Wealth in Asia – the Drive to Improve Business Processes, Efficiencies and Compliance

2021 produced a bumper year for the profits of the private banks and other wealth management leaders, as mainstream markets performed well, as investors diversified further into private and alternative assets, as more clients were inclined to test out advisory and DPM, and as more robust wealth estate and legacy planning became more of a pressing need due to worries over the pandemic. Business today in the wealth management industry in Asia remains reasonably solid, although the financial environment is far less certain than it was, and weakening, and as geopolitical concerns are more heightened. But ask any COO at the private banks or the bigger independent wealth firms what their main concerns are, and they will tell you that they are continuously aiming to hone their efficiencies and enhance their internal capabilities at the same time as elevating their offerings for clients. And one of the key challenges every bank and wealth manager faces is around compliance, which, if not addressed properly, can negatively and significantly impact business processes and even team morale. On May 26th, Hubbis assembled a small panel of COOs and experts to discuss how they are positioning their banks, their firms, their technologies, and their teams to overcome the many operational and compliance challenges and also, very importantly, to seize the many opportunities that lie ahead.

The Panel:

• Alan Blanchard, Head of Business Development, Apiax
• Helen Kan, Executive Director, Deputy Chief Executive Officer and Head of Personal & Business Banking Group, China CITIC Bank International
• Alex Sim, Managing Director, Chief Operating Officer, UOB Private Bank

Setting the Scene – Digitisation for Efficiencies, for Optimised Compliance and for Improved Business Generation

Digitisation has advanced further and faster than many might have anticipated, but there is still much further to go on those particular journeys. The banks and other wealth firms are positioning themselves for the future and younger generations of clients and striving to enhance their client centricity and the usability of their offerings.

As technology revolutionises the offerings and efficiencies of private wealth managers and the broad wealth management community across the region, private bank COOs and other key decision-makers in the wealth industry are focusing intently on the right strategies and processes to achieve efficiencies, scale and to fight back against tough competition, including the new wave of FinTech and other new entrants chipping away at corners of the market.

A key area of for all these decision-makers is the ongoing and ever-intensifying struggle to address compliance, which is a constant challenge for everyone, and one that, if there are failings within the institution, can result in major financial and reputational damage.

But there are silver linings. If the banks and the leading wealth firms get their strategies right, they will be able to not only improve efficiencies and control costs, but they will enhance productivity and, most importantly, boost client outcomes, satisfaction and ultimately boost revenues and, hopefully, profitability.

There are many drivers for change and the wealth industry is working hard to elevate internal processes and compliance to the highest possible levels

An expert touched on some of the reasons for clients engaging specialist providers of digital compliance solutions. “Sometimes, clients are under pressure directly from the regulators to address some key shortcomings,” he said. “In these cases, the objective is very clear for everyone that there is a failure somewhere internally that we can help fix. And other clients might have all the regulatory content, but it is not up to date. They realise that the old way of obtaining legal advice, especially for multi-jurisdictional coverage, is onerous and costly, so they come to us for plug and play solutions.”

Another core reason for working with his firm is to support the business generation side. “The clients see that we can help them boost activity and productivity and generate more calls, a better client experience, and thereby achieve a competitive advantage over our other market participants,” he explained. “Honestly, this is not as strong a motivator as pressure from the regulator, but it is also an important reason and an important part of what we can do for our clients.”

He also explained that there is no doubt that there are numerous and intensifying compliance challenges across Asia, as regulators in each country and globally demand ever-higher standards of monitoring and reporting, greater individual and corporate accountability, and as they roll out ever more demanding compliance audits. At the same time, he said the banks and other wealth management firms were trying to enhance their understanding of compliance issues and the approach to handling challenges amongst their client-facing and administrative teams.

Expert Opinion - Alan Blanchard, Head of Business Development, Apiax: “The answer to enabling innovation and growth despite increasing regulatory complexity is to invest in new, digital, compliance frameworks that reduce the interpretation of ambiguous legal texts, provide clear answers at a granular level and improve the accessibility of regulatory knowledge.”

Integrating businesses, working cross-border, improving processes and elevating compliance beyond the mundane

On the business front, a panellist reported that a priority for their bank relates to the bank’s acquisition of private banking assets in certain Southeast Asian countries such as Malaysia, Thailand, Indonesia and Vietnam. This had resulted in a major integration effort to bring all of this within the control of the Singapore HQ.

“And from this deal, we are looking from the business side at the opportunities for developing our onshore wealth penetration as a result,” he explained. “We are looking at how we leverage these assets we have acquired, looking at synergies and how the bank can potentially harmonise and merge businesses, processes, onshore and offshore and so forth.”

He also observed that there are more and more wealthy investors coming into Singapore, and not just in the UHNW space. “I am not talking about just the family offices, the biggest private investors, but also the HNW type investors,” he said. “They are more willing to come to Singapore, to invest in or through Singapore, for a variety of reasons, such as security, safety, and possibly how Singapore has performed as a result of this COVID-19 epidemic. This means that with our business heads, I am looking at how we capture this business coming in Singapore.”

KYC and AML remain major challenges, but there are many nuances, one size should not fit all

An expert offered some views on the tricky compliance challenges of onboarding and then monitoring clients, a subject that he said remains a major topic for private wealth. He said that risk differentiation amongst clients is relevant. For example, one client might work for a big corporate, in which case the KYC is likely to be lighter as their income is their major source of income and wealth accumulation, and that often means the opening account turnaround is going to be faster.

“But if you're a client that we know little about, perhaps from another country and where we struggle to find clear information, then we need to spend more time to do due diligence,” he reported. “So, we differentiate in these ways, and in this way the clients understand the process and the reasons for our approaches. In short, a straightforward client will move through faster, while a more complicated client, perhaps with more complex structures, and more challenging source of wealth drivers to corroborate, they understand the banks here in Singapore will go through this due diligence in great detail.”

But he said the challenge is to reach the right standards without overdoing things. “It is a balancing act, and we are trying to get the right efficiency around onboarding so that once the client gets onboarded, the engagement process by the RMs can start seamlessly,” he commented. “The easier, quicker and better the onboarding, the more positive the client experience, the easier the next stages of engagement.”

He offered more detail on the bank’s approach to KYC and AML, reporting that they are striving towards the better use of data and data analytics to manage the risks that they face.

“I will narrow down to two risks that I know for a fact that regulators are very interested, our banks are mitigating and managing – financial crime and misconduct,” he reported. “We have a lot of data points across these two risk taxonomies that we review whether for AML or misconduct. The regulator is keen for us to leverage all the data we have to help overcome AML risks, financial crime risk, our fraud risks, all of which are often interrelated.”

In the real world of compliance, KYC and AML, good regulators can also be both pragmatic and approachable

A guest elaborated on these points, noting that the banks are nowadays somewhat stepping back from an earlier over-reaction to regulatory demands.

“Banks are seeing that we might all have overswung the pendulum, but we realise now that the regulators are really focused on the higher risk accounts, while for the others, they are not asking us to write a thesis or an essay on KYC,” he explained. “However, banks being banks, when you industrialise your process, it’s hard to be bespoke unless you've very clear rules and criteria.”

He said the banks now increasingly realise that the one size fits all approach no longer works. “We are not lowering standards or practices,” he said, “but adapting due diligence to different risk assessments, and thereby differentiating the turnaround time, differentiating the resources necessary to do each client onboarding.”

Another expert remarked that their bank had worked closely with the Hong Kong regulator on the issue of proof of identity and address. “We have managed through collaboration and engagement to sort of strip off some existing legacy regulatory requirements, liaising with the regulator to overcome issues around the remote onboarding of clients,” she reported.

She added that suitability assessment protocols had also been evolving, with more and more checks added to the process. “Faced with this, we created a task force to try to reduce the time and the burden on clients to achieve the right suitability outcomes,” she reported. “The compliance department had to work closely with the business generators and teams to crack this principle-based supervision, but with a more intuitive, user-friendly, customer-centric process. And that is what we have achieved.”

Another front in the battle for better compliance is opening up – the drive to improve conduct

An expert told delegates that the next phase he anticipates in terms of regulatory priorities is around the proxy conduct risk, especially of the RMs and advisors. “Focusing on investor protection, are we managing our clients fairly?” he pondered. “Are we disclosing to them transparently, whether related to advice offered, or around how they're being charged? Honestly, on this front, the banks are behind the curve, and that is because we have not yet learnt how to use the data effectively to essential advance this into more of a predictive science.”

Accordingly, to elevate the standards in this area, he said the banks need to leverage their internal data to zero in on key areas of investment suitability exceptions, risk mismatches, risk concentration, order generation failures, and lack of disclosure. “In so doing,” he concluded, “we can ensure the RMs and advisors are conducting themselves properly in relation to their client advice and activities, thereby better protecting the clients, the bank and our teams.”

Back to the office, back to the future as the worst of the pandemic restrictions ease

A guest said that having successfully managed the business and operations with remote working practices since the pandemic, there was now some reverse engineering taking place as the bank encourages its teams to return to the office. “We are now pursuing the reverse change agenda, bringing things back towards the old norms, but one of the key challenges a lot of banks are faced with is how to accommodate the new return to the office phase. And that of course involves managing people and is a very important agenda.”

“In some respects, working from home has been honed so well that people are achieving more remotely, without distractions in the office, they are handling more accounts or transactions, generally being very efficient,” this expert added. “However, on the other hand, we lose the people element, and it then becomes easier for people to move bank, as that type of personal connectivity to people and the institution is lost. Accordingly, for me, bringing people back to the office environment is crucial to retaining talent, to team building and to genuine engagement with the institution.”

But to adapt again, to reverse engineer back to the office means change management again. And some of this, he said, involves returning to actual signatures rather than email documentation. “Some are surprised,” he explained. “We are often asked why when during Covid remote or virtual verification was ok, but now in the office, they sometimes need, or we might prefer wet signatures. Well, we have to explain that we can no longer provide the systems to deliver all the client data to remote working stations, but of course this all represents a major challenge as I work to bring people back into the office.”

Hiring and retaining people is a major issue, there is a hiring merry-go-round and talent loyalty needs to be enhanced

These comments opened the door to a broader discussion on talent, which is of course a key priority, not only hiring the best people available but retaining and training them. As things become more regulated and more complex, the talent upgrade needs to take place across the board, from the back-office to help improve efficiencies and responsiveness through to the client-facing RMs and advisors who need to become more client-centric, offer more relevant ideas, and be more responsive. This is especially important as clients seek a more holistic wealth management proposition and as key players seek to elevate their business models well beyond the transactional wealth management models.

An expert addressed his perspectives on this key issue of hiring and then retaining smart talent. “There is a shortage of talent, not just among the bankers, but also the support functions, risk management, compliance and other areas,” he told delegates. “It is a merry go round, really, as we all hire from each other. Accordingly, to offset that, we also have to expand our training and skills, so we are dedicating a lot of effort to that. Even for rather inexperienced candidates, we are providing them with the right platform, knowledge and guidance so that they can scale up quickly.”

He said it is no secret that the RMs and advisors are also getting younger on average; hence a key challenge is to boost their skills and capabilities so that they can, from early on, engage effectively with what are often very experienced and knowledgeable clients on investments.

“This area, the last mile before the actual transaction and execution, is all about the delivery of good information and advice,” he explained. Are we curating the right ideas and information appropriate to their portfolios, risk profiles, their likes, dislikes, and so forth? We need to deliver conversations that are meaningful and highly relevant, not off-the-shelf. So, we need to guide the RMs to carry out those types of bespoke conversations with their clients.”

The need to be ahead of the digitisation game for smooth operations and for smart compliance

A guest told delegates that while the pandemic had fast-tracked irreversible changes in customer expectations, the bank’s internal strategy for the past roughly five years had already been towards mobile and digital-first.

“I can say that our mobile app has to a big extent ‘saved’ us through these difficult times, allowing us to onboard, and also to retain and engage with customers, both in Hong Kong and Mainland China,” she told delegates. “Moreover, to overcome disruptions, we have taken up many timely changes and improvements in our compliance procedures to accommodate these changes in the operating environment. Of course, there has been an impact due to border closures and so forth, especially in heavily regulated areas such as insurance transactions and some investment fulfilment, but we came through well, and now the re-opening up will spur another big wave of business.”

She offered more perspective on the digitisation journey, noting that the bank’s view, even pre-COVID, was that digital is bread and butter for all segments of customers, especially amongst the younger generations.

“We have worked hard to boost digital adoption by clients and the RMs, focusing on the success formula of making it all as intuitive as possible,” this expert reported. “We can now seamlessly onboard a customer totally remotely; they can transact across the markets and asset classes, and they can conduct portfolio management. In short, our platform is suitable for all, from the robo-advisory self-directed customer to those segments that need a hybrid advisory model to those who seek support from the RMs.”

Elaborating on the role of the RM, she explained that the RM remains central to the bank’s offering and will remain so in the foreseeable future.

Expert Opinion - Alan Blanchard, Head of Business Development, Apiax: “With its broad coverage, Embedded Compliance empowers financial institutions and unlocks the inherent capacities of companies. A key element of Embedded Compliance is that it is a horizontal approach, not limited to a specific regulatory challenge.”

End-to-end solutions and enhancements are both necessary and available

An expert explained that a big-picture mission for their bank was to really understand and then apply how they can use technology to make the cost of compliance cheaper, and actually more accurate or effective. “We are striving for a more systematic and quantitative basis for helping us to make risk-based assessment and trying to achieve broad compliance advances, but all at a more cost-effective level,” she said. And this, means the simplification of processes and improvement of outcomes that will, in turn, both reduce costs and also boost client satisfaction and result in better and more business.”

“We have been building efficiency and elevating the overall proposition from back to middle to front at the bank,” she reported. “At the front end, this centres on the usability and the convenience of the digital platform. In the middle, processing must be fast and accurate, with seamless approvals, so we have put in a lot of effort to compress and improve these processes. At the back-end, we have improved compliance and the credit function.”

In summary, she said the bank had improved all areas and achieved more agility, with teams working together and really creating an end-to-end process serving the customer needs. “We measure it all in both time and quality so that all the advances are seen at the front-line where the clients interact with us,” she stated. And that, of course, drives better customer share of wallet and client satisfaction and then loyalty.

Expert Opinion - Alan Blanchard, Head of Business Development, Apiax: “Embedded Compliance puts compliance knowledge where it needs to be, directly into the existing tools and processes of those who need to access it. And measuring the impact of Embedded Compliance is straightforward - it drives revenue, decreases costs, and helps mitigate risks.”

There are ‘smart’ solutions available, but choose your compliance partners wisely for effectiveness, speed and achieving the optimal outcomes

“As a digital compliance expert, we have the technologies now that enable that, and it is not something that banks have to do themselves,” a guest told delegates. “To achieve this, we work with a combination of advisory experts, we will have a network of what we will call content experts, who will always know the key terms of the rules and regulations that are attributable on a client level. And we can be very granular in terms of how we divide up that content, how we analyse it and access it and then serve it back to the relationship manager.”

He explained the firm also supports clients from the KYC perspective, helping them obtain easy access to what is actually required in law and helping convert the regulator to a ‘friendly’ party as the client is constantly able to demonstrate that they know precisely what is required to onboard their customers.

“You then deliver a much better outcome for the client as a result, because you can start speeding up those processes,” he said. “And we understand that our customers also want to resolve the often very considerable tension between the non-digital regulatory requirements which have existed for many, such as wet signatures, proof of address, and so forth, and move as much to digital processes that can overcome these hurdles. We appreciate our customers want to get all this down to as few clicks as possible from the end-clients’ point of view.”

He added that he did not think anyone will ever get to a point where the industry can figure this out 100%, but that they can all work to remove an awful lot of the margin for error around any piece of businesses being transacted. “It is easy for someone to make a mistake,” he said, “after all, we're all only human, but the more technology we can apply to help overcome these issues the better. But the benefits also extend well beyond efficiencies and cost savings, as their solutions help ensure that the compliance content that their customers have in place is constantly updated, and constantly available omni-channel.”

Better compliance is not taking place in a vacuum – optimising compliance means better business at the front end

“With smart compliance processes and technologies, you can thereby drive much better value from your compliance spend,” an expert reported. “And as it significantly automated throughout from front to back, you do of course remove a lot of internal processes, and you are thereby freeing up the bankers and advisors to engage in more and better client interactions, more revenue-generating activities. Moreover, the solutions also result in risk mitigation; ideally, we all want to get the risk of making compliance mistakes down to zero, although to be honest, that is still an ambitious goal for all of now, I think we can agree.”

Those observations helped this expert close off his commentary. “We can come to clients and offer relevant solutions, from onboarding and throughout the business and administrative machinery internally,” he told delegates. “Ever since the pandemic hit, the need for digitisation to help with business continuity has risen significantly, and this is also true for the legal and compliance side, where digital solutions are just as important as for the business generators.”

And his final word to delegates was one of both promotion of his firm and also sound advice: “The answer to enabling innovation and growth despite increasing regulatory complexity is to invest in new, digital, compliance frameworks that reduce the interpretation of ambiguous legal texts, provide clear answers at a granular level and improve the accessibility of regulatory knowledge,” he stated.