What are the functional differences among the Front Office, Mid Office, and Back Office of Treasury?
Treasury functions are performed by three distinct offices under separate supervision: the Front Office, the Mid Office, and the Back Office. This separation is essential to prevent conflicts of interest and ensure proper risk management and control.
Front Office
The Front Office manages investment, foreign exchange risk, and market risk in accordance with instructions from bank management. It operates through the dealing room, which acts as the bank’s interface to international and domestic financial markets. The dealing room is the centre for market and risk management activities. Front office traders execute deals, manage positions, and take market risks within approved limits.
Mid Office
The Mid Office is responsible for risk management, monitoring, internal controls, and management reporting. It analyses the risks that traders are taking and sets limits on the amount of capital at risk. A separate mid-office is required to minimize operational risk in treasury. The mid office independently values all outstanding positions (Mark-to-Market) and reconciles P&L estimates with those of traders. Larger banks maintain a separate mid office; smaller banks may merge mid office activity with the back office.
Back Office
The Treasury Back Office is responsible for confirmation, settlement, and reconciliation of front office transactions. It checks trade-related data to ensure accuracy, endorses required fund transfers, and provides support services to the front office. The back office gathers market rates from independent sources (Reuters, Bloomberg) for mark-to-market revaluation — not from the traders themselves — to avoid conflict of interest.
Why Separation is Critical
Separating front, mid, and back office functions is a fundamental internal control in treasury risk management. The front office takes risks, the mid office monitors and controls risks, and the back office settles and reconciles. Any overlap — particularly between front and back office — creates serious operational risk, including fraud, errors, and unauthorized trading. This separation is explicitly required by Bangladesh Bank’s FXRM guidelines.
