Tightening Asian regulations create corporate discord

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By:
Kimberley Long
Published on:

International companies new to Asia find working in the region more difficult than anticipated, as Asian regulators move towards a protectionist stance.

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New corporates moving beyond their home regions into Asia are having to grapple with a range of new regulations, and even the established corporates are struggling to navigate a changing landscape.

Indeed, scrambling for a share in a region with highly competitive local markets and with different sets of regulations has proven too much for some.

A number of leading old-economy western companies, including Revlon and Marks & Spencer, have been leaving China in recent years, pushed out both by high taxes and changes in policy that do not provide as favourable terms to overseas companies.

Recently, fintech companies have also come under pressure, with the government ruling that they must undergo strict audits and that all their data must be stored on Chinese servers.

Some participants suggest this is simply the Chinese looking to protect their own burgeoning fintech sector – after all, companies based in the country will already be holding all their data there.

Regardless, it is leaving some corporates, who had entered the region with hopes of high returns and low labour costs, looking for new solutions.

Proactive

A senior executive at an Asia-based bank tells Euromoney that the banks might need to be more proactive in working to the benefit of their customers, adding: “The regulators should not be discouraged, but the banks need to understand the system and the regulators. There will be friction between them, but they have to find a way of working together.

The banker explains that overseas companies looking to come to the region need to know that regulations will be different in each country and it will not be possible to do things the same way as they might be used to at home.

“The challenge comes from the implementation of the regulations in the context of the specific country regulations,” says the executive.

There are attempts to operate within global regulatory best practice.

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Vijay Shankar, ANZ

Vijay Shankar, head of Asean, India and regional sales, transaction banking at ANZ, says: “Many local regulators are trying to mirror global best practices to ensure consistency such as anti-money laundering/sanctions, Basel III and Dodd-Frank.”

There are some similarities, as some international regulation was created with strong Asian input. China was, after all, on the Basel Committee. Asia also takes its cues from what is seen to be working in other regions.

Sylvain Thieullent, CEO of Horizon Software, says: “Asia follows in the footsteps of Europe, seeking to bring in more protections for investors. There is also the influence of the US, which could result in the implementation of standards that are beyond what is being asked for by the local regulators.

“They look at what is being applied in other regions and ask if it is best practice, and what aspects they can take. Taken together, some regulations, such as Mifid II, are starting to have an impact globally.”

International companies choosing to offshore some of their operations – most notably treasury centres – in Asian countries creates a new set of questions.

Shankar says: “We are seeing an uptick in multinational corporations placing their regional procurement and treasury centres in Singapore and Hong Kong. Both markets have sophisticated trading ports, matured financial markets and both are gateways to the Asean countries, India and Greater China markets where consumer base is located.”

The two major centres of Singapore and Hong Kong hold the most sway, but, still, their own approaches differ.

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Sylvain Thieullent,
Horizon Software

Thieullent says: “From one perspective there is strong competition between Singapore and Hong Kong, with the latter seen as having greater regulatory flexibility. Singapore did try to adapt to newer strategies, but these did not prove to be successful yet.” 

The Monetary Authority of Singapore has made changes in the past year in an attempt to foster growth. It has tried to encourage fintech development through the creation of deregulated sandboxes, and to stimulate greater lending and SME support by allowing finance companies to provide comprehensive lending services.

However, Hong Kong still seems to cut ahead, as the flexibility of the regulators can depend on who is setting the rules and what their aims are.

“Because in Hong Kong the government is heavily involved in regulations, they tend not to be too strict in their rules,” Thieullent adds.

There is scope for a greater level of understanding between the banks and the regulators, as both try to operate to their own code of standards.

The Asia-based banker explains: “One real dislike I have with the regulators is the intent of the regulation. There is not always communication on what they are trying to achieve. If there was this understanding, it would be easier to meet their expectations.

“There is only legislation when there is a problem. There needs to be regular dialogue with the banks around their decisions. We are not looking to gain any competitive advantage by adhering to their standards.”