Commentary

Banking observers had previously suggested that the full Basel III package of capital and liquidity reforms proposed could reduce returns on equity in the sector by up to a third.

Right now, enterprise mobility is the new buzzword in business, particularly in consulting and financial services, and organisations are investing heavily in it. In fact, according to a new report by Global Industry Analysts, Inc., the global enterprise mobility market may reach US $168 billion next year.

The OECD’s increasingly influential Forum on Tax Administration recently endorsed a global code of practice on tax for banks (the OECD tax code). The OECD tax code is described as a framework and adoption by OECD member countries is voluntary. However, regardless of the extent to which it is formally adopted by OECD member countries, it is likely to become influential in shaping tax governance standards for banks and relationships between banks and tax authorities globally, including in the Asia Pacific region.

Governments and businesses across Asia are not realizing their desired objectives despite spending billions of dollars on management and IT consultants who overpromise and not deliver to their potential.

The recent upheaval in the financial markets has opened a window of opportunity for institutions to build leading operational and technology platforms. Banks will need to transform their business models, support structures along with their products, pricing, and delivery channels to succeed in the new environment while meeting the threats imposed by non-traditional competition and changing regulation. Critical to banks efforts will be a combination of customer centricity and streamlining end-to-end processes across products or silos.

In July, Singapore’s Accounting and Corporate Regulatory Authority (ACRA) held its fifth annual public accountants conference. A central theme at the conference was audit quality and the value of audit. These are topics attracting attention across the world at the moment as a fall-out from the global financial crisis. And bank auditors are the focal point of much of this attention. Several consultations are currently underway in leading financial markets across the world, looking at the role and value of audit. In the US, the Lehman court case resulted in questions being asked about the value of audit – not just in the US but across the world. In the European Union, the Commissioner for the internal market, Michel Barnier, has already published a Green Paper on corporate governance in financial institutions and has another one up his sleeve on all aspects of audit , expected to be published shortly. In the UK, the Financial Services Authority – the market regulator – and the Financial Reporting Council are consulting on the auditors’ role and the contribution they could make to prudential regulation. Any crisis brings change. The important thing now is to make sure we learn all the lessons we can from the global financial crisis. That goes for all market participants, the accounting and auditing profession included. There is no doubt that auditors play an important role in financial markets, promoting confidence in financial information provided by banks and other financial institutions and acting as a discipline for directors and management. An auditor goes into a company with the purpose of providing greater confidence in the financial statements prepared by a company’s management and directors in accordance with the appropriate financial reporting standards. They do this by giving an independent opinion on its truth and fairness – an opinion that is reached by gathering evidence to support the financial statements, usually on a sample basis, by examining risk management processes, governance, systems and internal controls and by challenging management on the assumptions and decisions they have made. Auditors use their professional judgement to reach conclusions and recommendations which are then reported back to audit committees and senior management. Where there are issues which they believe the users of annual reports need to be made aware of, they will include a statement to this effect. Independent auditors are not there to assume management roles or compensate for inadequate in-house finance teams. Ultimately it is the company directors who are responsible for the success or failure of the entities they lead and run. The role of the auditor has primarily been to ensure that shareholders are provided with information which enables them to hold the directors of the companies they own to account. As a result of the crisis, we have had to think about how the audit model needs to evolve to meet the needs of regulators, investors, management and society as a whole. Over the past 18 months ICAEW has also been examining how the current audit model needs to evolve.  On the back of stakeholder research we have published a report entitled Audit of Banks – Lessons from the Crisis which recommends a number of practical steps which could be taken to help meet changing stakeholder expectations.  On bank reporting we think risk information is often presented in a piecemeal manner in bank annual reports, spread between the audited financial statements and the unaudited front sections of these reports. Banks need to focus on clearer presentation which allows users to understand the big picture - often obscured by the volume of detailed information. Summary risk statements are a potential way of meeting this objective particularly if auditors are able to provide assurance on these statements.   We also think insufficient information is provided under the current framework about the work that underpins an audit. This makes it difficult for investors to assess the performance of bank auditors or to understand the key areas of challenge. To address this gap, banks themselves can help, for example by confirming that they have discussed with their auditors the critical accounting estimates and judgements disclosed in the financial statements as well the information disclosed in the front end of their reports.  More regular exchange of information between auditors and the bank supervisor will enable both to perform their duties more efficiently and effectively. Finally, we also think auditors and other external experts have particular skills that could be used to support banking supervisors in performing their functions more effectively. However, if there is one big lesson from the crisis for auditors, it may be that more needs to be done to explain the value of audits to those outside the audit process. Making more information available about discussions between auditors and banks could increase the value placed on audit and thereby increase market confidence. The Audit of Banks – Lessons from the Crisis report can be downloaded from www.icaew.com/fsf.

In June Prime Minister Datuk Seri Najib Razak, presented the fourth and final pillar of the Vision 2020 implementing framework: the 10th Malaysia Plan. The five year development plan, with a total expected investment of RM230 billion (approximately USD 70 billion), aims among other things to increase private sector participation in the Malaysian economy through a variety of means including public-private partnerships.

The [US]$2.5 trillion in market value losses incurred between January 2007 and October 2008 incurred by the world’s top 200 banking players and the new wave of regulation and government intervention, which is resulting in higher capital ratios, the need to de-leverage balance sheets and higher non-performing loan provisions are creating an urgent need to change. This new environment is forcing banks to seek new ways to improve the consistency, transparency and quality of their finance and risk information.

While job numbers, salaries and the general economic outlook are now healthy, there are many candidates who come to us feeling that they need a change for the better. This could be the result of many factors, from job responsibilities, the relationship with their manager, the relationship with colleagues, or the relationship with clients or customers.  For those in this situation, my advice would be to revisit your career plan. If you are not satisfied in your job or if your current role is holding you back from achieving your career aspirations then perhaps it’s time you made a change. Job numbers in the banking and finance industry are strong and career-advancing opportunities are available. This means you can look for an organisation offering the management style or culture in which you can flourish, with the responsibilities, opportunities and people that will help you become satisfied at work. Career planning is essential to achieving success in your chosen career. Whether you are aiming to be a bookkeeper in a small business or the finance director of a multi-national corporation, you must know in which direction you are headed and what is required of you to achieve your goal. Planning is a basic, yet key principle used by successful business people. Plans are formulated on a regular basis to control direction, make the best use of resources and measure progress or results. Think of your career plan along the lines of a business plan. The key issues to cover are: •    What are my long-term career objectives? •    What will I want to get out of my job in the next five years or so? •    Do I need to study? If so, what for? •    What are my individual priorities? These priorities and objectives may change over time and of course you need to check up from time to time to make sure you are on track. So, to formulate your career plan, firstly you must set your long-term goals or objectives. For example -"In ten years time I want to be the financial controller of a large commercial organisation". To arrive at this objective, you must consider personal and professional aspirations. Aim high with whatever you set out to achieve, both personally and professionally, but be realistic as goals that are obviously unachievable can be demotivating. Don't be afraid to set long-term goals. They can be altered or amended as your aspirations or values change. Indeed, it is quite likely this will be the case. Once your long-term goals are in place, it is important to establish the steps you will need to take to reach those longer-term objectives. Again, these steps may need alteration where appropriate, but will be based on such considerations as academic qualifications, professional membership, technical experience and personal development. With firm goals in place, you must obtain the right attitude. Enthusiasm is the catalyst to success. It makes your personal and professional experiences more enjoyable and satisfying. One final note: Career planning or goal setting will only achieve its purpose if you adhere to the principals of measuring your progress and following the path you have planned. This means it is important to write down your goals. The process of putting pen to paper allows you to keep clear focus, check your achievements and make the necessary alterations when required. Imagine you are planning an overseas trip and the amount of time and energy you would devote to it. Your career will probably span the next thirty years of your life so start planning now.

In the earlier years, other than the Southeast Asia region, Singapore has benefited from the flight of wealth away from North Asia.

Last month's G20 meeting in Toronto did little to dispel the uncertainties surrounding proposals for new internationally harmonised financial regulation and revised capital standards for banks and other intermediaries.

It is tough being a CEO in a Financial Institution in these times. It is not that public has a view of bankers which may not help but how does a CEO negotiate these challenging and turbulent times? It is the strategic issues which give many sleepless nights. It does not matter, whether one leads large national, regional or global banks, the issues are similar.

The Australian Government’s recent response to the report on Australia as a Financial Centre prepared by the Australian Financial Centre Forum chaired by Mark Johnson includes some encouraging news for Australia’s managed funds industry seeking to attract further investments from offshore funds.

The talk in the street has never been more diverse with so much optimism and pessimism coming together at the same time. While the local market has seen more positive news coming through, the international channels have in contrast remained more sombre, with less than positive data from the US and European markets, lawsuits against institutions and the brewing uncertainty in the Korean peninsula. In Singapore, some of the market sentiments within the financial sector are: • Many long-only money managers are not in a rush to buy in. There is a general impression that the stock market has risen too fast in too short a period of time, in the absence of sustainable fundamentals. • Many textbook economists are pointing to a period of inflation in the years ahead with more printed money flooding into supply. The preferred hedge is to store up in physical gold. • Employees who were lucky to keep their jobs last year are starting to feel unappreciated and for not being compensated fairly for their loyalty through recent difficult times. Some other key trends we have observed in the Singapore market include: • With limited upsides in their home markets and the increasing strength of Asian currencies (some of which have been allowed to appreciate), institutions are favouring markets in the East over those in the West, and hence are injecting more investments into Asia at a faster pace than before. • Institutions that had originally considered Singapore purely as a cost centre for hubbing IT and operations, are now increasingly focusing on growing its revenue here. This can be seen in the build-up of sales and trading desks focusing on the Asia Pacific markets. • It appears that Hong Kong is closing in on the heels of Singapore for being a wealth management hub. After a period of relative inactivity for most of 2008/9, many banks are currently busy recruiting for priority-private bankers. • Investment bankers have also jumped on the bandwagon, making their rounds with new employers. • The pay premium for base salaries has returned, though it is largely reserved for asset-acquiring P&L generating positions. • The growth in front office hiring will lead to a corresponding expansion of middle office roles related to client servicing and reporting. • For back office positions, salary premiums for job moves are still relatively conservative. Most open roles are for junior to mid level (VP) hires. Supply of talent exceeds demand for director level and above positions. • Inward migration of senior foreign talent to Singapore can be expected as overseas head offices are starting to dispatch their best talent to ‘take charge’ and manage their biggest growth markets. Eventually a successful stint in Asia would seem almost necessary for anyone aspiring to climb up the corporate ladder back in head office. With more and more companies looking towards Asia for growth and expansion opportunities, Singapore will remain a strong market in the East, particularly with its business-friendly policies that have been put in place by the Singapore government. The only foreseeable threat to Singapore’s hiring market would tend to be more global in nature. For instance, markets will rise and fall based on decisions made by rating agencies and the accounting bodies that decide on valuation or mark-to-market practices. More major shocks are to be expected if there is lack of interest in the government bond markets or if there is a major sovereign debt downgrade, which may in turn lead to another chain of write-downs by creditor banks. The indices may blip frantically in the near term but judging from its performance in the recent global crisis, it would seem that Asia’s emerging markets will be able to ride out any of these shocks in the longer term. The continent should stand to benefit significantly from any uncertainties in the ‘submerging’ markets, and can continue to expect a flight of capital and jobs towards its direction. The Asian hiring markets have been highly active over the last three consecutive quarters since Q409, and we anticipate that there may be a technical ‘breather’ in the second half of the year as the hiring markets try to stabilise and take stock of their hiring activities vis-à-vis targeted profitability and growth plans.

Over the past few months the number of vacancies has been steadily increasing within the banking and finance sector across Asia. While this is great news for the jobs market, many employers are finding it difficult to source candidates with the right level skills and experience locally.

At the beginning of July, the world saw its first Stewardship Code being launched – in the UK. It will require institutional investors to commit to shareholder engagement or explain why they cannot. Although it will only apply to UK-based investors in UK-listed companies it is likely to attract attention globally, given the international nature of today’s companies. Some even believe that it is reasonable to assume that responsible ownership and investment will become the norm for major significant investors worldwide by 2020. So what is stewardship? According to a study by Tomorrow’s Company in 2008, it is one of four areas of shareholders’ responsibilities, alongside the provision of finance, the election of directors and holding them accountable, and the trading of shares to set the market price. A key responsibility under the stewardship umbrella is to keep companies’ management to account, ensuring they perform, are aware of risks as well as opportunities, and plan for the future. The Code builds on reviews of the governance of banks and other financial institutions, carried out in the UK last year, and comes as a response to concerns raised about the quantity and effectiveness of engagement between institutional investors and boards of listed companies, with questions being asked about whether they challenged company managers enough.  It also builds on the Code on the Responsibilities of Institutional Investors, prepared by the Institutional Shareholders’ Committee. This has been adopted on a voluntary basis in the UK for some years already, What does the code entail and why is it relevant to other markets? In the UK, the concept of active share ownership is key to the governance of listed companies. The thinking behind the Code is that it will contribute to improving the stewardship, and thus the governance, of listed companies. That, in turn, should assist the efficient operation of markets and increase confidence in business and trust in the financial system. It should increase transparency and benefit the ultimate owners of a company, who are typically quite detached. We also believe that it will further encourage dialogue between investors across country borders. Stakeholders that fed back on the consultation by the UK Financial Reporting Council, which oversees the Code, were broadly supportive of the idea of shareholders to disclose whether, how or when they will engage actively with the management of a company in which the invest. However, they raised some concerns over it becoming too onerous or prescriptive. While the Code to a great extent only formalises what is already quite widely adopted as best practice it marks an important shift in how the running and responsibilities of companies are weighted. Many investors, both in the UK and elsewhere, already follow the majority of the rules spelled out in the Code, however, for it to become truly effective, it needs to be given time to become truly ingrained and mature. While disclosure on implementation is important, the critical part is how the policies have been implemented. If it only turns into a box-ticking exercise, not much will be achieved by it. The success of it also depends on how it might be replicated in other markets, as broader adoption is required if market behaviours are going to see a real change. To exemplify; in the 1990s the percentage of shares held by foreign investors in UK companies stood at just over 10%, in 2008 this level had climbed above 40%. In other words, real change is only likely to be seen if the Code is adopted more widely across the world. As with all new rules, there will be cost implications. However, we believe that the benefits will outweigh these costs and should not discourage adoption of the Code. Any expense should be recouped through increased trust and confidence. We look forward to following and participating in debates about the Code here in South East Asia.