Advanced Financial Management · The role of the treasury function in multinationals

Centralised vs Decentralised Treasury in ACCA AFM

Updated 11 October 2026 · Fact-checked

A centralised treasury manages cash, funding and risk for the whole group from one place. A decentralised treasury lets each subsidiary manage its own. Centralisation gives netting, pooled cash, scale and tighter control. Decentralisation gives local knowledge and speed. In AFM, weigh both against the scenario and recommend one.

Understand Centralised vs Decentralised Treasury

A treasury function manages a group's cash, borrowing, investments and financial risk. In a multinational, the question is where those decisions are made.

In a centralised treasury, one group unit (often at head office or in a financial centre) handles funding, cash pooling, foreign exchange (FX) and interest rate hedging for all subsidiaries. Subsidiaries deal with the central team, not with banks directly.

In a decentralised treasury, each subsidiary has its own treasury staff or finance manager. They arrange local bank accounts, borrowing and hedging, within group policy or sometimes with little guidance.

Centralisation works because group-wide positions can be combined. Subsidiary A may owe $2m to B while B owes $1.5m to A. Offsetting leaves one payment of $0.5m. Surplus cash in one country can fund a deficit in another, so the group borrows less externally. Bigger deals also get better bank terms, and expertise sits in one team.

Decentralisation works because local managers know local markets, tax rules, banks and regulations. They can respond quickly, and they feel accountable for their results. The cost is duplication, weaker control and a risk that subsidiaries take inconsistent or speculative positions.

In practice many groups use a hybrid: central policy, central hedging and pooling, with local execution where regulations or time zones require it. Exam answers must tie the choice to the facts given.

Key rules to remember

Netting saving (exposure): Net exposure = Σ receipts in a currency − Σ payments in the same currency; Only the net amount needs hedging or converting. This reduces hedging volume and transaction costs.
Bilateral netting: Net payment = larger amount owed − smaller amount owed between two companies; The company owing more pays the difference. Use the same currency, or convert at an agreed rate first.
Multilateral netting: Net position of each company = Σ receivables from group − Σ payables to group; Net payers pay the centre; net receivers are paid by the centre. Net positions across the group sum to zero (before costs).
Interest saved by pooling: Saving = (Borrowing rate − Deposit rate) × Surplus cash used in place of borrowing; Applies where surplus in one unit offsets borrowing in another. Adjust for the period in years.

How to solve Centralised vs Decentralised Treasury questions

Use this method for any question asking you to discuss, advise or calculate on centralised versus decentralised treasury.

1Read the requirement. Decide whether you must discuss, recommend, or calculate a benefit such as netting or pooling.
2Pick out the scenario facts: number of countries, currencies, size of flows, existing treasury set-up, regulations, and management style.
3Set out the benefits of centralisation: netting and matching, cash pooling, lower borrowing, bank leverage, expertise, consistent risk policy and control.
4Set out the drawbacks: loss of local responsiveness, set-up and staffing cost, subsidiary demotivation, regulation or exchange controls, tax and time-zone issues, and single point of failure.
5Do any calculation. Net each currency or each company, state the saving and say what it means in practice.
6Link each point to the scenario. Say why it matters for this group, not just in general.
7Make a clear recommendation, possibly a hybrid, and name safeguards such as treasury policy, limits and reporting.
8Add professional skills: balanced view, commercial judgement, and a clear, concise structure suitable for the reader.

Quickest way: Benefit, cost, fit, decide

When to use it: When you have limited time on a discussion requirement worth around 8 to 12 marks.

Write two or three benefits of centralisation, each linked to a scenario fact.
Write two or three drawbacks, again linked to the facts.
Write one line on the decentralised case: local knowledge, speed, motivation.
State which fits this group best and why.
Close with a safeguard or hybrid suggestion.

Common mistakes in Centralised vs Decentralised Treasury

Listing generic advantages and disadvantages with no link to the scenario.
Students memorise a list and reproduce it.
Fix: Tie each point to a fact, such as the number of currencies, countries or subsidiary autonomy in the case.
Saying centralisation is always better.
The benefits list is longer and sounds more impressive.
Fix: Consider exchange controls, local regulation, culture and the size of the group. Conclude with a justified view or hybrid.
Confusing netting with matching.
Both reduce exposure and are taught together.
Fix: Netting offsets amounts owed between group companies. Matching offsets receipts and payments in the same currency, including with third parties.
Hedging gross amounts in a netting calculation.
Students hedge each flow separately out of habit.
Fix: Net by currency first, then hedge only the net exposure.
Ignoring the costs of centralising.
Focus stays on savings.
Fix: Mention set-up cost, systems, staffing, bank fees on pooling and possible tax or legal restrictions on moving cash.
Forgetting a clear recommendation.
Students run out of time after listing points.
Fix: Reserve the last minutes for a decision and one safeguard. This also earns professional skills marks.

Worked examples

Example 1

Three subsidiaries of a group owe each other amounts in dollars. A owes B $4m and owes C $1m. B owes C $3m. C owes A $2m. Calculate each company's net position under multilateral netting and the total gross payments avoided.

Show the solution

Company A: receives $2m from C. Pays $4m to B and $1m to C, total $5m. Net = 2 − 5 = −$3m (net payer).
Company B: receives $4m from A. Pays $3m to C. Net = 4 − 3 = +$1m (net receiver).
Company C: receives $1m from A and $3m from B, total $4m. Pays $2m to A. Net = 4 − 2 = +$2m (net receiver).
Check: −3 + 1 + 2 = 0.
Gross payments = 4 + 1 + 3 + 2 = $10m. Under netting, only A pays $3m (to the centre), and the centre pays $1m to B and $2m to C. Net cash moved = $3m.
Gross amount avoided = 10 − 3 = $7m.

Answer: A is a net payer of $3m, B a net receiver of $1m and C a net receiver of $2m. Netting reduces cash transfers from $10m to $3m, avoiding $7m of gross payments.

Example 2

A multinational has two subsidiaries. Subsidiary X holds surplus cash of $5m earning 2% a year on deposit. Subsidiary Y borrows $5m locally at 7% a year. The group is considering a centralised treasury that would lend X's cash to Y. Ignoring fees and tax, calculate the annual interest saving and give two reasons the group might still keep local treasuries.

Show the solution

Current interest cost: Y pays 7% × $5m = $350,000.
Current interest income: X earns 2% × $5m = $100,000.
Net current cost = 350,000 − 100,000 = $250,000.
With internal lending, Y no longer borrows externally and X no longer deposits. Interest cost and income both fall to zero, ignoring any internal rate.
Net saving = $250,000 a year, which equals (7% − 2%) × $5m.
Reasons to keep local treasuries: exchange controls or regulation may restrict cross-border lending; local managers may have better knowledge of local banks and conditions; centralising may reduce subsidiary motivation.

Answer: The group saves $250,000 a year before fees and tax. Restrictions on moving cash across borders and the value of local knowledge and autonomy could justify keeping local treasuries, or a hybrid.

Exam tips

Always anchor points to the case facts. Generic lists score poorly in the constructed-response format.
Where numbers are given, do the netting or pooling calculation. It shows technical skill and supports your recommendation.
Give a decision. A balanced discussion with no conclusion loses professional skills marks.
Mention hybrid models and controls such as treasury policy, hedging limits and reporting when you recommend an approach.
Keep points short and structured so the marker can award marks quickly.

Practice questions from The role of the treasury function in multinationals

Centralised vs Decentralised Treasury: frequently asked questions

What is the main difference between centralised and decentralised treasury?

In a centralised treasury, one group unit makes funding, cash and risk decisions for all subsidiaries. In a decentralised one, each subsidiary makes its own decisions. The trade-off is group efficiency and control against local knowledge and responsiveness.

How does a centralised treasury benefit a multinational?

It nets and matches currency flows, pools cash to reduce external borrowing, and uses group size to get better bank terms. It also puts expertise in one team and applies one risk policy across the group.

What are the disadvantages of centralised treasury?

It can reduce subsidiary autonomy and motivation, and local managers may feel remote from decisions. It costs money to set up and may face exchange controls, tax or legal limits. Reliance on one team is also a risk.

Do I have to choose one model in the AFM exam?

You should give a clear recommendation based on the scenario. A hybrid, with central policy and hedging but local execution, is often a sensible answer if you justify it.