Editors, Regulation Asia, June 22, 2016

Appway survey reveals how regulations, technology, and compliance are driving competition among wealth managers in Asia.

As the number of high-net-worth individuals in the region continues to grow and the volume of cross-border fund flows increases, wealth managers will continue to regard Asia as a top business priority. The complexity of regulation and compliance in the region, however, hinder wealth managers from benefitting from these trends, according to a survey by Appway.

The technology services provider canvassed more than 100 wealth management professionals across private banking to explore attitudes on client on-boarding. The survey population included asset managers and single and multi-family offices. Indicating the spread of wealth across Asia, the survey found that 90 percent of wealth managers in Singapore and 63 percent in Hong Kong conduct cross-border business.

According to the report, “The main requirements of an organisation’s onboarding process are that it meets internal compliance requirements and external regulatory requirements while providing a seamless customer and user experience.” Overall, on-boarding of individual clients takes about the same amount of time in Asia as it does in the US and Europe, but Asian institutions’ speed of on-boarding legal entities is falling short.

Clients in China are a particular challenge, with many institutions saying several extra steps were required during on-boarding. KYC (know your customer) checks were also critical due to a lack of existing information, particularly when it comes to the newly wealthy.

Despite the attractiveness of building a client base in China, the report notes that financial institutions are cautious when pursuing cross-border business. “One bank described the first meeting as being very social, where no specific products or services can be offered. It is only on a follow-up call that the prospect can proactively ask for more information on products and services,” it says.

Increasing complexity
Regulatory change is expected to continue, with many wealth managers estimating that the number of regulations will increase dramatically, beyond the European Market Infrastructure Regulation (EMIR) and the US Foreign Tax Account Compliance Act (FATCA).

The report notes, however, that the problem is not necessarily regulations. “The real issue is the varied and inconsistent implementation of regulations across the region. With different governments, regulators, and priorities, regional coherence on any regulatory initiative is nearly impossible.”

There is a wide variation in organisations’ implementation of compliance processes—in some instances even within the same company—according to the report. Many institutions spread the on-boarding process across multiple groups or business units.

“Because of this, there is no one person in charge of the process who really understands the total cost/benefit ratio. In addition, when there is no end-to-end ownership of the systems and the process itself, one might question if somebody is taking care of the impact all these systems have on the client experience during onboarding,” it says.

Firms also have different ways of measuring the effectiveness of on-boarding, including counting the number of queries from their compliance departments during a process or sending surveys to clients after an interaction with a wealth manager.

Overall, more than 90 percent of respondents in Hong Kong said regulations have slowed down their on-boarding process, with the number rising to a full 100 percent in Singapore. This is because authorities in the region have adopted principles-based regulation, rather than offering ‘black letter’ instructions on how clients should be on-boarded.

The use of digital signatures is just one area of discrepancy, according to the report, which adds, “One of the biggest challenges in adopting digital signatures is the lack of common standards (e.g. Adobe signatures) that are accepted cross-jurisdiction… just more than half of respondents say digital signatures are not allowed for onboarding a client.”

Some dissenting voices believe the challenge of regulation is exaggerated. As one senior manager respondent put it, “It’s unfair to blame regulation for slow onboarding in the industry. Regulation is principles-based, so it is up to each organisation to determine how to meet those principles.”

Regardless, “regulation will continue to grow and will likely remain as disparate as it is today. This means that banks will need to be able to handle today’s myriad regulations and prepare for future regulations with agility and flexibility,” the report says.

Technology offers clear solutions to cope with the industry’s challenges. Unfortunately, according to the survey, “Asia is lagging behind its western counterparts on its conversion to digital onboarding,” with 45 percent of respondents still using paper-based systems, and just under 50 percent of wealth managers having no automated processes in place to handle KYC or risk information gathering.

As well as meeting compliance requirements, automating compliance processes can increase competitiveness and create business opportunities by helping wealth managers tailor their products to meet clients’ needs. Eighty-six percent of respondents agreed that information gathered during on-boarding could be used to identify product sales opportunities and set their firms apart in an increasingly competitive industry.

This is a summary of a study published by Appway. Click HERE to access the full findings of The Fastest One Wins: How Wealth Mangers Conquer New Market Segments with Digital On-boarding.

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