Regulatory change across Asia presents challenges for service providers such as Deutsche Bank Global Transaction Banking, but its Investor Services team sees opportunities amid the complexity.
Asia, the world’s largest continent physically, is home to well over half the world’s population. In such a vast region, investor practices and regulation are, unsurprisingly, fragmented. Asia is simply too big and too diverse to conform to one set of market practices.
That diversity creates challenges for service providers such as Deutsche Bank. Supporting clients across the region means complying with many differen regulations and always being alert to new cross-border developments, for instance, fund passporting schemes.
The volume of work required to maintain a pan-Asian business is formidable, however executives at the company say the challenge is an opportunity. By managing that workload effectively, the company can provide an invaluable service to its asset management clients, and that is a competitive advantage.
For Anand Rengarajan, co-head of investors services, Asia Pacific, regulatory change is “largely inevitable”. The sheer pace of change puts a burden on his team. However, the difficulty of staying abreast of developments is itself an opportunity to provide value to clients.
“In the current environment, the cost and complexity of compliance is going up,” he says. “If we can be optimal in delivering a solution that is also client-centric, it will be a win-win for the client and us as a bank.”
Regulation can, of itself, push forward positive change. India recently overhauled regulations concerning foreign investment in a two-year process in which Rengarajan’s team were involved in consultation. Although some of the new documentation requirements have been described as onerous, Rengarajan believes the changes will facilitate more foreign investment into the country, and in turn increase clients’ demand for the bank’s services
Mark Law, co-head of investor services, Asia Pacific, agrees that agility is important when dealing with regulatory change. Based in Hong Kong, Law has grappled with a series of new developments initiated by the Hong Kong and mainland Chinese regulators, including the extension of the Stock Connect scheme to Shenzhen and a relaxation of the qualified foreign institutional investor (QFII) scheme and its renminbi equivalent, RQFII.
“The pace of change in Greater China is unprecedented,” he says. “And the evolution is only going to continue.”
Deutsche Bank, which has provided custody onshore in China for about eight years, is a trusted partner to investors deploying capital on the mainland, he says. “We are positioned to provide an end-to-end service, including custody, fund administration, cash management and securities lending.”
That breadth of the firm’s capabilities means asset managers can focus on their performance and “leave the rest to us”, he adds.
One thing is not in doubt: Asia is only going to grow in wealth and influence. Ying-Ying Tan, head of global securities services APAC and also global head of product management, says that between 2020 and 2030, the GDP of Asia is expected to outgrow that of the Americas. “Asia is a region where the middle class will pick up at a much faster rate than Europe and America. This means growth will come from within Asia and from outside, into Asia,” she adds.
Based in Singapore, Tan has a close view of how this rising wealth is causing changes in investor behaviour on the continent. In China and Indonesia, for instance, populations are moving from a savings to an investment culture. “Rather than putting money in the bank, they are investing to get higher returns,” she says.
The key for Deutsche Bank, she adds, is to be proactively aware of the changes so that its business can grow in concert with Asia as a whole.
“When you put all these things together, Asia is not a region to overlook,” she says. “We must be ready to ride the wave of change and provide solutions on an end-to-end basis that will enable us to be one of the most credible providers.”
The global transaction banking team agreed that the best way to differentiate Deutsche Bank from its competitors is market knowledge and by consistently offering a more competitive, efficient service. Currently, the best way to do that is to apply automation to reduce costs in the back office and speed up processing times.
“It has always been a goal of ours to look at how to automate in Asia to improve operational leverage and efficiency for clients’ solutions, and reduce our cost base,” says Tan.
Indonesia provides a compelling example of how automation can realise benefits. The Financial Services Authority of Indonesia (known locally as the Otoritas Jasa Keuangan or OJK) began a project to improve automation in fund routing and settlement in 2014.
Deutsche Bank, as one of the largest service providers in the country, was active in the first phase of the industry-wide project, which automated subscriptions/redemptions and reporting to reduce investors’ risks in their claims in funds and improve market resilience. Tan says the second phase, which seeks to automate the entire fund settlement process, is targeted to go live next August. As it is, Deutsche Bank is an advisory member to the Asia Fund Standardisation Forum, comprising 13 central securities depositories, that seeks to improve standardisation and harmonisation in fund services practices.
Rengarajan agrees that automation is an essential tool for increasing efficiency and says Deutsche Bank is seeking to be a leading example. In India, for instance, debt processing is still largely manual.
“Being a large player I reckon we’re at a 75% automation level, but the average industry is probably below 25%. Collectively, if you want to bring home efficiencies, you have to bring the industry to as close to 100% as possible,” he says.
Law, meanwhile, believes automation will become essential in many Asian countries as asset managers employ new, online distribution models.
“Asset managers are looking to enhance the customer experience by trying high access, low cost online distribution channels, and they’re looking to a service provider to take these steps with them and provide a top notch service with minimal cost. That has to come through technology and automation guided as well by future possibilities represented by the likes of blockchain,” he says
Ultimately, says Tan, clients must come first, since the success of service providers such as Deutsche Bank depends on them.
“As fund managers in the region manage more complex products, navigate new regulatory compliance needs and require more support for informed market access and repatriation, they will get more sophisticated,” she says. “We must be ready to support our clients.”
©2016 funds global asia