Notes on Debate: The Real Impact of Regulation FT-Deutsche Partnership 12 November 2015 - 11.10

FT-Deutsche Bank partnership

Global Treasury Leadership Retreat

Singapore | 11 - 12 November 2015

https://live.ft.com/Events/2015/Global-Treasury-Leadership-Retreat

12 November 2015 - 11.10   Debate: The Real Impact of Regulation

Regulatory requirements intended to create a stronger, more resilient financial system have become a necessary burden for all sectors, but has the full impact of these requirements on the real economy been accounted for? 

The overall impact of the complex and multi-country financial regulations is currently difficult to quantify on the economy, customers and the financial sector. 

• We will have to accept that regulatory requirements are complex and has reduced the agility of doing business. The need to understand, internalise and implement regulations has created risk averseness and reduced the turnaround time for origination and execution. 

• Banks are taking longer time to approve new clients or renew limits.

• Risk and compliance departments have set up new requirements and steps for business managers. There is tax and transfer pricing scrutiny on past transactions. 

• The financial industry (and highly regulated industries) has also becomes less attractive for investors and high performing talent as there exist an uncertainty and complexity of impact of regulations and cap on compensation plans respectively.

What could some of the potential unintended consequences of regulation be for companies and beyond that, on the wider economies? What new risks has it created?

• Banks and corporates have either exited some activities or made plans; this is occurring where higher capital allocations have reduced risk returns. 

• Talent within financial industry remains demoralised impacting productivity or accelerating exits; 

• Cost of compliance is increasing as this cost cannot  transferred to the customers; 

• Increase in investment in information communication technology to manage regulatory and compliance process; 

• Tax and transfer pricing scrutiny and litigations have become an unbudgeted cost;

• SME’s that don’t have full scale infrastructure are highly vulnerable to reputation risk which can be fatal to their business

• Cross border regulatory arbitrages creates opportunities and returns

Much of the recent regulation has focused on the banking sector, including Basel III, CT1, CSD, AML, EMIR and FATCA, but what unintended consequences has this had for corporate treasury for the ease of access to cheap capital to fund business growth (organic and inorganic)?

There is no cheap capital. Capital access is not reduced nor has become expensive – capital is still available at ‘risk and tenor adjusted’ rates though financial institutions have become slow in their response time. 

Trade financing and emerging market (China, Asia, Middle Eastern) source of funding is still competitive.

Which regulatory requirements are causing the most problems for organisations in Asia? How can derivative-reporting requirements associated with EMIR best be handled? 

Tax and transfer pricing scrutiny and central bank regulations on cross border transactions covering international trades and M&A activities, and compliance requirements.

Collaborate with the banks, legal, tax and operations team to analyse how regulation affect the business models, strategies and operations of the company and institution.  Ask the ‘expert banker’ - implementing appropriate ICT technology and collaboration with banks can handle the EMIR derivative reporting

How has the Single Euro Payments Area (SEPA) brought benefits to treasurers following its implementation, and has it increased efficiency?

Yes. 

As international businesses have more freedom to enter or expand their presence in Asia, what impact will this have on local institutions?

Overall impact will be positive. More product and services will be available to the Asian consumers. Competition will increase for Asian companies but will also improve the knowledge, skills, and technology and management practices of the Asian companies

How is shadow banking changing the ways in which businesses operate in Asia?

The footprint of shadow banking is reducing with information technology solutions and cashless electronic payment. 

Shadow banking stems the growth of human and intellectual capital, encourages undesirable activities, impacts GDP and reputation of the companies. 

Shadow banking activities also create minefield for companies that intends to acquire companies in Asia; Asian companies also lose opportunities for barging a decent valuation on sale transactions.

At economy levels, the impact is factored in foreign exchange rates that are less competitive which is not beneficial for the country. 

If, driven by regulatory imperatives, the financial sector is now programmed to behave differently from before, what impact will this have on other commercial sectors and markets?

The right regulations administered correctly will drive the commercial sector and markets to act and do thing ‘the right way’. The right way of doing will create positive impact on the commercial sectors and markets. 

Doing right thinks is good to create a good corporate reputation and brand equity for a sustainable success; it will also create stability in the financial sector.

How can a closer dialogue between business and the regulators be encouraged?

Associations and regulators should think and engage constructively on challenges and incidents; focus should be on right behaviours and outcome that will drive long term success for all stakeholders. 

Impact of regulations and handling of it should also be assessed from the perspective of SME’s and large companies; the former are more vulnerable.

Clear, transparent, and consistently application of regulations is needed; further regulatory scrutiny or legislations on retrospective basis must not be initiated.

A debate in which we will discuss how businesses are adapting to the latest regulatory controls, but also the long term goals of regulation versus the impact on business growth and strategy.

Nidcha Jirametthanakij, Managing Director, Regional Treasury Center, PTT

Paul Landless, Partner, Clifford Chance

Gopul Shah, Head of Global Treasury and Structured Trade Finance, Golden Agri Resources Ltd

Judy Vas, APAC Financial Services Regulatory Leader, EY

Henny Sender, Chief Correspondent, International Finance, Financial Times

Opinion poll

Q1. What is the biggest impact of compliance and regulatory changes?

1. Increase in cost of funding 

2. Cost of compliance

3. Dissolution of a line of activity or business

4. Talent - frustration and exits

5. Agility is slowed resulting in lower sales revenues, turnaround time and productivity

6. Reputation risk and guiding principle breach arising out of inadvertent act or ignorance

Q2. What do you worry most about with regards to doing business in Asia?

1. Disclosure and transparency

2. Shadow banking

3. Tax scrutiny 

4. Exchange control regulations

5. Potential Banking crisis

Q3. How much impact (time/money/effort) do you expect evolving compliance requirements to have on business going forward?

1. Minimal, the worst is behind us

2. Significant but manageable now we know this is the new normal

3. Prohibitively high to the extent of being a barrier to trade

Q4. What do you see as the main market challenges at present?

1. Down trend in commodity market

2. Credit and performance risk 

3. Inability to hedge or non-availability of hedging mechanism

4. Stronger and volatile USD impacting client ability to buy

5. Compliance and regulatory issues 

Q5. What are your priorities for the rest of 2015/16?

1. Risk management and contingency 

2. Cash flow and funding

3. M&A and divestures

4. Talent and people management

5. Compliance and regulatory issue management

Q6. How do you handle your regulatory and compliance issues?

1. Collaboration between business units, in-house tax and legal experts, treasury, operations and customers/suppliers.

2. Involve the ‘banker’, tax and legal counsel

3. Investing in information technology solutions in collaboration with banks and IT teams

4. Discussions with Associations

5. Lobbying with the government agencies

6. All of above