Welcome to the latest edition of Protiviti’s Asia-Pacific (APAC) Financial Services Insights. In this monthly newsletter, we provide a summary of important developments across the APAC financial services sector, including those related to the ever-changing regulatory landscape.
As we embark into 2021, financial institutions and regulator across the APAC region are gearing up for the year ahead. We see resumed growth, with investment banking fees across APAC (ex-Japan) surpassing European fees for the first time and financial institutions investing in their digital processes to ensure the transition to a digital economy. Regulatory enforcement is also picking up, with the Chinese regulator cracking down on FinTech giants and the Singapore MAS introducing new rules to mitigate the threat of cyberattacks. In Hong Kong, the Insurance Authority is set to implement group-wide supervision for insurance.
Investment banking fees in the Asia Pacific ex-Japan region reached a record-high of 28.5 billion USD in 2020. According to data collected by Refinitiv, this represents a 23.4% increase, driven most notably by a surge in Chinese capital markets. It marks an all-time high in annual fees earned since Refinitiv began collecting the data in 2000 and is also the first time the region surpassed European fees.
Artificial Intelligence (AI) in the APAC Asset Management market is expected to witness market growth of 44% CAGR during the forecast period of 2020 to 2026. Financial institutions are implementing AI technology in order to manage their financial assets and minimizing the operating cost, thus growing the revenue. The main areas in which AI is deployed in financial assets management embrace personal financial management, fraud detection, and investment banking. Machine learning, speech recognition, and computer vision technologies are currently in demand and will continue to lead the investment patterns in the forecast period.
The Monetary Authority of Singapore (MAS) has announced new rules that seek to better mitigate risks to banks from cyberattacks. Singapore's financial regulator released the new Technology Risk Management Guidelines, which will apply to all banking, insurance, brokerage and payment services firms. The new guidelines stipulate that banks and other financial institutions must secure the development of so-called application programming interface (API) codes and encrypt sensitive data transmitted to prevent leaks or hackers injecting malicious codes in the APIs.
(International Investment, 18/01/2021)
The Monetary Authority of Singapore (MAS) announced the successful conclusion of the first phase of the Veritas initiative which saw the development of the fairness assessment methodology in credit risk scoring and customer marketing. Veritas, which is a part of Singapore’s National AI Strategy, aims to provide financial institutions with a verifiable way to incorporate the FEAT (Fairness, Ethics, Accountability and Transparency) principles into their Artificial Intelligence and Data Analytics (AIDA) solutions.
Bank of Singapore, a private banking arm of OCBC Bank, said that cryptocurrencies have the potential to partially replace gold as a store of value. Before that can happen, though, cryptocurrencies must overcome hurdles including high volatility, regulatory acceptance and reputational risks, according to a research note from the bank. Cryptocurrencies offer the benefit that they are easy to move and store compared with precious metals, although they are also prone to theft via hacking.
Hong Kong, S.A.R.
ZA Bank, a Hong Kong-based virtual bank, has been granted an insurance agency licence by the Hong Kong Insurance Authority (IA). With the new licence, it can act as an agent of ZA Insure, a digital-only insurer that is also under the same ZhongAn umbrella. This comes just 10 months after the bank’s official launch. In the near future, ZA Bank will carry a suite of ZA Insure products and users will be able to view and manage their insurance policies through the ZA app.
(Insurance Business, 27/01/2021)
Goldman Sachs Group, Morgan Stanley and JPMorgan Chase & Co will delist some Hong Kong-listed structured products as a result of US sanctions, according to filings from the Hong Kong stock exchange. A total of 500 structured products will be affected. The planned delisting of these products won't affect the market as there will be sufficient investment choices to meet demand.
(Business Times, 11/01/2021)
Hong Kong’s government has gazetted subsidiary legislation to commence direct group-wide supervision over insurance groups on 29 March 2021. The subsidiary legislation extends certain powers the IA (Insurance Authority) has over authorised insurers to Hong Kong-incorporated holding companies of an insurance group, in line with international standards set by the IAIS (International Association of Insurance Supervisors). The legislation will grant the IA regulatory powers at the holding company level for the purposes of setting requirements in relation to capital, regulatory reporting and public disclosure.
As Australia looks to rebuild and strengthen its economy following a year of disturbance, banks have a major role to play. Beyond focusing on their own economic recoveries, they must invest in their digital processes to ensure the transition to a digital economy. By implementing innovations such as cashless payments, open data, digital identity, digital signatures and AI, banks will be able to monitor compliance and improve efficiency in the broader economy. The adoption of such innovations will enable the banking industry to create growth and support the development of a more productive economy.
A study by Mastercard of 806 Australian businesses found that 52% of respondents had shifted to ecommerce sales in response to COVID-19. One in five businesses (20%) were able to make the change within just 24 hours. COVID-19 has seen many retailers shift from cash to contactless card and digital payments as their preferred way to accept payment. More broadly, 17% of organisations claimed they had started taking or will continue to take mobile wallet payments in response to the pandemic.
China’s banking regulator said recent measures to rein in financial technology firms that have impacted big brands such as Jack Ma’s Ant Group Co. weren’t aimed any specific company. The measures upended a 35 billion USD initial public offering by Ant Group in November, and authorities have ordered the firm to return to its roots as an online payment provider. According to the CBIRC, the new rules are designed to prevent monopolies from being formed as well as unfair competition to support the long-term stable development of private enterprises.
(Bloomberg Quint, 22/01/2021)
China plans to allow some commercial banks to start selling soured personal loans to distressed asset managers. The move will increase the financial strength of Chinese banks by helping them offload as much as 1 trillion yuan (155 billion USD) of non-performing personal loans. China’s total amount of bad loans has climbed to a 17-year high amid the pandemic, eroding banks’ capital and ability to extend new credit to individuals and smaller businesses to revive the economy.
(Bloomberg Quint, 11/01/2021)
The China Banking and Insurance Regulatory Commission (CBIRC) has levied fines totaling almost 200 million yuan (about 30.9 million USD) on institutions and individuals in its first check on financial violations this year. Among them, the Commercial Bank of China, was fined 54.7 million yuan due to violations including inadequate information disclosure for its wealth management products. The commission said it would continue to rectify financial irregularities, strengthen financial support for the real economy, and forestall systemic financial risks.
The Bank of Japan (BOJ) left its main policy unchanged after forecasting the economy will regain more lost growth than previously thought once it starts to recover from the current state of emergency. The BOJ held its interest rate and asset buying settings intact and concluded that weaker growth at the end of the current fiscal year and a government stimulus package announced last month will result in a stronger rebound in the year starting April.
(Business Times, 21/01/2021)
The banking unit of Japan’s Mitsubishi UFJ Financial Group Inc said that it would introduce maintenance fees on dormant accounts from July, in a fee system overhaul to ride out the impact of profit decline. It will charge an annual fee of 1,320 yen (12.74 USD), including tax for new accounts in which transactions have not been made for two years since they are opened. The move comes as Japanese banks have been struggling with years of low-rate environment and a slowly declining domestic market, and as the COVID-19 pandemic adds to their long-term uncertainty.