Financial services firms in Asia’s developed markets reckon market reporting will reach international best practice after 2015 while emerging markets are more optimistic

1. SINGAPORE, 8 JANUARY 2007 – Financial services firms in Australia, Hong Kong, Japan, New Zealand and Singapore believe that Asia as a whole is further away from reaching international best practice in market reporting, compared to their counterparts in China, India, Indonesia, Malaysia, Pakistan, Taiwan, Thailand and South Korea, according to the latest survey by PricewaterhouseCoopers (PwC) and the Economist Intelligence Unit (EIU). Forty-one percent of respondents in developed markets say that market reporting in Asia will not be on a par with international best practice until 2015 or later, while 40% say they will be on par by 2010. By contrast, 59% of their counterparts in emerging markets are confident this will be achieved by 2010, with only 38% reckoning this milestone will not be reached until 2015 or later. This discrepancy indicates that firms in emerging markets may not yet have fully grasped the size of the challenge.

2. Despite this perception gap, the region’s financial services sector concurs on the importance of market reporting as supported by 86% of survey respondents. Additionally, 63% of respondents feel their market reporting is very effective. However the survey finds many firms are benchmarking their reporting against domestic peers, rather than overseas players, and equity analysts judge Asian firms against the standards of the Asian markets they cover rather than New York or London.

3. “Although international best practice is itself a moving target, firms in developed markets are more aware of these standards, having been exposed to global markets for longer. They have also expended more effort in trying to reach such standards and thus have a more realistic view of what’s involved,” explains Dominic Nixon, PwC Asia Financial Services Leader.

4. Entitled “Market reporting in Asia’s financial sector: Bridging the gap between perception and reality”, the report surveyed more than 123 senior executives in financial services firms in Asia during August and September 2006 and looks at how their firms approach the enhanced demands of market reporting and explores whether stakeholder expectations are being met.

5. According to the survey, globalisation of standards, increasing cross-border M&A and tightening local regulations are the top drivers moving Asia’s financial sector towards international standards of market reporting. Developments such as Pillar 3 of Basel II and IFRS are also helping to drive this forward. With 55% of respondents believing that regulatory pressure for greater disclosure will increase substantially over the next three years, it is unsurprising that respondents say regulators play a more decisive role in setting expectations on accounting requirements (52%). Interestingly, India and China consider globalisation to be a more important driver of change than regulatory demands.

6. Respondents recognise that there are a number of challenges in meeting international standards of market reporting. Respondents in more developed markets cite increasing volumes of work (40%), cost pressures (40%) and a lack of skilled personnel (40%) as their most significant challenges. In emerging markets, where labour costs are lower, firms struggle with a lack of procedures to aggregate/produce information (43%), unreliability of information (40%), lack of management interest (34%) and unavailability of information (34%).

7. “Firms in emerging markets historically have had lower cost/income ratios than their international counterparts, as a consequence of lower labour costs. However, as labour costs in these markets rise, firms need to invest more in the areas of compliance, risk management and IT,” says Mr Nixon. “Add to this a scarcity of human capital, increasing sophistication of products and higher transaction volumes, firms are facing little choice but to seek ways to improve performance through automation, to reduce costs and to lower operational risk”.

8. Financial services firms across the region, particularly in developed markets, believe that greater IT investment is vital in improving market reporting. Data collation and compatibility problems are common in Asia, where many markets are still developing and there are fewer established indicators. More than half (57%) say enhancements in this area require better IT systems. Respondents also believe senior management commitment is also essential to promote a culture of disclosure and an increased awareness across the company (54%). Establishing better processes is another factor for improving reporting (57%).

9. For Asia to make improvements in market reporting, firms in Asia should focus on management commitment, culture and technology.

10. “In order to bridge the gap between the current perceived quality of market reporting and the reality, firms in Asia will need to work harder to create a corporate culture that views good reporting as a means of improving shareholder value, rather than simply an obligation to regulators,” says Mr Nixon.

11. “Technology alone is not the answer – to improve the quality of data, firms must also improve procedures and processes to ensure that the relevant, not sheer volume of, data is collected. Ultimately, reporting must provide what stakeholders require, and firms need to work with them to understand where improved disclosures have the most impact,” concludes Mr Nixon.

• Lee Wan Ming (Direct line: (65) 6236 3973, Email: wan.ming.lee@sg.pwc.com)
• Ryp Yong (Direct line: (65) 6236 3960, ryp.yp.yong@sg.pwc.com)

• The EIU held over 15 one-to-one interviews with senior executives and analysts at financial services institutions in Asia
• The EIU and PwC conducted a special on-line survey of senior executives in financial services institutions on the subject of market reporting. Over 123 executives in financial institutions in Asia participated in the survey, which was conducted during August and September 2006
  • 50% of respondents are from more developed markets in Asia (Australia, Hong Kong, Japan and Singapore)
  • 39% are from emerging markets (China, India, Indonesia, Malaysia and Pakistan)
  • 11% are from others countries in the region (including New Zealand and South Korea)