Asia Pacific’s multiple markets and patchwork of regulations are difficult for treasurers to navigate at the best of times. And now, newer, emerging trends – such as data and privacy, crypto and environment, social and governance (ESG) issues – are adding to the complexity of rules in the region.
With various laws, guidelines and pronouncements, the regulatory landscape in Asia Pacific can soon become a checklist of acronyms and alphabet soup. Keeping on top of the region’s regulations is already a challenging task for treasurers, particularly with its diversity of markets, and that is set to become more difficult. Broader trends are afoot – such as the emergence of central bank issued digital currencies and a focus on environment, social and governance (ESG) issues – which are likely to be followed by even more rules and regulations.
The regulatory landscape is already challenging, and in some markets, such as China, it is constantly changing. “China is doing a lot very quickly,” says Tony Wood, Partner, Risk Advisory at Deloitte China. For treasurers, he says, “The macro challenge is the sheer pace of change and staying compliant with changes they may not have been aware of.”
And in other jurisdictions in Asia, there is an opacity to the regulations that can be difficult to navigate. The regulations could be published in an elaborate form of the local language, for example, which is difficult to translate. Not only that, Wood says, for Western companies “It can be hard work to understand what the intention is” of the various laws, regulations, guidelines and pronouncements. “Everyone struggles with that,” says Wood. He adds there are technology solutions available that aim to keep users abreast of the regulations across the region, but as yet they do not adequately solve this issue.
For treasurers, there is a lot to navigate, especially given the diversity of law and regulation in the various markets. “It is particularly difficult for smaller companies that are in many of these jurisdictions and need to stay on top of everything,” says Wood.
The range of regulations can be overwhelming, and for corporates they can be those that affect them directly, or those that are more indirect – with implications from regulations for the financial services industry, for example. Wood points to the trend of bank resolution regimes in various markets – such as China and Singapore – that will have implications for cash and liquidity ringfencing. This also comes in the context of the regulatory drive for greater transparency about where money is sitting and how inter-company positions are being managed, he says.
And another example of a macro trend that is affecting treasurers in Asia at the moment is the US sanctions regime, and how it is affecting individuals in Hong Kong, for example. In particular, the ‘connected parties’ of sanctioned individuals can be difficult to get clarity on and treasurers could find they have issues in their supply chain, comments Wood.
While issues such as sanctions, anti-money laundering or know your customer have been regulated for years, there are broader mega trends afoot that are new territory for corporates and regulators alike.
A mega trend that is affecting businesses of all types is data, and even treasurers are beginning to think how they can be more like Amazon or Google in how they use it to drive better outcomes. As big data becomes more commonplace, however, so do the regulations surrounding it – although it is still new territory for many.
Wood points to the information and security laws and regulations as a trend in the region. “We see a hardening of the regulation around those laws – for good reason – and all the countries in this region are in a debate about the privacy and the ownership of data,” he says.
In markets such as Indonesia, there are particular challenges around the cross-border management of data and information. This has forced international companies to have onshore operations and systems, and run subsidiaries with separate governance structures. “You have to be aware of these rules and what you can and cannot do. And it’s not just being aware of the rules – you have to be aware of how they are being interpreted,” says Wood.
In many respects, the EU’s General Data Protection Regulation (GDPR), which addresses the handling of personal data by companies, is the benchmark for the region. In fact, the GDPR has had a direct impact on local regulations. A regulatory outlook report from Deloitte, for example, notes that the GDPR has influenced regulators in Asia Pacific with Thailand and India using the European rules as the basis for their own privacy regulations.
And the GDPR has also had an impact in Singapore. According to law firm Ashurst, “The GDPR gained prominence internationally partly due to its increased financial penalties for breaches – and that had a significant effect on organisations around the world, significantly increasing the visibility of data privacy breaches at senior management level. Increased penalties for data privacy law breaches have subsequently been discussed in various jurisdictions – and Singapore has now followed suit.”
Anton Ruddenklau, Partner, Head of Financial Services Advisory, KPMG in Singapore, points to the Monetary Authority of Singapore’s principles for artificial intelligence and data analytics in the financial sector. The principles – ‘FEAT’ – of fairness, ethics, accountability and transparency are similar to those of other markets, such as the UK, regarding data, comments Ruddenklau.
With corporates investing more in data, and building artificial intelligence alongside it, these regulations will increasingly affect corporate treasurers. And in this brave new digital world, there are other trends they also need to keep on top of. One area that treasurers need to get a grip on is the managing of digital and crypto assets. Ruddenklau estimates that 8% of global clients have digital assets on their balance sheets. As it stands, there is no coherent standardised regulation that has taken shape to address this new area, although some markets have attempted to clarify the taxation framework for cryptocurrencies, for example.
In April 2020, for example, Singapore’s inland revenue issued guidance on the tax treatment of digital tokens and for initial coin offerings. Alan Lau, Partner, Head of Financial Services, Tax, KPMG in Singapore comments, “There are more questions than answers on how to tax crypto.” He adds that even the valuation of such assets can be challenging.
These issues coincide with a wider trend of stable coins and digital currencies that will be issued by central banks. Also, there is the long-awaited stable coin – Diem – from Facebook, all of which Ruddenklau expects to be launched in the near future. For treasurers, this means they will need to be aware of the implications. The question, says Ruddenklau, for treasurers is when they need to become proficient in crypto. “It is probably only two years away,” he says, adding that their assets will likely have a crypto element to them soon.
Along with data and digital assets, another mega trend affecting corporates is ESG, and more regulations are expected to come into force, in a more standardised way. A regulatory outlook report from Deloitte notes that previously ESG reporting has been mostly pushed by stock exchanges and for publicly-listed companies that are of a certain size. That is soon expected to change, and there are forums such as the Network of Central Banks and Supervisors for Greening the Financial System that are expected to bring further regulation. Its purpose is to “share best practices and contribute to the development of environment and climate risk management in the financial sector and to mobilise mainstream finance to support the transition toward a sustainable economy.” This would have the intention of pushing the financial sector towards the climate goals that were set out in the Paris Agreement (for example, to limit global warming to 2C above pre-industrial levels and aim for 1.5C).
The regulatory landscape is expected to become more standardised in how it handles ESG rules. So far, there has been a patchwork of approaches. Deloitte notes, for example, that corporates have been subjected to various global and local reporting frameworks. And on top of this, there have been a variety of approaches. For example, in Singapore, corporates have been expected to ‘comply or explain’. Meanwhile in Australia, Japan, Malaysia and Thailand, for example, the ESG reporting was voluntary.
Broader than such reporting requirements, the ESG rules will affect treasurers in other ways. Ruddenklau comments how ESG rules will affect how goods are financed, the type of supply chains they have, and how businesses are run. The regulations have so far had an impact on capital markets and fixed income bonds, for example, he says. “We were talking about ‘green bonds’ a few years ago; now we are talking about a green supply chain,” Ruddenklau comments.
These changes mean that corporates will be assessed by their ESG risks when they want to borrow. Ruddenklau explains that for companies that are carbon heavy – like fossil fuels, heavy manufacturing, or data centres – their cost of funding will be higher unless they make a commitment to have a low impact.
“This will have a profound impact on the way treasurers understand ESG,” says Ruddenklau, adding that it will affect third parties and their supply chain, how they run their bank relationships and how they access financing.
Lau comments that the public sector has taken the lead on green financing. For example, the Hong Kong’s Green Bond Programme is a government initiative that leads in issuing green bonds to fund projects that have the aim of helping the environment and moving to a low-carbon economy. “The idea is for the government to take the lead and show the private sector how to do it and develop the whole ecosystem,” says Lau. If it was left to the private sector to develop, it would have taken a long time – the fastest way to scale up the programme was for the government to take the lead, he says.
Hong Kong has also been at the centre of another green initiative, the Alliance for Green Commercial Banks, which aims to “finance the infrastructure and business solutions needed to urgently address climate change”. The alliance was set up by the International Finance Corporation and the Hong Kong Monetary Authority (HKMA) and held its first meeting in April this year.
And in Singapore, MAS has created the Green Finance Industry Taskforce to accelerate green finance, which will likely have implications for treasurers as the guidance filters down. In May it issued a guide for climate-related disclosures and a framework for green trade finance, as well as green finance in other sectors such as real estate. Gillian Tan, an Assistant Managing Director at MAS, said at the time of the announcement, “These initiatives will also contribute to global efforts to achieve greater consistency and comparability in climate-related disclosures, as well as provide investors and market participants with the necessary information for climate risk analysis and investment decision-making.” As one of several mega trends that are impacting the regulatory landscape for treasurers, a move to such standardisation and consistency will surely be welcomed.
