Managers in Asia prioritising corporate governance, as well as prevention of tax crimes and cyber threats, says EY Singapore partner

Many Asian companies are acting to enhance their risk-management frameworks to deal with the increasing regulatory burden being felt across the region, according to Asean and Singapore asset management leader at EY Brian Thung.

Thung told SR that ‘first-movers’ were focusing on taking “regulatory intrusion and embedding this into their internal policies and procedures”. “Asian asset managers are keen to enhance their risk-management framework to incorporate the onslaught of new regulations that has arrived on the basis of international regulatory reform,” Thung said. “This is to internalise the enhanced regulatory requirements among their people, which would be a competitive advantage.”

Commenting on the regional implications of EY’s recently released Risk Management for Asset Management survey, Thung said that asset managers in Asia were placing regulatory risk, which includes regulations on prevention of tax crimes and cyber threats, at the top of their priority lists. “They are facing increasing regulatory burden from local regulators, extraterritorial laws and regulations such as FATCA [Foreign Account Tax Compliance Act], AIFMD [Alternative Investment Fund Managers Directive], and increased regulatory capital requirements,” he said. “These are generally meant to protect the interests of investors who are focused on understanding what asset managers are doing to improve corporate governance in their businesses.”

Thung added that he believed asset managers in Singapore – from core retail asset managers to alternatives like hedge and private equity managers – saw themselves as more than simply providers of capital. “Rather, they can make a substantive, positive economic impact and contribute meaningfully to the region’s growth by helping to build up operational and business expertise in the businesses in which they invest,” he said.

EY’s Risk Management for Asset Management survey suggests that regulatory risk is now the top priority for risk managers at major organisations around the world. More than three-quarters of survey respondents cited regulatory risk as the top issue keeping them awake at night, up from 67% in 2012. More than half of respondents were concerned about managing regulatory expectations around outsourcing risk, and 82% expected cross-jurisdictional complexities to increase.

The top threats to a company’s reputation were identified as mis-selling, loss of mandates and breach of client mandates/regulatory censure or fines. The lack of generally agreed frameworks and the reputational consequences of mis-selling were cited as concerns by 63% of respondents. Nine out of ten respondents said their firm was aware of the risks posed by reputational damage and 80% said the desire to avoid reputation issues was a key driver for their risk teams. However, while 49% of firms actively measured reputational risk, just 24% were looking at reputational risk as a separate line, and only 19% had methodologies for measuring the likely impact of reputational risk.

Tax was cited as a current risk by 38% of firms, but was a key horizon risk for 64% of firms. 2013 also saw a shift away from IT systems and towards data security and cyber-risk, with 49% of respondents now focusing on the cyber threat from a risk-function perspective, up from 19% last year.