effects are impossible to ignore. Supply chain disruptions, shrinking export volumes, and most critically, volatile FX markets are creating a perfect storm for the industry. In fact, export levels for transportation services are expected to <a href="https://citp.ac.uk/publications/trumps-tariffs-could-reduce-uk-exports-by-22-billion" target="_blank" rel="noopener">drop by 2.4%</a>.
With fluctuating exchange rates presenting a risk to profit margins and pricing stability, it's crucial for freight and logistics businesses to develop robust FX strategies to navigate these growing obstacles. Let&rsquo;s dive into how FX impacts the sector and what firms can do to stay ahead.
&nbsp;
<h2>Freight transport and FX risk</h2>
Freight transport firms face unique challenges when it comes to managing FX risk. Various factors contribute to this heightened exposure, including:
Payments &ndash;&nbsp;The FX market plays a key role in determining costs for shipping companies, impacting everything from crew payments and port duties to fuel expenses and logistics fees. With transactions conducted in multiple currencies, international shippers are exposed to FX risks, where currency fluctuations can drive up costs, shrink profit margins, and disrupt cash flow.
Freight duties -&nbsp;Freight duties form another expense for air and sea transportation businesses and can be heavily influenced by currency volatility. For example, if the currency a shipping firm is paying freight duty in is particularly strong, this would dent profit margins and drive expenses up.
Fuel costs -&nbsp;Bunker fuel can account for a staggering&nbsp;<a href="https://www.sciencedirect.com/science/article/pii/S1366554524002771" target="_blank" rel="noopener">50-60%</a>&nbsp;of a ship's total operating costs, making it a major expense for the shipping industry. With fuel typically traded in USD, the dollar&rsquo;s&nbsp;<a href="https://www.reuters.com/markets/currencies/dollar-starts-2025-higher-yen-rooted-five-month-lows-2025-01-02/" target="_blank" rel="noopener">2-year high in January 2025</a>&nbsp;has created an additional squeeze, albeit this pressure has now subsided thanks to a sharp devaluation in the in the <a href="https://www.marketwatch.com/story/the-dollar-just-had-its-weakest-start-to-a-year-on-record-why-it-might-be-doomed-to-fall-even-further-eaf23c96?" target="_blank" rel="noopener">Dollar</a>. Nevertheless, these sharp swings demonstrate how impactful a volatile FX market can be in a short space of time.
On top of this, tighter environmental regulations are reshaping the landscape of the shipping industry. The <a href="https://transport.ec.europa.eu/transport-modes/maritime/decarbonising-maritime-transport-fueleu-maritime_en#:~:text=The%20FuelEU%20maritime%20regulation%20will,2050:%20%2D80%25." target="_blank" rel="noopener">European Union&rsquo;s new marine fuel regulations</a>, effective January 2025, require companies to switch to cleaner, low-emission fuel alternatives&mdash;many of which are in short supply. Those who fail to comply face steep financial penalties. For shipping companies, this is a double-edged sword: comply and absorb higher fuel costs, or risk fines that could cripple operations.
&nbsp;
<h2>How can freight and logistics firms improve FX risk management?</h2>
To minimise FX risk, freight transport and logistics firms should consider implementing a robust FX risk management strategy. There are a number of steps that these firms can take to achieve this.
<h3>Compare the market</h3>
The ability to put FX trades up for competition is crucial for securing the best pricing and achieving best execution, both of which are essential for <a href="https://milltech.com/resources/blog/fx_risk_management_a_2025_guide_for_corporates" target="_blank" rel="noopener">effective risk management</a>. However, freight transport and logistics companies may face challenges due to limited access to Tier 1 FX liquidity. This forces them to rely on a single bank or broker for their hedging needs. Fortunately, emerging technology driven FX solutions are tackling this problem, enabling firms to secure competitive rates from various banks while streamlining the complexity of FX trades with automated workflows.
<h3>Use of Transaction Cost Analysis (TCA)</h3>
<a href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA </a>was designed to uncover hidden costs, helping freight and logistics companies to understand the true cost of execution. <a href="https://milltech.com/resources/blog/the_truth_behind_the_5_biggest_myths_about_tca" target="_blank" rel="noopener">Regular quarterly TCA from an independent provider</a> can be integrated into operations to ensure consistent FX performance, allowing firms to benchmark FX rates against industry standards and refine hedging strategies for better results.
<h3>Outsourcing</h3>
Outsourcing is no longer seen as a compromise on transparency or quality&mdash;especially when you choose the right partner. In fact, it can <a href="https://dev.milltech.com/product/fx-management" target="_blank" rel="noopener">enhance FX transparency and execution quality</a>. By leveraging outsourcing, freight transport and logistics firms can free up valuable time to focus on what really matters: navigating supply chain disruptions and tackling market volatility head-on. Why settle for the old way when outsourcing offers a smarter, more efficient solution?
<h3>Strong governance</h3>
Freight and logistics firms face a complex supply chain, from scheduling and equipment prep to securing shipping lanes and insurance. This operational complexity can make it difficult to maintain FX transparency and robust foreign exchange governance. By enhancing FX frameworks with better oversight, policy adherence, and transparent execution, firms can boost cost-efficiency and oversight of their FX execution. Integrating ESG governance principles into financial operations can support better risk management and align FX practices with broader sustainability and compliance goals.
&nbsp;
<h2>How MillTech can help</h2>
With tariffs set to continue to impact the freight industry, it&rsquo;s crucial for businesses to equip themselves with the right FX risk management tools to safeguard their bottom lines against currency fluctuations. Leveraging real-time FX rates from multiple banks and forward contracts can help businesses minimise exposure to these fluctuations, protect their bottom lines, and enhance financial stability in an increasingly volatile market.
<a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">The MillTechFX Global FX Report</a> has highlighted a variety of challenges that businesses are contending with in light of volatility. An average of <a href="https://milltech.com/resources/currency-insight-and-education/the-milltechfx-global-fx-report-2025" target="_blank" rel="noopener">81%</a> of corporates across The UK, Europe and North America are now actively hedging their FX risk, and of those that do not hedge, over half (52%) are now considering doing so. With volatility influencing business decisions, the cost of protection is also a significant consideration, with four in five corporates globally experiencing rising hedging costs in the last year. This rise was most felt in Europe, where 98% of respondents said that costs had risen. Businesses in the UK and North America were less likely to be impacted by rising hedging costs, but those suffering were still in the significant majority, with 70% and 73% respectively saying that costs had risen.
MillTech can help by onboarding firms with multiple Tier-1 banks, with preferential FX rates via an intuitive, tech-enabled platform. Exposures and hedge performance can be monitored in real-time to enable fast, informed decision-making, with all post-trade processes being fully automated and integrated via APIs.
&nbsp;
Please refer to our <a href="https://milltech.com/research-disclosures" target="_blank" rel="noopener">Research Disclosure Page</a> for more information on the data referred to in the above.

Amongst the growing number of challenges facing freight transport and logistics firms is the threat of adverse currency movements.

Thumbnail How Can Freight Transport and Logistics Firms Navigate Rising Fx Challenges

Navigating rising FX challenges in freight & logistics

The past year has been a <a title="commodities turbulence" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">turbulent</a> period for the commodities sector. A combination of the war in Ukraine, the <a title="supply chain impact of China&rsquo;s zero-Covid policy" href="https://www.proximagroup.com/how-chinas-zero-covid-policy-is-affecting-global-supply-chains/#:~:text=When%20Chinese%20manufacturing%20cities%20come,confusion%20right%20across%20the%20market." target="_blank" rel="noopener">supply chain impact of China&rsquo;s zero-Covid policy</a> and <a title="high global inflation" href="https://www.imf.org/en/Blogs/Articles/2022/09/09/cotw-how-food-and-energy-are-driving-the-global-inflation-surge" target="_blank" rel="noopener">high global inflation</a> meant that <a title="volatility" href="https://www.imf.org/en/Blogs/Articles/2023/03/28/volatile-commodity-prices-reduce-growth-and-amplify-swings-in-inflation" target="_blank" rel="noopener">volatility</a> dominated commodity markets.
Spot gold, for example, is trading at its lowest level in two years, and has fallen by more than <a href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">20%</a> from its peak of above $2,000/oz in March against rising US interest rates. Similarly, Iron ore prices are at their <a title="lowest level" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">lowest level</a> since early 2020, while prices of Aluminium are down <a href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">40%</a> since peaking in March 2022.
Market volatility has significantly heightened the exposure of many commodity firms to currency movements. Despite this, many CFOs at commodities firms may have traditionally seen foreign exchange (FX) as second order; they transact in FX not because they &lsquo;want to&rsquo;, but because they &lsquo;have to&rsquo; given the international nature of the industry.
However, with <a title="uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/01/26/global-economic-uncertainty-remains-elevated-weighing-on-growth" target="_blank" rel="noopener">uncertainty</a> set to persist throughout 2023, we believe commodity firms should implement effective risk management strategies against these threats.
&nbsp;
<h2>FX and commodities: what are the challenges?</h2>
There are several factors that heighten the FX risk of trading commodities. These include:
<ul>
<li>Location basis risk&nbsp;&ndash; Location basis risk arises when the underlying asset is in a different location from the where the futures contract is traded. This is especially prevalent in commodities which must be physically transported to where they will be used and safely held in a storage facility. For example, a natural gas producer in Texas holds locational basis risk if it decides to hedge its price risk with contracts deliverable in California. If the Texas contracts are trading at $2.90 per one million British Thermal Units (MMBtu) and the California contracts are trading at $3.10/MMBtu, the locational basis risk is $0.20/MMBtu.</li>
<li>Supply and demand -&nbsp;Unlike other asset classes such as stocks or bonds which are stored electronically, commodities are physical assets which are transported from where they are produced to where they are used. This makes them highly susceptible to supply chain disruption which can cause strong price fluctuations. For instance, China is one of the main global drivers behind&nbsp;<a title="iron ore demand" href="https://www.institutionalinvestor.com/article/b1ysny0417gs5d/chinas-challenge-with-iron-ore" target="_blank" rel="noopener">iron ore demand</a>, but its zero Covid-policy has significantly reduced imports, causing&nbsp;<a title="prices to fall" href="https://think.ing.com/bundles/2023-commodities-outlook-stormy-seas-ahead/" target="_blank" rel="noopener">prices to fall</a>.</li>
<li>Climate / weather -&nbsp;Commodities come from natural resources, meaning the weather and climate can affect their production and transportation, which has a knock-on effect on prices. A clear example of this is the&nbsp;<a title="Texas power grid failure of 2021" href="https://www.texastribune.org/2022/02/15/texas-power-grid-winter-storm-2021/" target="_blank" rel="noopener">Texas power grid failure of 2021</a>; when a winter storm broke the system, spot natural gas prices jumped by roughly&nbsp;<a href="https://fortune.com/2021/07/09/gas-sellers-made-11-billion-texas-winter-blackout/" target="_blank" rel="noopener">100 times</a>&nbsp;their regular levels.</li>
</ul>
&nbsp;
<h2>How can commodities firms enhance FX risk management?</h2>
Fortunately, there are a number of steps that these firms can take to mitigate the impact of currency movements. These include:
1. Compare the market - Having the ability to put trades up for competition is central to ensuring access to the best price, which is key to effective risk management. However, many commodity firms may be hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements. New technology-driven solutions are tackling this problem, enabling commodity companies to access rates from multiple banks whilst reducing the operational burden associated with this kind of market access.
2. Use of Transaction Cost Analysis (TCA) - <a title="Transaction Cost Analysis" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">TCA</a> was specifically created to highlight hidden costs and enables commodity firms to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
3. Outsourcing - There is a growing recognition that outsourcing does not necessarily mean less transparency or reduced quality of FX activities, and when using the right partner, firms can improve transparency and execution quality. Outsourcing can enable commodity firms to dedicate more time to core business matters, which is all the more important in the current volatile climate.
4. Strong governance &ndash; Since commodities must be stored and transported physically, the market holds a high level of operational complexity and risk. Commodity purchasing managers must take into account the scheduling, tracking and settling of purchases, in addition to monitoring transportation and logistical movements. It is therefore difficult to maintain transparency due to the number of different steps in this process. Harnessing solutions which can strengthen governance will help many commodity firms improve the cost, quality and transparency of their FX execution.
<h3>&nbsp;</h3>
<h2>How MillTech can help</h2>
With currency movements set to <a title="remain volatile over the next year" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">remain volatile over the next year</a>, we believe it is vital that commodity firms get the right tools and processes in place to protect their bottom lines against this threat.
MillTech&rsquo;s market access, pricing power and operational resource enables it to deliver a tech-enabled integrated solution that delivers transparency, cost reduction and operational burden reduction for commodity firms.
We provide access to a <a title="transparent fx marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 counterparty banks, while harnessing unique and significant pricing efficiency for our clients. Rather than spending months setting up multiple FX facilities with different counterparties, commodity firms can sign up and often begin transacting within weeks.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a>&nbsp;with us to find out more about how we can help you navigate your FX challenges in 2023.

With uncertainty set to persist throughout 2023, we believe commodity firms should implement fx risk management strategies...

Thumbnail Blog Comodities

Why commodity firms should prioritise FX risk management

Best execution is one of the most commonly used terms across financial markets. Many believe that it just refers to pricing, but as recent events in the banking industry demonstrate, there are other important considerations that you shouldn&rsquo;t take for granted.
When assessing the overall FX execution quality and execution governance in the context of best execution, it is important to consider a wide range of execution factors to determine the optimal execution arrangements that can help a firm achieve a best execution on a continuous basis.
<ul>
<li><a href="#importanceofpricinginfx">Importance of pricing in FX</a></li>
<li><a href="#FXCounterpartyRiskAssessmentFrameworkFX">Counterparty Risk Assessment Framework</a></li>
<li><a href="#Executioncontingencyplan">Execution contingency plan</a></li>
</ul>
<h2>&nbsp;</h2>
<h2 id="importanceofpricinginfx">Importance of pricing in FX</h2>
It is widely known that execution prices and costs are probably the most important execution factors in a normal market environment.
We believe firms should seek to achieve competitive execution prices and transparent cost structure. They can do this by adopting a <a title="multi-bank FX execution platform" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multi-bank FX execution platform</a> where multiple liquidity providers are competing to provide exchanges rates. This enables them to transparently compare and execute FX rates from multiple providers. The execution prices and costs can be accessed and monitored via an independent <a title="Transaction Cost Analysis (TCA)" href="https://milltechfx.com/product/transaction-cost-analysis/" target="_blank" rel="noopener">Transaction Cost Analysis (TCA)</a> to demonstrate best execution.
&nbsp;
<h2 id="FXCounterpartyRiskAssessmentFrameworkFX">FX counterparty Risk Assessment Framework</h2>
However, as the recent events with Silicon Valley Bank and Credit Suisse illustrate, other execution factors beyond pricing and costs can play a significant role.
For instance, the likelihood of settlement typically becomes the crucial execution factor when counterparty risk dominates the market.&nbsp; As a result, selecting and performing appropriate due diligence on counterparties become an integral part of the best execution.
Firms should consider establishing a robust counterparty risk evaluation framework that considers of a range of risk factors, including:
<ul>
<li>Monitoring realised and unrealised profit and loss (P&amp;L) for each counterparty</li>
<li>Credit rating from reputable rating agencies</li>
<li>Credit default swaps</li>
<li>Regular counterparty review and monitoring activities.</li>
</ul>
&nbsp;
<a title="Request a free TCA here" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
&nbsp;
<h2 id="Executioncontingencyplan">Execution contingency plan</h2>
In addition to reviewing and assessing the counterparty risks, the recent banking crisis events also highlight the importance of establishing a robust FX execution contingency plan that takes into account of legal and operational complexities.
If the counterparty becomes unavailable, the firm should be able to quickly and efficiently manage the existing FX trades by way of:
<ul>
<li>Novation - replacing an agreement in place with consent of all parties involved</li>
<li>Close-out - termination of the transaction</li>
<li>Implement Net Present Value (NPV) any future profits</li>
</ul>
Once existing trades have been managed, firms can then implement new FX trades as required by the business.
&nbsp;
<h3>How MillTech can Help</h3>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay,
Our multi-bank market not only can help firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements, but also significantly reduces counterparty risks. This is because we offer multiple arrangements with tier one banks (if available) within a rigorous MillTech counterparty onboarding and monitoring framework
We provide access to a <a title="transparent marketplace" href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">transparent marketplace</a> for comparative FX execution from up to 15 tier-one counterparty banks, while harnessing a unique and significant pricing efficiency for our clients In addition, MillTech provides clients with full transparency of execution via independent TCA reporting.
Get in touch today to&nbsp;<a title="contact page" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">find out more</a>.

Best execution is one of the most commonly used terms across financial markets. Many believe that it just refers to pricing...

Justing

Best execution: Beyond competitive pricing and transparency

Against a backdrop of <a title="high inflation" href="https://www.imf.org/en/Blogs/Articles/2022/09/09/cotw-how-food-and-energy-are-driving-the-global-inflation-surge" target="_blank" rel="noopener">high inflation</a>, <a title="currency volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">currency volatility</a> and <a title="well-documented economic uncertainty" href="https://www.imf.org/en/Blogs/Articles/2023/01/26/global-economic-uncertainty-remains-elevated-weighing-on-growth" target="_blank" rel="noopener">well-documented economic uncertainty</a>, we believe private equity firms should prioritise FX risk management to improve performance, deliver sustainable growth and, ultimately, protect their returns.
Despite the rising importance of FX for private equity firms, many suffer from a lack of transparency across fees, as well as barriers to best execution due to improper infrastructure and cumbersome legacy processes.
Here are some of the top challenges that private equity firms face when it comes to managing their FX risk:
<ul>
<li><a href="#MaintainingtransparencyofFXcosts">Maintaining transparency of FX costs</a></li>
<li><a href="#ManagingFXcosts"> Managing FX costs</a></li>
<li><a href="#MonitoringFXcosts">Monitoring FX costs</a></li>
</ul>
 
<h2>&nbsp;</h2>
<h2 id="MaintainingtransparencyofFXcosts">1. Maintaining transparency of FX costs</h2>
Fund managers may often be spoiled for choice when weighing up service providers such as banking partners, subscription line lenders and fund administrators, meaning decisions are often made on fine margins.
Unnecessary costs should be avoided because investors expect that every single pound, euro or dollar generates a return and partners are aiming to surpass their performance hurdle.
Both investors and partners have significant skin in the game, so when they kick the tyres and look under the bonnet of the finance function, they might expect a rigorous audit trail of how costs are being managed and objective decisions are made.
This seems straightforward enough, but it turns out but it turns out that less than <a title="30%" href="https://thevx.io/campaign/grey-costs-of-fx/" target="_blank" rel="noopener">30%</a> of investors have a view of their total FX costs.
<a title="Request a free TCA" href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener"><img src="https://directus.corp.milltechfx.com/assets/1ed1e427-1782-434b-986d-274acfd63197" alt="Request a free TCA" width="600" height="90"></a>
&nbsp;
<h2 id="ManagingFXcosts">2. Managing FX costs</h2>
Private equity firms have a fiduciary responsibility to pursue best execution for their clients, so we believe they should have <a href="https://www.milltech.com/product/fx-management" target="_blank" rel="noopener">multiple FX counterparties</a> at their disposal every time they enter the market to execute a trade.
As well as having multiple FX providers, fund managers might also want to consider if the financial stability and credit ratings of their chosen counterparties is sufficient. When a fund manager implements an FX policy, we believe they should also consider the following:
<ul>
<li>If notional / credit thresholds are of sufficient size</li>
<li>The credit terms of the facility are in line with their liquidity profile</li>
<li>If trade tenors match their desired hedging strategy</li>
</ul>
Many CFOs and COOs can articulate their FX strategy, best performing counterparties and associated credit limits, but few may struggle to say with certainty what their costs are explicitly, and relative to what may have been agreed upfront.
FX costs are usually hidden as an all-in rate which is discounted from the mid. However, it can be hard for fund managers at private equity firms to identify where the mid is and therefore calculate what their costs are on a trade-by-trade basis.
&nbsp;
<h2 id="MonitoringFXcosts">3. Monitoring FX costs</h2>
Fund managers at private equity firms can always check what they&rsquo;re being charged on FX transactions by conducting regular&nbsp;<a href="https://milltechfx.com/product/transaction-cost-analysis/">transaction cost analysis (TCA)</a>.
TCA goes hand-in-hand with best execution and can be used as an ongoing audit of FX practices as well as hold existing FX counterparties to account.
One major goal of TCA is to gain oversight of trading costs, but additionally it helps to comply with best execution policy, regulation and strong governance expectations from investors and internal stakeholders.
Private equity firms can implement TCA as part of a broader process of monitoring FX costs which includes:
<ul>
<li>Finding FX counterparties that can meet your requirements</li>
<li>Comparing pricing on a trade-by-trade basis</li>
<li>Capturing trade data for regular, post-execution cost analysis i.e. TCA</li>
</ul>
However, these straightforward steps are often overlooked.
A recent survey titled <a title="&lsquo;The Grey Costs of FX&rsquo;" href="https://thevx.io/campaign/grey-costs-of-fx/" target="_blank" rel="noopener">&lsquo;The Grey Costs of FX&rsquo;</a> drew feedback from various FX industry specialists &ndash; 45% were investors, 25% asset owners and 20% either banks or brokers. It found that 39% of the industry is not tracking any TCA for FX.
This is because many private equity firms may still use manual processes to compare pricing, execute trades, and reconcile trade information - namely trade timestamps - which are sometimes not reported accurately by their FX counterparties.
Moreover, for many fund managers at private equity firms, FX is a non-core business activity. This means they commonly get set up with a handful of FX counterparties, with the hope that increased competition bypasses the need to agree upfront costs and monitor them on an ongoing basis.
&nbsp;
<h2>How MillTech can help</h2>
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay.&nbsp;Our FX-as-a-Service model helps private equity firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
<a title="Get in touch" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">Get in touch</a> today to find out more, or you can request your free TCA report <a href="https://milltechfx.com/tca-form/" target="_blank" rel="noopener">here</a>.

Against a backdrop of high inflation and currency volatility, we believe private equity firms should prioritise FX risk management.

What Are The Fx Challenges for Private Equity Firms

How Private Equity firms are tackling FX risk

The insurance industry has gone through a period of significant change over the past twelve months. Against a backdrop of <a title="rising inflation" href="https://www.cnbc.com/2022/11/16/uk-inflation-hits-new-41-year-high-as-food-and-energy-prices-continue-to-soar.html" target="_blank" rel="noopener">rising inflation</a>, <a title="ongoing supply bottlenecks" href="https://think.ing.com/articles/supply-chain-pressure-to-persist-through-2022/" target="_blank" rel="noopener">ongoing supply bottlenecks</a>, <a title="geo-political conflict" href="https://www.brinknews.com/how-the-russia-ukraine-conflict-is-impacting-industries/" target="_blank" rel="noopener">geo-political conflict</a> and <a title="climate-induced disruption" href="https://www.reuters.com/business/finance/climate-change-is-hurting-insurers-report-2022-05-17/" target="_blank" rel="noopener">climate-induced disruption</a>, <a title="insurance firms have had to adjust their operational practices" href="https://www2.deloitte.com/cn/en/pages/financial-services/articles/financial-services-industry-outlooks-2022/insurance-industry-outlook.html" target="_blank" rel="noopener">insurance firms have had to adjust their operational practices</a> to meet the demands of this challenging environment.
Amongst the growing number of challenges facing insurers is the task of foreign exchange (FX) risk management. Insurance firms are in fact responsible for a significant amount of FX trading. The 2022 <a title="BIS Triennial Bank Survey" href="https://www.bis.org/statistics/rpfx22_fx.htm" target="_blank" rel="noopener">BIS Triennial Bank Survey</a> found that &lsquo;other financial institutions&rsquo; such as insurance companies were responsible for $3.6 trillion in trading volumes, representing 48% of global turnover.
Despite this, insurance companies typically transact in FX not because they want to, but because they have to, given their global coverage and the subsequent requirement to pay out claims in different currencies.
However, with the market facing headwinds across a range of different fronts, it is vital that insurance companies have effective FX risk management strategies in place to mitigate the impact of currency exposures and an increasingly uncertain trading environment.
&nbsp;
<h2>What are the FX challenges for insurers?</h2>
The past year has thrown up a host of new challenges for the insurance market, with the industry facing a variety of pressure points and risk factors. These include:
<ul>
<li>Inflationary pressures &ndash; Inflation has become a dominant economic trend, at times reaching 40-year highs across the <a title="UK inflation" href="https://www.cnbc.com/2022/11/16/uk-inflation-hits-new-41-year-high-as-food-and-energy-prices-continue-to-soar.html" target="_blank" rel="noopener">UK</a> and <a title="US inflation" href="https://www.bloomberg.com/news/articles/2022-10-13/core-us-inflation-rises-to-40-year-high-securing-big-fed-hike?sref=ix7Z3iHU" target="_blank" rel="noopener">US</a>. The cost of insurance claims and premiums has risen in line with inflation, meaning claims inflation and increased operating costs are now a real issue for underwriters.</li>
<li>Supply chain disruption &ndash; Manufacturers continue to struggle to meet post-pandemic demand, with major trade hubs such as <a title="US ports" href="https://www.wsj.com/articles/warehouse-bottlenecks-are-snarling-u-s-supply-chains-11661529092" target="_blank" rel="noopener">US ports</a> being clogged up by bottlenecks due to a lack of staffing and equipment. A potential knock-on effect of backlogs and delays is longer interruption periods, which may put business interruption indemnity periods and sums insured under increasing strain.</li>
<li>Catastrophe pay outs &ndash; Natural disasters caused an estimated global insured losses of <a title="$130 billion in 2022" href="https://www.insurancejournal.com/news/international/2023/01/26/704675.htm" target="_blank" rel="noopener">$130 billion in 2022</a> &ndash; up from <a title="$112 billion in 2021" href="https://www.swissre.com/media/press-release/nr-20211214-sigma-full-year-2021-preliminary-natcat-loss-estimates.html" target="_blank" rel="noopener">$112 billion in 2021</a>. And if the summer of 2022 taught us anything, it is that global warming and subsequent extreme weather are here to stay. As this trend continues, catastrophe pay outs are also likely to carry on rising.</li>
</ul>
Furthermore, when an insurance company <a title="receives new premiums" href="https://www.riksbank.se/globalassets/media/rapporter/fsr/fordjupningar/engelska/2020/200520/the-interconnectedness-of-insurance-companies-national-pension-insurance-funds-and-banks-via-the-foreign-exchange-market-article-financial-stability-report-2020_1.pdf" target="_blank" rel="noopener">receives new premiums</a> that it wishes to invest in foreign assets, it tends to enter into a foreign exchange swap if it wishes to reduce the exchange rate risk this investment will entail. This, combined with the aforementioned factors, is heightening the exposure of insurance firms to FX risk.
&nbsp;
<h2>How can insurers improve their FX risk management strategies?</h2>
With <a title="FX volatility" href="https://think.ing.com/articles/g10-fx-outlook-2023-less-trend-more-volatility/" target="_blank" rel="noopener">FX volatility</a> set to persist throughout the year ahead, we believe insurance companies must consider implementing a robust risk-management strategy to minimise their exposure to foreign currency movements.
Fortunately, there are a number of steps that insurers can take to achieve this:
1. The use of Transaction Cost Analysis (<a title="TCA" href="https://milltechfx.com/resources/glossary/transaction-cost-analysis-tca" target="_blank" rel="noopener">TCA</a>) &ndash; TCA was specifically created to highlight hidden costs and enables insurers to understand how much they are being charged for the execution of their FX transactions. Ongoing, quarterly TCA from an independent TCA provider can be embedded as a new operational practice to ensure consistent FX execution performance.
2. Compare the market - having the ability to put trades up for competition is central to ensuring access to the best price &ndash; which is key to effective risk management. However, many insurance firms are hampered by their inability to access Tier 1 FX liquidity, meaning they often rely on a single bank or broker to meet their hedging requirements. A new generation of fintechs is tackling this problem, enabling insurers to access rates from multiple banks whilst reducing the operational burden associated with this kind of market access.
3. Outsourcing - There is a growing recognition that outsourcing does not necessarily mean less transparency or reduced quality of FX activities, but when using the right partner can improve transparency and execution quality. Outsourcing can enable insurance firms to dedicate more time to core business matters, which is all the more important amidst inflationary and volatility pressures.
4. Strong governance - Merger and acquisition activity in the global insurance industry has increased in recent months, recently reaching the <a title="highest growth rate" href="https://www.theactuary.com/news/2022/08/24/insurance-industry-ma-deals-hit-10-year-high" target="_blank" rel="noopener">highest growth rate</a> for 10 years in the first half of 2022. It is therefore difficult to increase transparency and meet industry best practices due to each business having different partnerships and processes. To strengthen governance, insurance firms should look to FX solutions which help improve the cost, quality and transparency of their FX execution.
&nbsp;
<h2>How MillTech can help</h2>
We believe insurers should get the right processes in place now to help manage FX operations more effectively and tackle the challenges that lie ahead.
MillTech was born out of Millennium Global Investments, considered one of the founding firms in currency overlay. Our FX-as-a-service model helps insurance firms significantly reduce both FX costs and operational burden associated with FX execution and rolling hedging requirements.
We provide an end-to-end solution, from onboarding with up to 15 tier-one counterparty banks to execution, settlement and reporting of FX transactions, including TCA, across multiple funds.
To find out more about how we can help you navigate your FX challenges, get in touch with us <a title="Contact" href="https://milltechfx.com/contact/" target="_blank" rel="noopener">here</a>.

Amongst the growing number of challenges facing insurers is the task of foreign exchange (FX) risk management.

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