In-house banking for groups: centralise payments, funding and liquidity inside one treasury function

An in-house bank is a group treasury model where one central finance company performs bank-like services for subsidiaries, such as internal funding, cash concentration, payments, foreign exchange and liquidity management. The structure can reduce external bank accounts and transaction costs, but it creates real intercompany balances and needs governance that reflects the risks the treasury company actually manages.

A treasury company can perform several internal banking functions

HMRC's current international manual describes large group treasury companies as performing day-to-day cash and bank-account control, intra-group lending, external borrowing, surplus investment and currency or interest-rate hedging. An in-house bank brings several of those functions into one internal service model.

The group can centralise expertise and negotiate externally as one larger counterparty. Subsidiaries then interact with treasury for funding and payments instead of each building a separate bank relationship for every need.

Central payment factories can reduce bank-account complexity

The in-house bank can make supplier or payroll payments on behalf of subsidiaries using approved payment-on-behalf structures. Local companies still need source invoices, legal authority and intercompany accounting for amounts settled centrally.

Do not let central payment become a reason to erase entity ownership. The treasury company can execute the bank transfer while the operating subsidiary remains the company that incurred the cost.

Internal deposits and loans need documented terms

Subsidiaries with surplus cash can place it with the treasury company while cash-short subsidiaries borrow from the same centre. The resulting balances are intercompany financial transactions, not merely internal bookkeeping.

Interest, maturity and currency should follow the group's transfer-pricing policy and current legal documentation. Structural long-term balances deserve different analysis from overnight operating positions.

Centralised FX can reduce external trading volume

Subsidiaries can send expected currency requirements to treasury, which nets group exposures before trading the residual externally. This can reduce bank spreads and duplicated hedges.

The treasury company needs a clear mandate over whether it only executes hedges or takes market risk itself. HMRC's 2026 guidance emphasises analysing the actual functions, assets and risks rather than relying on labels such as treasury company.

Treat the in-house bank as critical financial infrastructure

Use segregated user permissions, payment limits, audit logs, disaster recovery and named approval roles. Centralisation creates efficiency, but it also concentrates operational risk because one system can affect many group companies.

Maintain fallback access to external banks for payroll, tax and emergency payments. An in-house bank outage should not stop the entire group from moving money.

Treasury returns must reflect arm's-length functions and risks

HMRC applies transfer-pricing principles to treasury and group finance companies. A simple conduit that takes little risk should not automatically earn the same return as a sophisticated treasury centre making active funding and hedging decisions.

Document service fees, deposit spreads, loan margins and risk ownership. Centralising finance can produce genuine commercial savings, but the allocation of that benefit between group companies needs a supportable basis.

Worked example: a UK group has ten subsidiaries, 35 bank accounts and separate FX dealing at five entities. An in-house bank centralises euro and dollar exposures, pays major suppliers and funds short-term deficits internally. The group reduces external transaction volume, but the treasury company now holds intercompany deposits and loans that need pricing, reconciliation and board oversight.

Use service-level agreements between treasury and operating companies. Subsidiaries should know payment cut-offs, emergency funding processes, interest calculations and who owns disputes with external banks.

Review the model after acquisitions. Newly purchased businesses can have restricted facilities, local regulatory requirements or bank covenants that prevent immediate migration into the in-house bank.

Set internal cut-off times just as an external bank would. Subsidiaries should know when same-day funding requests, payment files and FX instructions must reach treasury. Exceptions after cut-off should require an identified reason and senior approval so the central team does not become an unlimited emergency service for weak local planning.

Maintain a daily balance sheet for the in-house bank. It should show deposits received from group companies, loans advanced, external bank cash, hedges and any mismatched currency or maturity positions. The central entity can look cash rich while carrying large obligations to participating subsidiaries, so gross bank cash alone is not a useful risk measure.

Use independent reconciliation between internal customer ledgers and external bank statements. A treasury platform can post thousands of intercompany entries automatically, but one mapping error can leave a subsidiary thinking it has cash on deposit that the in-house bank does not recognise. Regular confirmations keep both sides aligned.