Compliance, Risk Management and Regulation to further Enable Finance in Growing Markets

As a region, Asia is in the growth phase in terms of supply chain finance (SCF).  Growth across global and regional banks range between 0-50%, and average about 20%-30%.  Not only are local MNCs and large corporates seeking supply chain finance programs, but unmet demand in current global programs continued to be filled. It is not surprising that SCF is of the greatest focus to banks.

The imperative to regulate and control supply chains is only going to get greater as the volumes of trade increase across Asia.  As international and local players search for new clients in this flourishing region, it is important to also keep an eye on how to stay compliant and mitigate risks. Some important considerations include:

• Navigating compliance, regulations, and legislation across regions – working with local partners and consultants to broker programs.
• Enhancing the efficiency of compliance processes and reducing risk through the use of new technology and utilities.
• Adapting supply chain finance products to new regulatory and risk environments.
• Insights from multinational players on how they work across jurisdictions – what lessons/key practices could be applied in Asia.
• How can regulation act as an enabler for banks, non-banks, and fintechs in terms of SME financing?

The Challenges in Asia

Asia is a region of many regulators, cultures, and languages. These are reflected in the differences in requirements to manage and operate SCF product lines across markets. Variations in jurisdiction, clients, and behaviors present challenges in managing the products uniformly across the region.

Jurisdiction challenges come in the form of varying requirements for product approval, regulatory reporting, stamping of documents, payment of associated taxes, registration of interests in underlying assets, and country-specific AML (anti money laundering) and CTF (counter-terrorism financing) requirements. These AML and CTF requirements may require additional fields for assessment, additional names (country specific lists), and the requirement for full Know Your Customer (KYC) on suppliers. In achieving regional coverage, offering a homogenous product is near-impossible, and in some locations, straight-through processing is also not possible.

During the 45 minutes panel discussion, the panelists talked about the following issues:

1. How do companies take regulations into consideration when developing products for different markets?
2.  Is there alignment between the various regulatory bodies when it comes to trade finance and supply chain?
3. What are the biggest impediments to staying compliant?
4. Is there enough understanding of how trade finance / supply chain operates across the various disciplines (e.g. operations, compliance, legal etc.)?
5. How can technology reduce the burdens around compliance, risk management, and different regulations?
6. What does the future looks like in this space?

Well Fargo’s Chris Wohlert commented on trends that we are seeing across key areas of risk/compliance within the region. In this regard, a few items come quickly to mind, for example the recent disruption in the domestic trade credit insurance market in China by the legacy China Insurance Regulatory Commission (CIRC), Hong Kong Monetary Authority (HKMA)’s guidance not too long ago regarding the direction to take a ‘reasonable’ approach to KYC/Source of Wealth documentation, Monetary Authority of Singapore (MAS) / HKMA establishment of ‘sandboxes’ for fintech development.

The outlook for APAC is general positive.  Asia is the largest region in the world in terms of GDP at about 44%, and APAC has the highest growth by region, projected at 5.5% in 2017 and 5.4% in 2018 (by IMF).  During the two-day conference, there were two major topics on the minds of global supply chain leaders.

1. What will be the impacts of US protectionist policies and the rising nationalism in APAC?
2. How will global supply chains change with China’s Belt and Road project? 

For those seeking security in pricing, there are fears that such policies can change quickly, and take along with it the relative competitiveness of supply chain partners, creating financial risk and uncertainty.  China’s investment is set to change global flows and encourage more trade between Europe, Africa, and Oceania, and support the next wave of growth.  The full benefit of improved infrastructure and new routes is expected to take some time to materialize.