Asia’s disparate regulatory landscape – coupled with a rapid pace of change – means that treasurers need to be able to interpret not just individual regulations, but also understand the overall direction of travel.
Treasurers in APAC have much to consider in the current market, from understanding the impact of the US-China trade tensions to harnessing the opportunities brought by digitisation. But one perennial topic is how treasurers can address – and take advantage of – the complexities of the region’s regulatory landscape.
There’s no doubt that Asia’s diverse regulatory climate is complex and sometimes difficult for treasurers to fully understand. The region is characterised by a rich variety of countries, currencies and regulations, with different markets exhibiting disparate financial regulations, tax regimes and currency controls.
What’s more, regulatory change is a fact of life – and the rate of change can be very rapid. Last year alone, Asia saw more than 200 regulatory changes in the areas of payments, liquidity and foreign exchange, says Sandip Patil, Asia Pacific Head of Liquidity Management Services and Financial Institutions Group for Citi's Treasury and Trade Solutions.
Open for business
While complying with new regulations can be challenging, individual changes can often be advantageous due to an element of competition between different countries, particularly in the current economic climate. While Asia continues to outpace other regions in terms of economic growth, the numbers are not what they were a few years ago. We continue to see reducing growth rates in several key Asian markets including India, China and ASEAN.
In this climate, regulators can play an important role in supporting growth. “If a particular country wants to attract capital more aggressively, they need to adopt client-friendly, investment-friendly policies,” Patil says. “We are seeing some of that healthy competition right now in Asian markets, with different markets working to attract flows, supply chains and manufacturing operations.”
He adds that the last four months have seen more positive changes in China cross-border regulations than the previous few years, with promising developments across Asia, including in countries such as Malaysia, Thailand and Indonesia.
Interpreting the changes
While change can certainly bring opportunity, many of the region’s regulatory developments are characterised by a certain degree of ambiguity, meaning that corporates need to be able to interpret regulations effectively in order to make sure they are compliant. “Clients need to make sure they are following every comma and full stop, and that they have a process in place to monitor and report so they can give comfort to everyone, including auditors, regulators and banking partners,” Patil explains.
These developments also result in opportunities for companies looking to expand into certain markets. But first, treasurers need to have a clear sense of how the regulatory climate is evolving in different countries, and what that means for their businesses. For example, individual countries will have their own regulatory climates, with different priorities and objectives. At any given time, some of the region’s regulators may be in the process of liberalising controls, while others may be doing the opposite.
In addition, measures adopted in one market can have a knock-on effect elsewhere in the region. And the implications of any given regulatory change can be different for different companies – meaning that the best response to a particular change may differ depending on how a particular company’s treasury operations are structured.
Direction of travel
As such, Patil says it is important to interpret not only individual regulations, but also the overall direction of travel. “For example, to make sense of what’s happening in China, you cannot interpret one regulation at a time,” he notes. “You need to look at a series of regulatory changes over the past few months to start understanding the regulatory mindset and the rationale behind these regulations.” Consequently, he says that clients are looking to put specific changes into context so they can try to extrapolate future developments.
Banks have a role to play in helping companies do this – but they can also help to inform regulators about the impact of specific changes. “Our role, as a global bank, is not just to work with our clients and ensure they are given the best advice,” Patil explains. “Our role is also about maintaining dialogue with regulators and sharing with them what we are experiencing or hearing from the market. There may be times when a regulator hasn’t thought about a particular angle, or a specific point that could benefit the industry.”
“Additionally, it is worth noting that Asian regulators are also embracing the vibrant and changing technological landscape. As they support the advancement of technology for growth, these regulators are also putting in place the appropriate governance, laws and guidelines as a balancing act,” adds Patil.
Moving forward, it’s likely that regulators will continue to focus their attention on supporting growth. “Regulators will need more foreign enterprises coming into Asia, establishing bases, expanding bases and expanding capital, with the help of domestic players,” says Patil. “So to make sure the engine is running faster, they will have to keep liberalising regulation.”
That said, he notes that drastic change is not expected as regulators are generally calculated and methodical in their approach. “We have never seen an approach where a regulator takes the lid off completely – it’s very gradual,” he says. “And often it’s two steps forward and one step backward, just to cross-check the market.”
Meanwhile, despite the heterogeneous regulatory climate, Patil says that Asia has much to offer, particularly in light of the ongoing uncertainties in Europe and the US. While there is competition between different markets in Asia, the region’s growth potential is considerably higher, not least because of the way spending patterns are evolving.
“Lifestyle changes are happening much more rapidly in Asia, and the largest rise in discretionary spend is coming from Asia,” says Patil. “If you look at Asia as a single body, there’s an opportunity to grow together – that’s the kind of mantra we are seeing.”