Regulation in ASEAN is shaped by greater cross-border collaboration between regulators, the rise of pro-market policies, and an increasing number of digital ID schemes targeted at driving financial inclusion forward in the region. These topics and others were discussed by over 750 senior compliance and regulatory professionals at our 5th ASEAN Regulatory Summit in Singapore.
- The 5th ASEAN Regulatory Summit identified key trends transforming regulation in ASEAN, from cross-border regulatory partnerships to the role technology plays in advancing financial inclusion.
- Regulators in ASEAN are introducing RegTech and SupTech initiatives, as well as increased engagement with the industry to streamline regulatory compliance and effectiveness.
- Humans will remain key to overseeing financial compliance and risk management responsibilities, especially in the wake of new individual accountability regimes imposed on the sector.
Regulatory challenges, old and new, continue to impede financial institutions across the ten member countries of the Association of Southeast Asian Nations (ASEAN).
Of particular note, firms are challenged by regulatory fragmentation, which increases the cost of compliance, limits liquidity, and reduces regulatory effectiveness.
Put into perspective, firms that operate across the region are having to deploy compliance experts in up to 27 different jurisdictions, as opposed to a mere handful of teams looking after regulatory blocs such as the European Economic Area, or countries covered by the North American Free Trade Agreement.
The impact of financial crime on economies and society is also noteworthy — the UN estimates that up to US$2 trillion of illicit proceeds flows through the global financial system.
The consequences of environmental degradation are equally noteworthy, as financial firms are challenged to help mitigate climate change, and stop revenue losses of up to US$15 billion due to activities such as illegal logging.
In aspiring to meet these issues and many more, regulators and the market are increasingly relying on technological advances, pro-market policies and behavioral changes.
Designed to showcase solutions for this broad array of challenges, the 2019 Refinitiv ASEAN Regulatory Summit saw more than 750 compliance and regulatory professionals come together to share personal experiences, and to voice what needs to happen to tackle the issues affecting the sector.
Based on these discussions, below are seven trends I believe are shaping regulation in ASEAN:
1. Regulators are seeking greater cross-border collaboration
An observation frequently made by the market is that regulators commonly work in isolation. Southeast Asian authorities acknowledge the negative impact of this stance, and are now striving for cross-border harmonization.
Indonesia and the Philippines, for instance, have made reducing regulatory divergence a priority, and are requesting help from other regulators to exchange insights and share best practices.
While complete parity among jurisdictions is unlikely, these efforts are critical to mitigating the financial and business costs arising from cross-border differences in regulation in ASEAN.
2. Pro-market policies are spurring innovation, and vice-versa
A poll at the ASEAN Regulatory Summit found that increased consultation between regulators and the industry is key to building an ideal policy environment for financial technology in the region.
To foster such a dialogue, regulators are reaching out to the market to better understand how they can spur greater innovation.
The ‘Light Touch Safe Harbor’ policy of Indonesia’s Financial Services Authority helps FinTechs to thrive without inhibiting technological advancements. The market is presently valued at $2.35 billion, with RegTech and KYC initiatives worth $140 million.
Technological innovation is enabling the Central Bank of the Philippines (BSP) to streamline engagement with consumers and financial services providers.
Two supervisory technology (SupTech) initiatives currently stand out: an automated chatbot that helps customers to lodge complaints against financial firms with ease; and an API and back office reporting initiative, which allows financial institutions to submit data to BSP digitally at a greater volume and speed.
Processing times have reportedly been reduced from 30 minutes to 10 seconds.
3. Humans still needed
The utopian vision of regulatory activities being executed autonomously is indeed just that: a vision. While developments in FinTech, RegTech and SupTech advance at lightning speed, it is increasingly clear that humans will continue to be needed to oversee compliance activities.
The inability of AI and machine learning to accurately identify emotions is key. This greatly challenges the case for zero human involvement, and points to a world where smart humans work side-by-side with smart machines.
4. Sustainable investing a high priority
While the past decade saw firms championing environmental and social causes, these were mostly driven by CSR initiatives. Today, however, sustainable practices are ingrained into their operations, cultures and governance structures.
For investment managers, holding assets that are environmentally and socially sound is now the norm, as too is rebuking assets that cause harm in these areas.
Harm takes many forms — for example, long-term underperformance, increased portfolio volatility, and reputational risk.
Likewise, lenders are favoring customers whose activities are regarded as sustainable. And through it all, compliance teams must ensure that investment managers and banks meet their tightened internal and statutory requirements.
Watch: What regulatory change will have the biggest impact on financial markets in Asia?
5. Financial inclusion is growing — yet more can be done
Technology has significantly lowered the cost of servicing the unbanked. And the introduction of digital ID schemes throughout the region has enabled financial firms to onboard new customers who previously were not able to access financial services.
While many millions have benefited from these developments, the proportion of people within the formal financial system nonetheless remains low in ASEAN, at about 30 percent.
6. Firms are seeking ethical and pro-compliance cultures
Australia’s recent Royal Commission found there to be widespread misconduct across the financial services industry. A key finding was the ubiquitous selling of products that were deemed inappropriate to customers yet highly profitable for sales representatives and their employers.
While ASEAN has yet to experience such an inquiry, the aftershock of the commission has been significant. In many jurisdictions, senior management is now liable for such misconduct. Coupled with low consumer confidence in the financial system, this is prompting firms to put extra efforts into fostering ethical and pro-compliance cultures.
7. Technology and mature regulatory frameworks are realizing the potential of crypto assets
Much has been written about the recent rise and fall of crypto assets. A lack of regulatory oversight, as well as divergence between jurisdictions, contributed significantly to this.
As RegTech advancements enable firms to access previously unavailable KYC information, and as regulators create more informed and pro-market policies, investors are viewing crypto assets as viable investment classes.
Refinitiv is pleased to sit at the intersection of financial services, risk intelligence and RegTech, and events such as the Regulatory Summit allow us to join with the industry in discussing key challenges for regulation in ASEAN, and potential solutions for the future.