Financial Services companies in Asia Pacific need to disrupt themselves to thrive in 2017

Published: 9 December 2016

In 2017, financial services companies will need to disrupt themselves in order to succeed, as they are living with moderating economic growth, operate under complex regulation and are facing competition from new technology enabled players, according to Deloitte's 2017 Asia Pacific Financial Services Regulatory Outlook report, released today.

While the post-crisis period of prescriptive rule making is slowing, regulation will continue to evolve and drive change. The focus will turn to embedding reforms, intensifying supervision, planning and testing, and dealing with emerging risks such as disruptive innovation and cybersecurity. This means the regulatory agenda will remain full in the coming years, and financial services firms will need to respond to the changing regulatory landscape in an agile way.

"As with preceding years, the 2017 regulatory agenda remains complex for financial services firms operating in Asia Pacific. Recent political developments outside the region will also add a layer of uncertainty, particularly if there is a trend to dismantle efforts aimed at global harmonisation of regulation. Financial services firms need to take decisive and, in some cases, bold actions in response to this current period of difficulty," said Kevin Nixon, Global & Asia-Pacific Leader, Centre for Regulatory Strategy, Deloitte.

The Deloitte Asia Pacific Centre for Regulatory Strategy report outlines four major regulatory themes dominating the outlook for Asia Pacific financial services firms during 2017: resilience, governance, supervision and technology.

“Among the four major themes, technology will be an important consideration for companies and regulators, as it is creating both opportunities and disruption for the financial services industry. If properly harnessed, emerging technologies can enable financial institutions to revitalise their business models. Yet, it does not mean that institutions can be ignorant about the other major themes as the ever changing environment requires them to maintain resilience, invest in data analytics and develop the right governance culture, said Tony Wood, Financial Services Risk & Regulatory Leader at Deloitte China.

Resilience

Since the financial crisis, much of the focus for regulators has been on ensuring the resilience of financial institutions and the financial system, and this will continue into 2017, with a particular emphasis on domestic implementation. The “Basel IV” rules for banks are expected to be published in early 2017, the first iteration of the global capital standards for insurers will be released in 2017 and the resilience of the asset management industry is to be investigated.

Regulatory expectations around stress testing will also increase in 2017, with more intricate and diverse scenarios, and local regimes will further align with international standards on recovery and resolution planning. Firms may need to devote significant energy and resources to meet new sets of rules and improve capabilities in these resilience building areas.

Governance

Recent examples of governance and conduct failings will mean that in 2017 there will be a sharpened regulatory focus on ensuring firms to have robust governance frameworks throughout the entirety of their organisation, and are placing priority on organisational culture. Firms should start reviewing existing governance frameworks and tackling practices that could signal problematic culture.

Supervision

In 2017, Asia Pacific regulators will be moving beyond concern about compliance with explicit rules, and instead they will adopt a more dynamic and forward looking supervisory approach, involving continual engagement and requests for granular data on a greater variety of matters.

Firms will need to be in a position to clearly articulate their business strategy and may need to invest in advanced data and analytics technologies. They should also expect more intense engagement with regulators, involving ongoing discussion, reviews, testing, guidance and challenge at the highest levels, covering all aspects of the business.

Technology

Regulators will continue to nurture financial technology (FinTech) in 2017 and will investigate regulatory technology (RegTech) uses. In hand with this will be enhanced expectations around the strength of cybersecurity measures.

Firms wishing to maintain a competitive edge will need to invest in innovative technology, retain ongoing engagement on RegTech and take an integrated cross-functional cyber resilience approach.

Technological innovations, while posing a threat to the established way of doing things, will also provide firms with the best ways to manage the range of stresses arising from the regulatory expectations explored in the report.

“Within the region, regulators appear to have different focuses when it comes to managing the challenges brought about by emerging technologies. For instance, attention has be drawn to building cyber resilience in Japan, Hong Kong, Singapore and Australia,” said Mr. Wood, Financial Services Risk & Regulatory Leader at Deloitte China.

"Firms are currently doing business in a more constraining regulatory, economic and political environment, so they need to refresh their strategies for how they respond to this environment. Not all firms will succeed in doing this in the year ahead. Those that do will be the ones that find ways of making this new environment work for them, capitalising on their resilience, agility and efficiency," said Mr. Nixon, Global & Asia-Pacific Leader, Centre for Regulatory Strategy, Deloitte.

For more analysis and details on the report, please visit the Deloitte Asia Pacific Centre for Regulatory Strategy.