Commentary

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.

A phased reduction in interest withholding tax for Australian banks and foreign banks operating in Australia seeking to access funding from offshore markets was announced in May 2010 as part of the Australian Federal Budget 2010-11.

A lot is written about the pressures on banks created by regulators, financial markets, and the overall health of the economies in which they operate. However the change that is most likely to redefine banking as we know it comes from customers.

We’ve seen an increasing number of skilled professionals are relocating in order to secure their next career step. For many professionals, relocation helps to realise personal career ambitions that cannot be achieved locally.

The recent global financial crisis hammered home a painful but clear reminder that risk is pervasive, and can have far-reaching consequences.

The financial services industry has seen a resurgence in hiring activity as the Asian economic outlook has shown signs of improvement since September 2009. While this trend relates to all areas of financial services, there has been particularly strong jobs growth across the following business functions: Risk management remains crucial Post the global credit crunch, risk management has clearly become a critical function in the industry. This has driven banks to start thinking more about risk: whether it is market risk, credit risk or operational risk. Consequently, we have seen a surge in demand for people with expertise in these specific areas. Singapore emerges as an operations hub Singapore is fast emerging as an operations hub for the region with a number of international banks moving their operations and technology teams to the region over the last year. This has created to a strong demand for experienced staff within operations, especially those who have control or project management exposure. Compliance and control remains important While banking industry starts to grow again, there continues to be a strong emphasis on compliance, internal audit and control related functions. These positions are needed to help organisations stand up to closer scrutiny, as the industry looks to new performance indicators to assess an institution’s success. There is stronger M&A activity in the region With the increasing attractiveness of Asia as an investment destination, we have seen an increase in the hiring of corporate finance profiles as banks revalue their investment opportunities and actively look at potential investments in the region. A boom in Product control There are strong opportunities for qualified accountants within the product control function as banks are paying a lot more attention to the control mechanisms underpinning their activities. Private banking is coming to the forefront Already the world's second largest private-banking center, private banking in Singapore continues to grow, as tough secrecy laws and favorable taxes attract big accounts throughout Asia, hence creating opportunities across a number of areas in private banking.  

Financial Institutions should take note of the changing environment in payments. The payments ecosystem is transforming itself into something many have not yet fully grasped. It is the industry that many have yet to look at within their strategic radar.

Providing banking and other financial services to the poor has always presented particular challenges. By definition, people with little or no money lack all but the most basic financial resources and economic influence. Their exclusion from the financial system means they have no credit history and no basis for participating in modern financial transactions. Poverty means they have little if any collateral to underpin lending. In large areas of the world, poor people also live in remote rural regions without access to the infrastructure of modern commerce and communications. This inability to benefit from financial services plays a large part in preventing the poor from making even modest improvements in their lives, and helps to trap them in poverty. More than 1 billion of the world’s population subsist on less than US$1a day. Finance for the poor The microfinance movement challenges the view that poor people are also poor credit risks, and that they cannot benefit from financial services. The origins of microfinance go back to at least the 1700’s. Since then the principle has grown with a number of organisations specialising in this including ACCION, SEWA Bank and Grameen Bank to name a few. The China context Despite rapid and continuous economic growth over the last 25 years, China is still home to tens of millions of the world’s poorest people. Many of these live in impoverished rural areas with few prospects of economic improvement aside from migration to the rapidly industrialising cities. Large-scale displacement of the rural poor is creating massive social disruption and further deepening income inequalities and the rural-urban divide. The Chinese government has been attempting to tackle this complex set of problems by promoting economic development in rural areas, the creation of small and medium-sized enterprises and the provision of a financial services infrastructure to support these objectives. Microfinance is beginning to play an important role. Potential and challenges Over the last decade, the People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) have encouraged the creation of rural credit cooperatives and village banks. More recently, trials have been taking place to establish dedicated Micro-Credit Companies (MCCs). To begin with, the Chinese government was very cautious, granting only 20 licences initially. ACCION, a not-for-profit organisation which has been active in microfinance for over 40 years, originally in South America, was invited to apply for one of the pilot MCC licences by the provincial government of Inner Mongolia. In December 2009, the company made history by becoming the first wholly foreign-owned organisation to receive an MCC licence in Inner Mongolia, making its first loans shortly afterwards.

There has been a general buzz in the Hong Kong market recently mainly due to the strong equities and real estate markets. With most firms’ profit beating forecasts, profit announcements by the bulge bracket investment banks have been better than expected. Quarter-on-quarter hiring has also improved, although on an adjusted basis. Quarter two and three traditionally experienced stronger hiring irrespective of a bull or bear market. Hence, increased hiring activity should also be viewed conservatively as a seasonal trend rather than be attributed wholly to market growth.

Accountancy & Finance, Banking, and Finance Technology are the skills in demand across Asia.

Several Asian countries, including Singapore, Malaysia, Korea, India and Japan, are currently going through the final stages of adopting International Financial Reporting Standards (IFRS). These are important steps towards achieving the vision of establishing a global set of high-quality accounting standards, as requested by the Group of 20 leaders.

The banking industry has been talking for years about what comes after Basel II, even as banks remain focused on ongoing Basel II implementation. Prior to the global financial crisis, the Basel Committee (“the Committee”) and national regulators were already looking at what would come next, particularly in the area of liquidity risk. The crisis clearly highlighted a number of vulnerabilities in capital and liquidity risk management in many banks, and on a systemic basis, which regulators around the world are now busy addressing. 

The financial crisis has generated demands for greater transparency in international taxation, pushing tax avoidance up the political agenda.

Over the last five years we have seen four key trends which have dramatically reshaped IT’s role within organisations.

Having just come back from meeting with banks in Asia, the case for dynamic charging as a driver of customer profitability is clear.

PricewaterhouseCoopers LLP Asia Financial Services Leader Dominic Nixon talks about the Banking Banana Skin Survey 2010 and what bankers in Asia fear the most.