New risk and accounting standards will impact banks’ profits, says Wolters Kluwer experts

In 18 months, Thai banks need to start complying with a new Basel III liquidity risk management standard recommended by the Basel Committee on Banking Supervision. Called the Net Stable Funding Ratio (NSFR), banks will need to manage an interplay of this additional Net Stable Funding Ratio (NSFR) requirement alongside the existing Liquidity Coverage Ratio (LCR) requirement.
 
The LCR looks at the amount of unencumbered, high quality liquid assets an institution holds over 30 days that can be used to offset the net cash outflows it would encounter under an acute short-term stress scenario specified by supervisors. The scenario has to include systemic shocks and institution-specific circumstances derived from the global financial crisis. It took effect January 1, 2015.

TAIWAN’S EXPOSURE TO CHINA’S ECONOMY, THE LINGERING EUROPEAN DEBT CRISIS, AND THE GROWING REAL ESTATE BUBBLE IN TAIWAN ARE ALL RISKS. BUT HOW SERIOUS ARE THEY?

With a new leadership in The Financial Supervisory Commission (FSC), Taiwanese banks are now continuing to explore opportunities in Mainland China, and Southeast Asia, bringing on new risks to their banks and their clients. Taiwan’s real estate market, especially in Taipei, is becoming expensive, and the impact of Europe’s lingering economic problems is impacting Taiwan’s banking sector and the consumers. But the question comes down to, “How serious are these problems, and should bankers and consumers be worried?”

By Michael Thomas, Senior Advisor, Wolters Kluwer

Although not so often the places where the funds are first introduced into the financial system, most large sums of dirty money flow through major financial centers, such as Hong Kong, Singapore, New York, London etc., at some point in the cleansing process.  Much of the money is drug related and the major Mexican cartels are now operating across the Asia Pacific region including Australia, so it is no surprise that authorities in Australia are focusing on drugs, fraud and tax evasion as the main predicate offences. 

This is significant because the cartels are experts at putting pressure on individuals to assist them, so financial firms in Australia must remain vigilant for changes in staff behavior that could indicate that they may have been compromised.  While it is often employees who are breaching controls, itis the institutions that are suffering the greatest penalties.

There are many aspects to Anti-Money Laundering/Countering of Terrorist Financing (AML/CTF) compliance.  At Wolters Kluwer, we conducted a survey among 44 organizations in Australia and New Zealand of the areas people in the finance industry held up as being their greatest concerns in 2016.  Putting the numbers together with the results from an Asia-Pacific wide survey we conducted earlier, we can see that AML professionals in Australia have greater concerns in “keeping pace with domestic regulatory changes”, “Performing rigorous KYC verifications” and “Insufficient management focus” than the rest of the region.

THE DRAGON BANKER-How is your Deutsche Bank deepening relationships to cater to your firm's surging client base of Southeast Asian entrepreneurs?

Smallwood-Deutsche Asset & Wealth Management (Deutsche AWM) has a very strong foot print in the Ultra High Net Worth space in APAC, and this incorporates both established business people and the future UHNW in the form of business entrepreneurs throughout the region.

The value proposition that Deutsche AWM presents encompasses its position as a leading global universal bank, positioned alongside a well-respected investment banking and global transaction banking platform. Business people and entrepreneurs recognize the importance of our platform and in the spirit of their multi-banking relationships, Deutsche AWM has a natural fit in its position as the leading European headquartered global universal bank. The engagement with the entrepreneurs and established business persons is deepened through two key components of our wealth management platform.

Firstly, we have a Corporate Finance Partnership (CFP) team, based in Hong Kong and Singapore (Singapore covering both South East Asia and Global South Asia clients, whilst Hong Kong covers North Asia). The CFP Team provides two way connectivity with our Corporate Banking and Securities business, and in particular provides the ability for our key clients to access Equity Capital Markets and Debt Capital Markets solutions through the investment bank. Furthermore, we are from time to time able to provide interesting investment opportunities to our large private clients sourced from the investment bank. In addition to our CFP team, we also have a team of Key Client Partners (KCP). The KCP team represents our leading product and structuring experts who work in close collaboration with our investment bank and global transaction banking business. The team is therefore able to create sophisticated solutions for our business and entrepreneur clients, and structure capital markets products needed to assist our clients meet their investment and risk management needs, whilst we are also an industry leader in complex structured finance solutions.

As high-net-worth individuals (HNWIs) across Southeast Asia become more sophisticated and eager to explore funds and investment products in European and American markets, Asian regional and local banks will have no choice but to ensure that their clients have access to global markets and products. Providing HNWIs with access to customized strategies and global products will be the key for banks in Southeast Asia to retain their clients and compete with international banks.
 
LOCAL COVERAGE WITH INTERNATIONAL ACCESS
 
Anthony J. Harper, President and Chief Executive Officer, Managed Investments-Asia Pacific, BNY Mellon, believes that HNWIs across Southeast Asia want their banks to have local coverage but also have access globally.

Regulations across Southeast Asia’s wealth management industry are complex, and each country has their own laws, regulations, and rules for wealth management and private banking firms to operate in. Finding the proper partner that is able to provide accurate legal advice on the various nations’ rules is critical in building a sustainable business.
 
KEEPING UP WITH CHANGING REGULATIONS
 
Sereena Edgerton, Head of Cross Border Legal Wealth Management, UBS, said that it is not easy for firms operating in Southeast Asia to keep up with the rapid changes of regulations while continuing to operate a business.
 
“It is a challenge for firms to keep up with the pace of regulatory change. Regulators globally are issuing new consultations and regulations all the time and firms need to make sure that they have proper systems to ensure that are on top of all of these and understand what it means for their business and how they can build robust controls to ensure compliance,” said Edgerton.

From an operational perspective, the aggressive growth of many Southeast Asian private wealth managers has presented challenges - complying with multiple regulatory authorities, rising costs and customer retention issues are just a few. The key for Southeast Asian private wealth managers hoping to operate efficiently across regional markets and service clients across multiple geographies is to achieve operational excellence across all departments through automation of middle- and back-office processes.
 
THE REALITY OF OPERATIONAL INEFFICIENCIES IN PRIVATE BANKING AND WEALTH MANAGEMENT
 
Private wealth managers in Southeast Asia, and elsewhere, are facing challenges with regards to increasing efficiency across their operations. This is supported by recent research that indicated that over 50% of private wealth managers still process certain trades either manually or with partial automation of the back- and middle-office. Joe Kubeyka, Regional Director Asia Pacific at SmartStream, who has over 14 years of management experience in banking technology, believes that if Southeast Asian private wealth managers want to dominate, they have no choice but to invest in full end-to-end automation of the back- and middle-office, including fees processing, corporate actions, liquidity and collateral management, reference data, exceptions processing and reconciliations.

THE DRAGON BANKER-Banks across the globe, local, regional and international, and investing significant amounts of energy, resources, and time into aiding HNWIs in Southeast Asia. What are some of the trends you are seeing in the Southeast Asian HNWI market?

Flavel-With volatile FX returning since last June following the Fed’s tapering talk, the sense of multi-asset diversified portfolio is gradually sinking in again. More and more investors might have realized that they cannot afford to be parochial by being overly home-biased and domestic market-centric. Private Banks, like J.P. Morgan, whose hallmark is global and multi-assets, are getting more attractions especially in regions like South and Southeast Asia where 2 of the so called fragile 5 are located.

Maybank, the largest bank in Malaysia in terms of asset size, in the last few years has been expanding its wealth management and private banking services across Southeast Asia. The bank’s rapid growth across Southeast Asia was not accomplished by simply one main strategy, but instead, the bank has been focusing on developing its wealth management capabilities on all fronts, including improving its technology, further training their relationship managers, and finding innovative ways to service their clientele across various cultures, languages and countries.

Alvin Lee, Group Head of Private Wealth, Maybank said, “I think there isn't one single reason why we have become leaders in Southeast Asia’s wealth management industry, but a combination of several reasons. What makes us an important partner with our clients is our relentless focus on our clients' interest, our regional footprint across all 10 ASEAN countries, as well as other key financial markets, and our ability to bring relevant products and solutions to our clients.”

 
The growth of high-net-worth individuals (HNWIs) in Southeast Asia has grown significantly in the last few years with the growth of their economies and the liberalization of financial systems. From 2009 to 2015, Thailand’s number of HNWIs has increased from 39,000 to over 84,000 peoples, and in Malaysia, another major country in Southeast Asia, has seen its number of HNWIs increase over 6% from 2013-2014 totaling more than 65,000 people. The emergence of wealth in the region has attracted the attention of some of the world’s largest banks and advisory firms, and has compelled local banks to also improve their services and diversify their product selection for their wealthy clients.