Regulatory hurdles Asian banks must watch out for in 2016

Banks will continue to feel the noose tighten in the form of additional crisis response regulation.

If there is one area where banking regulators are not letting up, it is in the creation and implementation of more crisis response regulation. “Resiliency will remain a dominating regulatory theme through 2016. This reflects both the wholesale recalibration of existing regulation and the drawn-out implementation of crisis-response reforms,” says Thio Tse Gan, executive director – Southeast Asia at Deloitte Asia Pacific Centre for Regulatory Strategy.

“Much crisis response regulation has concerned making institutions and markets resilient to financial stress. Despite substantial reforms already, these initiatives will continue through 2016 and beyond,” he adds.

Thio reckons that for banks, the end of 2015 and 2016 will see the release of proposed and finalised revisions to the standardised and model-based approaches to calculating risk-weighted assets across major risk areas.

Other themes
Another major area of regulatory activity that banks in Asia Pacific should pay attention to is in consumer and investor protection and market integrity.

In addition to resilience, the Deloitte Asia Pacific Centre for Regulatory Strategy has identified three other major regulatory themes for the Asia Pacific financial services industry in 2016: Culture and conduct, technology and implementation.

Thio says institutions will need to ensure they have robust processes to assess and, where necessary, improve their culture and conduct standards. Financial institutions will also be made more accountable to the risks associated with technology, particularly with respect to cyber-security, as well as face implementation challenges to their regulatory plans in 2016.

New regulatory paradigm
For his part, Matthias Memminger, partner, financial services at Bain & Company, views 2016 as a year when banks will have to grapple with a new regulatory paradigm consisting of three key areas: strategy, resilience and resolvability.

Memminger reckons only up to one-third of banks have adapted to the new paradigm, and these are mainly based in the United States, United Kingdom and Switzerland since these countries were among those who led the imposition of more stringent regulatory reforms.

For the rest of the world, including Asia, the toughest part of adapting to the new paradigm is resolution planning. “This will involve heavy analysis on a bank’s part and, if done poorly, can be quite costly and time consuming for senior management and the board,” says Memminger.

In order to improve their resolution planning, senior management in banks have several viable actions such as reducing their exposure to risky assets by exiting risk-weighted, asset-intensive businesses. But some are taking measures to a more proactive level.