Article

Three compliance trends to watch out for in 2018 in Asia Pacific

20 April 2018

The complex regulatory landscape in Asia Pacific (APAC), coupled with the rapidly growing number of businesses across the region, has increased the need for robust corporate secretarial (cosec) services to drive legal and compliance activities.

Countries:

Latest regulatory outlook in Asia Pacific

According to TMF Group research, the number of registered companies in APAC grew at a compound annual growth rate (CAGR) of nearly 10% between 2013 and 2016. China dominates in terms of new registered entities, but Australia, Malaysia, India, South Korea, the Philippines, New Zealand and Singapore are also seeing considerable growth.

There has been a significant increase in regulatory reporting requirements since the 2008 financial crisis sent shockwaves around the world’s markets. Companies, both old and new, are facing mounting pressure resulting from the constantly evolving regulatory complexities and compliance requirements in the APAC region.

The Organisation for Economic Co-operation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) Action Plan, launched in 2013, provides the framework for multinational corporations to disclose certain information annually, in each tax jurisdiction in which they conduct business, with the ultimate aim of enhancing transparency.

The movement of APAC countries towards the Action Plan is posing further challenges to corporates. By May 2016, almost two-thirds of APAC countries had introduced, or were planning to introduce, Country by Country (CbC) Reporting (one of the new reporting requirements derived from the BEPS Action Plan). Another major legislative development in the region is the widespread adoption of the OECD’s Common Reporting Standard (CRS).

Three key trends you should watch out for in Asia Pacific

Increasing regulatory reporting pressure is impacting companies in APAC

There are now significantly more global regulatory reporting requirements for companies to deal with. These include the previously mentioned CbC Reporting, which aims to prevent tax avoidance by increasing transparency, Basel III, which aims to strengthen regulation, supervision and risk management of banks, and the International Financial Reporting Standard (IFRS) 9, which is an improved accounting standard that aligns accounting of financial instruments with credit risk management.

Regional regulators are also increasing their local reporting requirements, which further adds to the burden. They are seeking to actively address governance deficiencies and align their standards with global regulatory reporting initiatives. For example:

  • Hong Kong has implemented ‘HKFRS’ to better align with IFRS 9 and has moved to introduce additional liquidity reporting obligations. The territory has also implemented the framework for CbC Reporting under the Inland Revenue (Amendment) (No.6) Bill 2017. Multinational enterprise groups are now required to file a CbC Report in relation to an accounting period where the group has constituent entities or operations in two or more jurisdictions and their revenue meets a certain threshold.
  • The Monetary Authority of Singapore (MAS) proposed changes to regulatory reporting requirements in MAS notice 610 in February 2017, to align with the Basel Committee on Banking Supervision (BCBS) 239 (Risk Data Aggregation and Reporting).
  • Regulators in Australia are updating core reporting forms such as ARF 320, 391 and 392.
  • Reporting regimes in Indonesia, Malaysia, India, Taiwan and China are likewise undergoing updates or enhancements.

These changes increase both the volume and complexity of regulatory reporting, putting more pressure on companies’ infrastructure, processes, risk management systems and human resources.

The associated enforcement actions and penalties for non-compliance with these requirements can be harsh. The MAS recently withdrew licenses from two Swiss banks for inadequate compliance controls related to Suspicious Transaction Report (STR) procedures.

Asia's family-run conglomerates are driving regional growth

Family-run corporations are on the rise in Asia. They have performed far better than any other type of business in terms of contributing to Asia’s growth over the past few decades. Samsung, Cheung Kong group, Jardine Matheson group, Tata Group and Formosa Plastics group are some of the dominant family groups in the region.

They have used their wealth, connections and entrepreneurial skills, honed over generations, to carve out vast empires. The share price for large family-owned businesses tends to outperform the global index of blue-chips. 

It can be challenging for family-run corporations to manage corporate governance measures effectively, such as whistle-blowing policies and increased transparency. This can be a major challenge for these companies to meet compliance requirements and maintain the balance between family interest and external stakeholders’ trust.

There is a risk that cronyism, which allocates company resources for their own interests rather than shareholders’ interests, may result in inefficiency and reduce shareholding value.

As regulators continue to monitor listed family-run corporations, there are compliance challenges which family-run corporations need to be aware of. In Hong Kong, for example, the adoption of the new Companies Ordinance in 2014 provides the basic regulatory framework, whereas other regulatory bodies also deal with corporate governance, such as the Stock Exchange of Hong Kong (SEHK), and the Hong Kong Monetary Authority (HKMA).

Management under the influence of a significant shareholder or family-connected director is a risk which regulators have paid particularly close attention to. The Standing Committee on Company Law Reform (SCCLR) and the Corporate Governance Code, which is a non-statutory document under the Listing Rules of the Hong Kong Exchanges and Clearing Market (HKEX), sets out recommendations and principles of good corporate governance. 

These include directors’ duties, control on approval for significant transactions involving directors, self-dealing by controlling shareholders, and balanced composition of executive and non-executive directors on the board.

The high demand for compliance staff in Asia will continue

The demand for good compliance and corporate governance professionals continues to increase year on year in key markets globally, but especially in Singapore, Hong Kong, China and India as compliance issues, such as anti-money laundering (AML), fraud and policy review, remain hot topics.

The required standard for ‘Know Your Customer’ (KYC) and due diligence practices has risen as regulators take a more proactive approach. Financial institutions must meet these high standards to avoid penalties and minimise reputational risk by improving their KYC procedures, taking action to address historical KYC deficiencies, and ongoing monitoring of the background and activities of clients to ensure that all information is accurate and up to date.

Key countries tackling compliance talent issues in Asia Pacific:

  • In Singapore, the MAS has driven a greater demand for compliance roles in regulation, financial crime, investigations, surveillance and monitoring. Fintech start-ups are hiring compliance officers as they seek to meet certain regulatory constraints, especially within the payments space.
  • In China, financial services firms are likely to further strengthen middle and back office functions by continuing to recruit risk managers and compliance & auditing professionals.
  • The demand for company secretaries is increasing in India following the Companies Act 2013 and due to an increased focus on good governance among new-age companies and next-gen corporate leaders.
  • In Hong Kong, there is a shortage of skills in this area. Many financial institutions have said that they lack the necessary resources and talent to implement KYC-related changes effectively. 
    This shortage of skilled compliance staff has contributed to rising costs associated with KYC and due diligence processes and software. It has been estimated that Hong Kong spends US$80m annually on KYC and due diligence, which is well above the global average of US$60m. There is a clear need for support in this area.

Partnering with TMF Group

Our global reach and local knowledge means that we are well placed to support your cosec needs.

This includes provision of registered agent, provision of registered offices, directorship & domiciliation services, international corporate structuring, corporate administration, SPV management services, and adherence to compliance and reporting standards such as CRS, KYC, CbC, BEPS and AML.

Find out more about our services here and talk to us to find out more.

Written by

Louise Kan

Head of Regulatory Compliance

Insights and updates delivered to your inbox.

Sign up to receive a weekly round up of posts that matter most to you. 

Sign up now