The negative impact of diverse business regulations and standards is well understood across Asia. More than 30 years ago, the Asia-Pacific Economic Cooperation or APEC – a forum of 21 member economies that promotes free trade and economic cooperation in the region – formed a sub-committee on standards and conformance to help reduce the effects of differing standards and conformance arrangements on trade and investment flows.
The organisation recognised that standards and conformance procedures that are harmonised across economies improve the efficiency of production and facilitate the conduct of international trade, resulting in more rapid trade flows, reduced costs and a greater integration of production networks.
To ensure compliance with financial regulations across all the jurisdictions it operates in, Kerry maintain close relationships with partner banks to receive updates on changes to regulatory frameworks through regular calls, banking economic and regulatory portals and other communication channels, explains APMEA Treasury Manager, Arijit Deshmukh.
“When regulatory changes are identified as having a potential impact on our business model, we establish a dedicated project team responsible for implementing the necessary modifications to our ERP systems and business processes if required to ensure compliance,” he says. “Additionally, we partner with stakeholders such as auditors and – in certain countries – the central bank and government regulatory bodies to stay informed about updates to financial regulations.”
The company has internal teams across various departments that continuously monitor changes in financial regulations. According to Deshmukh, this structured approach enables Kerry to adapt to evolving regulations and maintain alignment with financial regulations globally. He concedes that regulatory compliance can be both time-consuming and expensive, depending on the scope of the requirements involved.
For example, some needs can be addressed through ERP system implementations or business process changes, which may involve a one-time investment. However, others demand constant tracking of transactions, necessitating ongoing efforts and additional headcount. “Despite these challenges, it is critical to prioritise compliance and stay updated on regulatory changes as the fines and penalties for non-compliance can often be significantly higher than the costs of ensuring adherence to regulations,” observes Deshmukh, who reiterates that banking partners play a key role in navigating regulations across multiple jurisdictions.
“They have a strong understanding of our company’s processes and transactions, leaving them best placed to advise on the impact of regulatory changes. Additionally, banking partners act as a bridge to the central bank in some countries, assisting with any queries we may have related to regulatory changes. They also provide valuable support by offering insights into the activities and approaches that peers are adopting to navigate regulations effectively.”
James Liu, Finance Director IKEA at Hong Kong-based DFI Group says his company conducts regular reviews of compliance in various forms from checklists to reviews of the control environment (adequacy of controls, spread and weighting of preventive and detective measures, efficiency of controls) and governance structure.
“That said, the complexities lie with the varying requirements in the different jurisdictions so it is often challenging to have all the local expertise in-house and at times we have to rely on external experts to ensure that we are compliant,” he says. “Another challenge is to manage a standardised approach while allowing flexibility to ensure local compliance, which is often easier said than done.”
He agrees that ensuring regulatory compliance is time-consuming and labour intensive, which translates into costs that could be better utilised elsewhere to the benefit of customers, employees or shareholders. “We have started to adopt AI to tackle this challenge in our compliance processes and it is currently being used on two fronts: automation of processes and review of our controls and compliance,” he explains.
One way in which AI is being used is to load in regulatory requirements as well as the company’s standard operating procedures and have AI review the adequacy of its controls and the weighting of preventive versus detection measures and adjust in accordance with risk appetite as well as (if necessary) producing revised procedures and the computer script to automate the processes. “We are still at the beginning of the journey but we are making some good progress,” says Liu, who also refers to the role banking partners play in helping to navigate regulations across multiple jurisdictions as subject experts. “We value compliance highly and I think we have a good partnership on this very important topic,” he adds.
Marsh McLennan conducts a vigorous review process on transactions and structural solutions by legal, tax, financial control and treasury prior to execution or implementation, explains Asia Pacific Treasury Director, Nicholas Hardy. “Asia can be considered a complex region from a regulatory perspective and thus it is important to partner with a bank that has the local expertise and experience in supporting clients,” he says.
Regulatory and operational fragmentation creates significant challenges for companies, which means corporate treasurers and CFOs must stay vigilant and adaptable observes Anand Jadhav, Head of Cash Management Product and Implementation APAC at BNP Paribas. “Each country has its own regulatory bodies, requiring treasury to navigate compliance requirements with increasing administrative burden and cost,” he says. “In addition, in some countries the policy/guidelines are issued in local languages, which requires accurate interpretation and implementation.”
The process of moving funds across borders is subject to varying levels of restrictions, from jurisdictions with no constraints (such as Singapore and Hong Kong) to those with high levels of restrictions, for example India and Vietnam. FX regulations differ from country to country with some requiring central bank reporting, supporting documents and declarations.
“In-country pooling and cross border pooling possibilities for local and foreign currency vary due to tax considerations involving different withholding tax requirements and restrictions on foreign currency movement,” adds Jadhav.
Treasury centralisation can be challenging, with payments-on-behalf-of and collections-on-behalf-of structures not always available. Some countries allow in-house bank entities from another country with resident or non-resident accounts to perform settlements, whereas in other countries only local entities with resident accounts may be allowed to perform such settlements in local currency.
“Then you have ununified local payment rails,” says Jadhav. “Unlike SEPA payments in Europe, each Asian market has a distinct local payment rail with variable amount limits and settlement times, requiring corporates to adapt and develop payment capabilities for each country.”
Vishal Lohia, Associate Partner at Mumbai-based regulatory consultancy Dhruva Advisors also refers to the absence of a single regulatory body and notes that frequent regulatory updates and reforms – particularly in areas like anti-money laundering, data privacy and ESG disclosures – make it difficult for companies to stay compliant. “In fact, due to changes in anti-money laundering rules there is an embargo on foreign direct investments in some countries,” he says. “Changes in global rules, particularly those driven by the Financial Action Task Force, can impact foreign investment in India by increasing scrutiny and potentially hindering transactions, especially for companies operating in high risk sectors or with complex ownership structures.”
The implementation of the BEPS multilateral instrument has added further complexity as jurisdictions adopt different provisions, leading to uncertainty in treaty benefits. Additionally, increasing emphasis on substance requirements means businesses must demonstrate genuine economic activities in a jurisdiction to qualify for tax treaties and incentives. “Many APAC countries have strengthened anti-avoidance rules, including permanent establishment risks and transfer pricing regulations,” says Lohia.
Regulatory challenges facing treasurers in Asia make cash management more difficult, requiring additional focus on compliance and impacting treasury effectiveness. In some markets, such challenges can be compounded by regulatory uncertainty, with amendments or new rules introduced with little advance notice, requiring businesses to quickly adapt to stay compliant. That is the view of Harish Kumar, Head of Liquidity & Investment Products Asia, Global Payments Solutions at HSBC, who notes that geopolitics introduce an additional layer of complexity as escalating trade tensions create new trade corridors and alter supply chain networks, introducing new markets and counterparties. “Rather than harmonisation, we have been observing a deregulation trend, which has made it easier for treasurers to centralise treasury functions across jurisdictions, for example, the cross-border cash pooling schemes in China,” he says.
“A few jurisdictions have also been looking to attract more businesses by launching schemes and introducing incentives, such as GIFT City in India and the International Business Centre regime in Thailand, which bring opportunities for treasurers to create efficiencies in their payments and cash management.”
Jadhav explains that simplification of requirements and procedures is being undertaken by countries or clusters of countries working together to improve processes and reduce the regulatory burden. “Such initiatives include the regional payment connectivity (RPC) initiative to make inter-country payments more convenient and affordable, upgrading domestic payments formats to the ISO 20022 standard, offering direct connectivity with tax authorities – allowing corporates to make statutory payments via online banking with quick payment status, thereby removing the need for a separate account – and digitisation of supporting documents for cross border payments.”
Despite efforts to align financial frameworks with international standards, significant variances persist across jurisdictions due to regional complexities and differing regulatory priorities explains Jeroen Van Doorsselaere, Vice President of Global Product & Platform Management at Wolters Kluwer Finance, Risk & Regulatory Reporting. “Multi-jurisdictional banks often confront the challenge of complying with diverse interpretations of global and regional regulations, resulting in inefficiencies and the necessity for localised compliance teams,” he says. “Additionally, institutions must navigate legal and structural barriers such as obtaining separate licenses and adhering to specific reporting obligations for each country.”
The requirement to align with multiple regulatory regimes necessitates considerable investment in compliance infrastructure and expertise. Financial institutions face the strain of allocating substantial resources to monitor regulatory changes, train personnel and implement necessary controls.
“On the other hand, there are initiatives among technology providers to establish a common centralised vocabulary to facilitate multi-jurisdiction compliance,” adds Van Doorsselaere. “Ultimately, every regulator will require a balance sheet report, a capital report and a liquidity report, all of which have specific nuances but often rely on the same input data. Regulators communicate with one another and share ideas but they frequently prioritise their own agendas, resulting in deviations in the level of granularity concerning country-specific issues.”
While full regulatory harmonisation remains challenging due to country-specific legal and economic priorities, Nithi Genesan, Country Head – Singapore at institutional governance, administration, risk and compliance services provider Waystone observes that there are a number of initiatives in place to promote consistency. “For instance, some markets have established mutual recognition agreements or licensing passport schemes to enable financial institutions to operate more seamlessly across borders,” she says, adding that banks have a key role to play in helping companies navigate regulations across multiple jurisdictions.
“They assist businesses in adhering to foreign exchange controls, sanctions screening and tax-related requirements and as the first point of contact for most businesses, also conduct due diligence on customers, helping companies mitigate regulatory risks.”
