Banks have been working like never before, combating unprecedented situations, fast-changing technologies and consumer behaviour, more complex regulations, and greater external threats. In this new world rife with uncertainties, they need to adapt their business models to take maximum advantage of the new regulatory reforms, use them to change the way they do business, and achieve competitive advantage.
In this series, we highlight the key aspects of the current regulatory environment in Southeast Asia (SEA) affecting the banking industry and share our perspectives, outlook, and recommendations across the three most relevant aspects for banks today.
Latest issues
Key aspects affecting the SEA banking industry
Regulations
Despite the disruptions caused by the COVID-19 pandemic, we foresee banks facing more regulatory scrutiny in the upcoming year. The US Federal Reserve and the European Central Bank have already started to intensify their scrutiny, taking measures such as issuing consent orders and conducting drills. Banks will have to focus on preparations to meet these inevitable timelines in 2021.
Basel Committee on Banking Supervision’s (BCBS) standard 239
Regulators across SEA are likely to conduct more in-depth reviews and take stricter actions against non-compliance of Basel Committee on Banking Supervision’s standard 239 (BCBS 239).
Basel III finalisation
In SEA, adoption of the finalised Basel III framework has been splintered. Nevertheless, the changes to these standards are likely to have significant impact on banks across the region, particularly in areas of credit risk, operational risk, the output floor and the leverage ratio.
LIBOR transition
With LIBOR cessation looming, regulators globally have set key milestones for market participants to adhere to. Meanwhile, industry bodies continue to develop market conventions to facilitate transition. For banks, challenges remain in areas such as conduct risk and contract remediation.
Coming soon
RegTech
We expect banks to respond to the enhanced regulatory requirements by investing more in RegTech, from KYC to risk management and regulatory reporting. Given this change, banks will also have to consider carefully how to best leverage RegTech to enhance their operations and maintain their competitive advantage.
Digitalising regulatory reporting
While still in early stages globally, the banking industry has started to explore the use of AI to assist with regulatory reporting.
The use of artificial intelligence, machine learning and alternative data in credit decisioning
With increased use of alternative models and data in credit processes, regulators are watching the developments closely. Banks would need to better understand the implementation challenges and regulatory trends to maintain their competitive advantage.
Impact of RegTech on anti-money laundering, terrorism financing transaction monitoring and fraud detection
Ahead of the regulations, financial institutes are jumping on the technology bandwagon to tackle issues relating to anti-money laundering (AML), countering the financing of terrorism (CFT) transaction monitoring and fraud detection. Regulatory bodies and FIs alike have more to consider when entering the RegTech sphere.
Increasing focus areas
Beyond regulations and regulatory technology, there are also some topics such as Environmental, Social and Governance (ESG) and Digital Banks that are gaining momentum and we anticipate more industry developments in the coming year.
Risk and Regulatory Outlook 2022
The SEC’s proposed climate risk disclosure rules: A call to action for Southeast Asian banks
Taxonomies for sustainable finance in Southeast Asia
How will the introduction of taxonomies across Southeast Asia and globally impact financial institutions in this region?
Rising tides: Climate risk stress tests and its implications for banks across Southeast Asia
Climate risk is expected to be a mainstay of future stress testing exercises among banks, amidst the growing awareness of environmental, social and governance (ESG) issues and the need for environmental assessments in risk management.
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