Compliance for Asia-Pacific banks 'getting costlier'

Private banks in the Asia-Pacific region are finding it increasingly costly to comply with regulatory changes being imposed on the industry.

They expect risk and regulatory compliance expenses to account for 10 per cent of their annual revenue in two years, up from 7 per cent, according to a report by global consultancy PwC.

It also found that 94 per cent of respondents from private banks in Singapore and Hong Kong believe there will be more cross-border banking regulations and a higher level of tax transparency required.

PwC partner Justin Ong said at a briefing yesterday that costs have increased because private banks need to hire more staff in their compliance and risk departments. They also have to spend more time and resources documenting transactional records as well as building new technological systems to handle such processes.

Other than cost pressures from tougher rules, the PwC report also noted that traditional ways of providing products and services are likely to change.

Instead of focusing on selling financial products and earning commissions, private banks predict they will provide more custom-made solutions tailored to client needs.

With commission revenues dwindling, 68 per cent of senior wealth management executives in the Asia-Pacific region expect their business model to include broader financial and wealth planning options in 2015, up from 57 per cent now.

Mr Ong said private banks are also keen to move to a management fees revenue model.

"It's good because it means that the banks get a better, stable income flow if you are able to move to more of an advisory model with discretionary fees, and also where you are giving advice which is not dependent on commissions because then you become more objective," he added.

Remuneration for relationship managers in Singapore and Hong Kong accounts for about 49 per cent of the costs at private banks, higher than that of their counterparts in the region, including Australia, India and Malaysia.

Mr Ong said: "The supply base here is much lower, so you do have to pay a premium for good private bankers."

With costs rising as a result of more regulatory requirements and high staff costs, the PwC report noted that private banks have to use technology to ensure operations run more efficiently and help stabilise expenses.

Survey respondents also expect revenue in Singapore and Hong Kong to increase by 21 per cent next year, outpacing the global average of 15 per cent.

One potential source of growth that has not been utilised fully is having products and services that cater specifically to women.

The report found that women represent about 32 per cent of the private banks' client base. However, only 12 per cent of Singapore and Hong Kong firms focus on gender in their segmentation approach.

About 200 institutions from 51 territories took part in the PwC global survey, with 48 participants from the Asia-Pacific region. Singapore and Hong Kong respondents made up almost half of the Asia-Pacific respondents.

feimok@sph.com.sg

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