SINGAPORE (Reuters) – Banks have a new buzzword to describe their strategy in Asia: diplomacy.
Stung by regulatory probes into allegations ranging from the hiring of the offspring of senior state officials in China to rate manipulation in Singapore, and grappling with reams of new rules brought in after the global financial crisis, firms are going on a charm offensive with the region’s regulators and governments.
Executives brought in to head banks’ businesses in major Asian financial centers are now expected – by management and regulators themselves – to devote more time to building their relationships with financial watchdogs.
“Regulators have become major stakeholders – as important as big corporate clients – so firms are recognizing how key they are for business,” said Judy Vas, regulatory leader for Ernst & Young’s financial services business in Asia.
Barclays recently promoted its Asia head of tax, Li Li Kuan, to become country head for Singapore, stressing one of her primary duties was to manage “regulatory relationships” in the city-state.
Her appointment was relatively unusual, given country head roles are more often filled by “rainmakers” – corporate or investment bankers there to close deals and look after major clients. But priorities are starting to shift.
JPMorgan brought in former DBS Vickers boss Edmund Lee as its Singapore head last year, replacing Philip Lee, who had been more focused on investment banking clients, noting one of his key duties would be to manage relationships with the government and regulators.
Thomson Reuters Cost of Compliance survey found compliance teams at finance firms in Asia saw the biggest rise in 2013, compared with other regions, in the amount of time they spend preparing reports for their management boards. More than a third of teams in Asia spent at least one day a week on this work, compared with around 20 percent in 2012.
Banks are also building up their regulatory or government affairs’ offices, an area they’ve previously put less focus on in Asia.
“Although many firms have established regulatory policy and strategy functions in the U.S. and Europe, most firms have a very nascent function or none at all in the Asia Pacific region,” said Chris Cook, a head-hunter for Executive Access in Hong Kong.
That presents a tall order for head-hunters such as Cook, who says his firm is currently trying to fill several such positions, since there’s not an established pool of talent in the region to tap from.
JPMorgan in January turned to former Asia IMF head Anoop Singh to become its Asia head of regulatory affairs, while Goldman Sachs brought in former U.S. ambassador to Singapore David Adelman as head of government relations.
UBS in January 2012 hired former Wall Street Journal journalist Peter Stein as its head of group governmental affairs for Asia Pacific.
“You will see front office staff made redundant in order to ramp up these areas,” said Marc Baloch, the Asia Pacific head of Harvey Nash Executive Search.
He notes how HSBC, which increased its number of compliance staff by 54 percent between 2012 and 2013, is looking to hire people into this function with a “diplomatic” skill set.
The challenge for these roles in Asia is the sheer number of regulators that banks in the fragmented and diverse region must handle. JPMorgan interacts almost daily with more than 30 Asian banking regulators, a spokeswoman for the firm in Hong Kong said.
The bank, in common with its global peers in Asia, reports to more than 100 regulators in the region across the full range of its businesses including banking, insurance and commodities.
However the payback for banks from investing in this area is becoming clearer.
Many Asian regulators took a back seat when the United States and European governments drew up a slew of new regulations on bank capital and derivatives trading in the wake of the 2008-09 financial crisis.
That left the region facing a set of rules that regulators and firms felt did not work for them, such as regulations on derivatives trading that were tailored towards more liquid markets like the United States rather than Asian ones.
That has prompted regulators from financial centers such as Singapore, Hong Kong and Australia to become more vocal in international forums such as the International Organization of Securities Commissions and the Financial Stability Board.
“The Asian voices are asking for more workable solutions while following the global principles,” said Ernst & Young’s Vas. “So it makes it a more worthwhile investment for the Asian business heads to have a dialogue with the regulators locally so they can help drive the shaping of solutions globally.”
(Reporting by Rachel Armstrong; Additional reporting by Lawrence White in HONG KONG; Editing by Alex Richardson)