ASEAN Economic Community (AEC) implications and opportunities for UK financial and related professional services - Presented by Accenture to
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ASEAN Economic Community (AEC) implications and opportunities for UK financial and related professional services Presented by Accenture to: TheCityUK’s ASEAN Market Advisory Group (MAG)
Executive Summary As UK-based financial and related professional services (FRPS) firms consider the business implications of ASEAN’s rising economic dynamism, rapid growth and creation of the ASEAN Economic Community (AEC), it’s increasingly clear that there are many opportunities that they can pursue in the region. However, as this paper highlights, it’s important to assess and prioritise those opportunities in light of the specific context, competitive environment and potential barriers that apply in each case. 2
A further factor is that the opportunities The creation of an integrated ASEAN market
in ASEAN vary widely in nature and for financial services will also open up
scale between the different segments opportunities in other sectors of UK-based
of UK-based FRPS. In banking, the FRPS, such as legal. This paper does not
ASEAN market’s increasingly free flow of cover other related professional services. The
products and services will open up growth maturation of ASEAN as a regional trading and
opportunities in both retail and wholesale. financial centre will drive demand for localised
The development of the small and medium legal representation—a strength of UK law
enterprise (SME) segment will boost the firms—and as SMEs in the region develop
potential for commercial banking, and and grow, they will need more investment
advances in financial infrastructure will and regulatory advice. And the planned
open up possibilities in retail e-payments strengthening of IPR protection across the
and mobile connectivity systems. The region will generate further substantial work
growing trade flows will drive demand for for law firms. Further, corporate reporting
transaction banking and related services, standards in emerging ASEAN are inadequate
while rapid infrastructure development and there is potentially important work to
will play to the UK’s strengths in project build capacity liaising with development
finance and syndicated lending. A key part banks, as well as both the private and public
of this will be senior level commitment sectors. There is also a need to continue
in governments to developing Public dialogue through trade agreements where the
Private Partnership (PPP) approaches. EU has a key role to play.
In capital markets, opportunities will be Looking across all these segments, this
generated by increased foreign exchange paper pinpoints a number of specific
trading and rising bond and equity issuance, ASEAN opportunities that UK-based FRPS
including by the region’s increasingly firms should consider prioritising, and
dynamic SME segment. More generally, looks both at the barriers to realising
upgrades in the region’s financial services them and also how the UK can maximise
infrastructure will open the way to improved their potential. Recognising this potential,
trading volumes, while ongoing digitisation TheCityUK launched its ASEAN Market
and improvements in connectivity will Advisory Group of senior experts and
enhance opportunities for mass-market practitioners from the industry at the
wealth and asset management services. inaugural UK-Singapore Financial Dialogue
at the end of January 2015.
For insurance businesses, rising volumes of
cross-border trade will boost lines such as
marine and trade credit insurance, while
ASEAN’s closer integration into global supply
chains will benefit business interruption
insurance. The region’s high exposure
to natural disasters and climate change
risks will demand advanced solutions for
catastrophe and agriculture insurance. And
rising financial inclusion will combine with
digitisation to enable digital mass-delivery of
insurance products at low cost.
3Introduction
ASEAN is a diverse and economically dynamic
grouping of ten Asian countries, collectively
accounting for the world’s third largest consumer
base and a 3.2% share of global GDP. That proportion
is set to rise in the coming years, as ‘catch-up’
growth sees emerging ASEAN countries close the
gap on the major European economies by 2030.
The factors underpinning ASEAN’s growth Inevitably, as UK-based FRPS firms seek
include rising cross-border trade, strong to realise the full potential of the ASEAN
build-out of new infrastructure and rapid market, there are barriers to overcome. At
digitisation. All three of these drivers will be the macro level, the timeline for the AEC’s
given added impetus by the creation of the semi-integrated financial market remains
ASEAN Economic Community (AEC) from aspirational rather than definitive, with
the end of 2015, with a goal of achieving different countries progressing at different
a semi-integrated financial market across rates, reflecting their own political, social
ASEAN by 2020. While the AEC will allow and operational factors. There are also
for the free flow of goods, services, capital hurdles to overcome within specific sectors,
and labour across ASEAN, it is not envisaged particularly around integration of markets
to become an EU-style currency union. and cross-border alignment of regulation.
ASEAN already presents exciting But whatever the challenges along the
commercial opportunities for UK firms way, there can be no question that the
in the financial and related professional ASEAN marketplace—especially with the
services (FRPS) sector—and the creation added momentum from the creation of the
of the AEC confirms ASEAN’s position as AEC—presents significant opportunities
the region most likely to witness strong for FPRS firms based within and beyond
and sustained growth in financial products ASEAN. This opportunity applies particularly
and services in the coming years. Many to firms from the UK, given the UK’s
of the resulting opportunities in the strong track record on services exports,
ASEAN marketplace play to the world- and close commercial and economic
renowned strengths and capabilities ties to several key ASEAN hubs.
of UK FRPS firms—and these areas of
opportunity are examined in this paper. As the AEC becomes reality, now is the time
for the UK-based FRPS industry to take
steps to seize the resulting opportunities.
This paper explains why.
4The 10 member states of ASEAN and the ASEAN
Economic Community (AEC) are Indonesia, Malaysia,
the Philippines, Singapore, Thailand, Brunei, Cambodia,
Laos, Myanmar (Burma) and Vietnam. Under the current
timetable, a common market encompassing all members
of the AEC will be established by the end of 2015.
5The Context of the ASEAN Economic Community (AEC) 6
A dynamic and fast- The potential and dynamism of ASEAN are
further enhanced by the fact that it includes
Over the next 15 years, so-called ‘catch-up’
growth will drive convergence between the
growing marketplace… some of the richest economies in Asia—like GDP of emerging ASEAN countries with
Singapore and Brunei—alongside some of that of the leading economies in Europe.
Bringing together ten diverse national the poorest, such as Myanmar, Lao PDR As Figure 2 shows, smaller ‘rising powers’
markets with a collective population of and Cambodia. ASEAN also has the world’s in ASEAN—such as Indonesia—will catch
620 million people and GDP of US$2.5 third largest consumer base: collectively, up with the major European economies by
trillion in 2014—3.2% of the global four of the ASEAN countries—Indonesia, 2030 in terms of share of global nominal
total—ASEAN is seeing rising cross-border Philippines, Vietnam and Thailand—will GDP, even on partial adjustment forecasts.
trade and rapid digitisation, outpacing alone exceed EU’s population in 2020.
most other geographies. By 2020,
these and other factors are projected
to increase ASEAN’s aggregate GDP by
over one-third to US$3.4 trillion, making
it bigger than India’s (see Figure 1).
Figure 1: ASEAN represents one of the world’s most vibrant economies
World’s Largest Economies
Real GDP US$ trillion (2014, 2020)
+3%
20.6 GDP US$ billion, 2020f GDP per capita US$, 2014
constant prices current prices
17.4
+7% Indonesia 1,206 3,404
15.2 Thailand 491 5,550
Malaysia 452 11,062
Philippines 412 2,913
10.4 Singapore 367 56,113
Vietnam 264 2,073
Myanmar 103 1,270
+1%
+1% Cambodia 26 1,104
4.8 5.0 4.2 +2% +7% +5%
3.8 Brunei 22 42,239
2.8 3.3 3.0 3.4
Lao P.D.R. 18 1,505
2.0 2.5
Southern ASEAN Greater Mekong Delta basin
US China Japan Germany UK India ASEAN
2014 2020f
Source: IMF’s World Economic Outlook, Oct 2014; Accenture Research
Copyright © 2015 Accenture All rights reserved.
7…driven by rising regional US$500bn by 2015 and $1 trillion by
2020. Going forward, ASEAN’s external
countries could boost inter-regional
trade and investment, with initiatives
trade, infrastructure trade will be boosted by the completion such as China’s proposed establishment
of the Trans-Pacific Partnership (TPP), of an Asian Infrastructure Investment
build-out and digitisation Regional Comprehensive Economic Bank (AIIB) to fund infrastructure
Partnership (RCEP) and Pacific Alliance projects in underdeveloped countries¹.
Various factors will serve to sustain the (PA)—all building blocks toward a Free
growth in the ASEAN market over the Trade Area of the Asia-Pacific (FTAAP) A further growth driver is rapid
coming years. A key part of the ASEAN digitalisation, as ASEAN consumers—in
growth story lies in export strength and This growth in trade will be supported by competition with their peers elsewhere in
rising intra-regional trade, reflecting the ongoing infrastructure build-out, which Asia—adopt new technologies at a very
fact that the ASEAN economies are among will increase ASEAN connectivity and trade, fast pace. As Figure 4 shows, four of the
the world’s most open, with 40 free trade particularly with neighbouring countries. world’s top 15 smartphone markets globally
agreements signed by end of 2013. ASEAN’s The ASEAN Secretariat has estimated that in 2020 will be ASEAN countries, led by
total trade was valued at US$2.5 trillion the region needs investment of US$60 Indonesia with 293 million smartphone
in 2013, with intra-ASEAN trade at US to US$100bn per year through 2022 to connections in third place globally behind
$609bn—24% of total ASEAN trade—and fulfil all its infrastructure needs (ports, China and India. Across ASEAN, ICT
inter-ASEAN trade with external partners airports, railways, roads, power, water and development is being driven by a regional
running at US$1.9tn, equivalent to nearly sanitation), and this infrastructure build- agenda, supported by specific country-
10% of world trade (see Figure 3). out could have major macro implications level initiatives such as a new ICT building
in terms of driving overall investment code in Singapore and mandatory WiFi
Trade with China—at US$351bn—represents growth. For example, infrastructure provision in larger restaurants in Malaysia.
14% of the ASEAN total, and the China- could account for nearly 20% of total
ASEAN free-trade area (FTA) is expected investments in the Philippines, while
to achieve the two-way trade goal of improved connectivity with neighbouring
Figure 2: GDP growth of emerging ASEAN will drive convergence with major European economies
9 Germany France UK ASEAN India Indonesia
8
(% of world nominal GDP, current prices, MER)
7
Projections
6
5
4
3
2
1
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
2014
Sources: Oxford Analytica’s report for Prudential titled “Opportunities for the UK in the future economic order”, 30 May 2014
8Figure 3: ASEAN’s Total Trade and Trade Partners
Total Trade (Exports + Imports, USD Billion)
Europe
$498B China
North America 7.3% $777B
$355B 12.0%
$304B MENA Korea
7.0% $296B $350B $267B
$220B 10.3%
8.9%
India $135B
$162B
$146B
Legend: Country/Region 11.7% LAP
$67B 6 VNM
MMR 265
23 KHM
2020 Total Trade THA 18 PHL
478 MYS 119
Forecasted - US$4.5T Latin and BRN
Sub-Saharan SGP 434
Central America 783 15
2013-2020 7y CAGR Africa IDN
$124B 369
2013 Total Trade $63B INTRA-ASEAN
8.2%
Actual -US$2.5T 7.6% $1,151B
$71B
$38B
9.5%
Oceania
$608B
$120B
ASEAN member country 6.4%
Total Trade $78B
6 783
Source: Accenture Research; Trade data from Asean.org; trade forecasted growth rates from HSBC Global Connections
Figure 4: Global ranking of Asian smartphone markets in 2020, and ASEAN mobile and wired Internet penetration rates
2005-2020
In 2020, 4 of the top 15 smartphone markets globally will be ASEAN
Global Rank #1 2 3 7 9 11 12 13 14
Connections 1,198 694 193 137 106 98 96 92 85
(million)
China India Indonesia Japan Pakistan Vietnam Philippines Bangladesh Thailand
ASEAN-6: Mobile Subscription Penetration, ASEAN-6: Wired Internet User Penetration,
2012, 2015F, 2019F (%) 2012, 2015F, 2019F (%)
167 170 175 173 124
163 165 168 115 119
152 157 150 155 148
100% 137 136
126
112 106 119 50%
41 47
35 33 34 12
8 28
27 1 19 22 26
12 15
SG MY TH ID PH VN SG MY TH ID PH VN
2012 2015 2019
Note: Wired internet user penetration is equal to fixed broadband subscriptions over total country households.
Source: GSMA Intelligence, Ovum Fixed Broadband Subscription Forecast 2014-19; Pyramid Research, 2014; Accenture Research
9The creation of the AEC These reforms cover banking market
integration, capital account liberalisation,
will boost opportunities financial infrastructure-building, payment
and settlement systems, and insurance and
for FRPS firms… capital market development. The financial
integration target to be achieved by 2020
The penetration of financial services is is not a fully integrated regional market
currently very low in emerging ASEAN but a semi-integrated one. It is important
markets. Combined with the region’s to stress that the ASEAN leaders’ vision
inherent dynamism, strong growth for the AEC does not embrace currency
prospects and large consumer base, this union and monetary integration, as is the
lack of existing penetration points to case in the European Union. As Figure 5
significant growth potential in ASEAN shows, the AEC’s degree of cooperation
for financial and related professional and integration will exceed that in NAFTA
services (FRPS) firms, whether based by allowing for the free flow of services,
within ASEAN or elsewhere in the world. capital and labour as well as goods, but
will stop well short of the EU’s shared
Already, these positive conditions are
currency (the euro) and monetary policy.
seeing the ASEAN market generate high
demand across the key financial services The opportunities for FRPS springing from
segments of banking, insurance and capital the growing openness in the ASEAN region’s
markets, creating exciting opportunities markets—and the increasing integration of
for FRPS participants of all types. The its financial sector—will emerge from each
scheduled creation of a common market of the four key pillars of the ASEAN AEC
within the ASEAN Economic Community Vision 2020 (see Figure 6): a single market
(AEC) from the end of 2015, advancing and production base, competitive economic
to a semi-integrated financial market by region, integration with the global economy,
2020, will increase these opportunities still and equitable economic development.
further, making ASEAN the region most These pillars will create the potential for
likely to witness strong and sustained growth in FRPS both at a national level
growth in financial products and services. from the development of individual markets,
and at also at a regional level from the
In January 2007, the leaders of the
rising need for pan-ASEAN services.
ASEAN member countries affirmed their
commitment to creating the AEC by
December 2015, aiming to “transform
ASEAN into a region with free movement
of goods, services, investment, skilled
labour, and freer flow of capital”. In the
same manner, the ASEAN finance ministers
proposed a comprehensive programme
to achieve financial integration, and
recommended institutional and policy
reforms to be implemented in 2011–2020.
10Figure 5: Degree of economic integration between national markets in the world’s major free trade areas (FTAs)
Preferential/ Common market Custom union w/ Monetary union Fiscal union
free trade area common market
NAFTA AEC* EU US
Shared fiscal and
budgetary policy
Shared currency
and monetary
policy
Unified tariffs
Complete
on the exterior
economic
borders of the
integration
union
Free flow of:
• Goods& Services
• Capital
• Labor
Free flow of:
• Goods
*Note: AEC has some unified tariffs and agreements for some goods and services, as a custom union has
Source: Accenture Research
Figure 6: The four pillars of the AEC Vision 2020
Single market and production base Competitive economic region
• free flow of products and services • competition policy
• free flow of investments • consumer protection
• “freer” flow of capital • intellectual property rights
• free flow of skilled labor • infrastructure development
• priority integration sectors • taxation
• food, agriculture and forestry • e-commerce
Integration with the global economy Equitable economic development
• coherent approach regarding • SME development
external economic relations • initiativefor ASEAN integration (IAI)
• enhanced participation in global to narrow the development gap
supply networks between members and to accelerate
integration of Cambodia, Lao PDR,
Myanmar and Vietnam (CLMV)
Initiatives in Bold have direct implications for the Financial Services industry
Source: Asean.org; Accenture Research
11…but the timeline remains In moving towards these overall objectives,
each ASEAN Member State has its own
• Prioritization of national interests
Countries will still be able to put their own
aspirational rather than initial conditions, and each may define its macro-economic stability and nascent
own milestones and timelines to achieve industries ahead of the integration goals,
definitive the common end target of financial and this may affect their commitment: some
integration. As Figure 7 shows, the result initiatives are merely ‘recommendations’.
However, while the opportunities springing is that overall progress towards these
from the AEC’s semi-integrated financial • Language and cultural gaps between
three goals is subject to the flexibility of
market promise to be clear and substantial, countries may hinder cooperation
each member country, and consequently
the date for completion is not yet set the rate of implementation varies in
in stone. So while the 2020 timeline is • Political instability in parts of the region—
different member states across the AEC. Myanmar, Thailand—has the potential to
an important milestone, it should not
delay the process.
be seen as a hard-and-fast deadline for Additionally, while economic integration is
financial integration across ASEAN. the keystone of the AEC, there are political, • Regional disputes—such as maritime
social and operational issues in each member confrontations between China and Vietnam—
In this context, the Roadmap on Monetary country that may have an impact on how may have geopolitical implications for other
& Financial Integration for ASEAN (RIA-FIN) successfully the various AEC initiatives are countries in ASEAN and the wider region.
includes the following three goals: implemented. The issues that present risks to
progress include the following:
• Capital account liberalisation
Achieve a freer flow of capital in the
• Development gaps between countries
region as per the AEC Blueprint.
Differences in skills, infrastructure and
standard of living between ASEAN countries
• Financial services liberalisation
at different stages of development present
Further liberalisation of the banking
challenges to implementing standardised
and insurance sectors.
systems and procedures.
• Capital market development
• Potential delays in implementation
Enable access to cross-border equity
Countries have different deadlines for
and bond markets, and develop cross-
implementation according to their level of
border payment, settlement and market
development. This tiered deadline system
infrastructure.
has buffers built in, which suggest
expectations of delays.
Figure 7: Progress towards the ASEAN leaders’ AEC Vision 2020
2007-11 2015 2017 2020
As per ADBI’s AEC Scorecard for • All ASEAN countries― Significant discrepancies in Note that Financial Services has
2008–2011, the implementation except Myanmar―have fully ASEAN development needs been granted greater flexibility
rate was 67.5% for the AEC implemented freer flow greater efforts, with priority than other sectors, due to its
Blueprint overall of capital to CMLV countries impact on economic stability.
• Linkage of three ASEAN Countries are allowed to
Exchanges (Malaysia, Singapore progressively liberalise
and Thailand) via a single subsectors, according to their
trading platform achieved own financial sector masterplan
Financial Services Liberalization At the stage of in-principle approvals
Capital Account Liberalization All ASEAN countries except Myanmar have fully implemented freer flow of capital
Capital Market Development Some developments in Singapore, Malaysia, Thailand only
Source: Accenture Research, ADBI, AEC and other releases
12In moving towards these overall objectives, each ASEAN
Member State has its own initial conditions, and each
may define its own milestones and timelines to achieve
the common end target of financial integration.
13Opportunities and Challenges in ASEAN for UK-based FRPS firms As we’ve shown, the forces shaping the ASEAN market make it a dynamic opportunity that is both attractive and complex at the same time. The unique set of conditions in ASEAN—namely strong economic growth, rising cross-border movement of goods and services, and rapid digitalisation combined with the ongoing AEC and financial sector integration—give rise to specific opportunities and challenges that are unique to the region. 14
The UK-based financial and related to be established in the UK, the ASEAN
professional services (FRPS) industry is MAG is a private sector forum comprised
competitively better placed to address some of senior experts and practitioners from
of these opportunities more effectively than across the FRPS industry, who have been
its competitors from other countries. The brought together with the aim of identifying
UK has long demonstrated a remarkable trade and investment opportunities and
relative strength in services exports, and priorities for an ongoing and mutually
by leveraging this it can gain a head start beneficial strategic business dialogue
on other entrants: in 2013 the UK FRPS between the UK and the ASEAN region.
sector generated a record trade surplus of
GBP61 billion. UK-based FRPS also provide The Group’s remit is to:
employment for over 2 million people, with • Provide thought leadership on the policy
total headcount rising 2.5% year on year in direction the industry would like to
December 2014³. see progressed with regard to ASEAN
markets and ASEAN as a group.
In combination with its renowned strength
in many segments of FRPS, the UK also • Drive projects that have the potential to
has strong economic and commercial create new and lasting opportunities for
ties to several key hubs in ASEAN, and developing dialogue and business between
has specific expertise that is essential for the UK and ASEAN markets.
this region. The UK’s business potential is
further supported by the ubiquitous use of • Bring focus on formulating the industry’s
English as the language of business, as well trade and investment policy priorities
as educational and professional ties and for ASEAN.
long-standing financial linkages to London
• Develop relations with senior ASEAN
as a global financial centre. This all means
decision-makers, regulators, and economic
that UK businesses are well positioned to and practitioners.
engage with developing ASEAN businesses
and the consumer base in fast-growing
ASEAN countries.
A further advantage enjoyed by UK-based
FRPS firms active in the ASEAN market is
the establishment of the ASEAN Market
Advisory Group (MAG) by TheCityUK for the
FRPS industry. The first group of its kind
15Opportunities and barriers Once again, there will barriers for capital
markets firms to overcome to capitalise
More generally, before any agreement
on lowering the barriers can be reached,
for each segment of FRPS on these opportunities. For example, in each of the regulators for banking,
terms of cross-border capital flows, many capital markets and insurance will have
Given the trends and drivers that we have economies restrict settlement of their local to tackle issues around synchronisation
described, ASEAN offers a wide range currencies outside their economies for the of regulations. Due to its impact on
of opportunities and challenges for the purpose of capital control, and regional economic stability, financial services
UK-based FRPS industry. Inevitably, these integration of cross-border trade settlement has been granted greater flexibility than
vary by sector and even from firm to firm, has been slower and more challenging other sectors, and member countries are
depending on each organisation’s strengths, than first outlined in the Integration allowed to harmonise regulations and
capabilities and relationships in the region. Blueprint 2015 . Also, existing infrastructure progressively liberalise subsectors, according
capabilities in some AEC member countries to their own financial sector masterplan.
In banking, the greater openness in the need to be enhanced to accommodate
ASEAN market will offer a diverse set of higher-speed connections among all The creation of an integrated ASEAN
opportunities. The freer flow of products national information infrastructures. market for financial services will also open
and services will open up the potential for up opportunities for professional services,
growth in both retail and wholesale banking, Turning to the opportunities for insurance such as legal. The maturation of the
while rapid infrastructure development businesses, freer trade flows will boost ASEAN market as a regional trading and
will play to the strengths of UK wholesale demand for lines such as marine and financial centre will drive demand for legal
banking and capital markets firms in project trade credit insurance, while ASEAN representation, as more players look to take
finance, syndicated lending and the bond manufacturers’ closer integration into advantage of growth opportunities. Freer
markets. The AEC’s focus on supporting global supply chains will benefit business flows of goods and services will boost the
SMEs will boost opportunities in commercial interruption insurance, and freer investment need for in-depth local knowledge, giving
banking for those customers, including flows will drive availability of a wider range UK firms an advantage with their localised
selling products and services adopted from of investment instruments. The region offices, knowledge, and relationships. As
corporate banking. Advances in payment is highly exposed to natural disasters SMEs develop and move beyond bank
and settlement systems, together with and climate change risks—ranging from lending into other forms of funding such
the e-ASEAN ICT Masterplan, will open up tsunami in Indonesia to typhoon and floods as peer-to-peer lending supported by
possibilities in payments systems, mobile in the Philippines—meaning advanced individual and institutional investors,
connectivity and banking apps—all areas solutions are needed for catastrophe and they will require advice on investment
where UK players are global leaders. agriculture insurance, both at individual registration and regulatory documentation.
and sovereign levels. The target to double And for ASEAN to fully realise its vision,
However, banks’ efforts to realise these financial inclusion across ASEAN will IPR protection will need to be strengthened
opportunities may come up against a bolster the potential for microinsurance across the region—generating further
number of barriers, particularly where in less-developed countries, and the ICT substantial work for law firms.
differing national laws hamper cross- Masterplan will enable digital mass-
border payment integration and bank delivery of insurance products at low cost.
regionalisation. Also, the long tenor of
infrastructure financing deals means they The barriers faced by insurers in pursuing
are highly exposed to risks around political these opportunities include the fact that
instability and currency fluctuations. some insurance sub-sectors committed
for liberalisation by 2015 remain closed,
Meanwhile, the opportunities for UK capital especially in terms cross-border movement
markets firms will include freer product and of talent and cross-border supply of
service flows opening up new opportunities products. Regulators will need to harmonise
through rising bond and equity issuance regulations for cross-border consumer
and increased foreign exchange trading, protection, resolution in cases of crisis,
while freer investment flows will also and a framework to address violations.
boost demand for investment instruments. Liberalisation in insurance—more than in
The development of the SME segment other sectors—will be subject to national
will extend this segment’s needs beyond policy objectives and development.
traditional bank lending to debt and equity
issuance and peer-to-peer (P2P) financing.
Upgrades in financial services infrastructure
will open the way to improved trading
volumes, and the ASEAN ICT Masterplan
will enhance opportunities for mass-market
wealth and asset management services.
16Given the trends and drivers that we have described,
ASEAN offers a wide range of opportunities
and challenges for the UK-based FRPS industry.
Inevitably, these vary by sector and even from firm
to firm, depending on each organisation’s strengths,
capabilities and relationships in the region.
17A table summarising opportunities, barriers, and potential roles for UK-based FRPS
The following table sets out some of the most important opportunities and the related barriers for UK-based FRPS segments, together
with ways in which the UK can support firms’ efforts to realise these opportunities.
FS Segment Opportunity driver Barriers/challenges How the UK can support
Cross-border Increasing trade flows, Entrenched relationships with • Transaction banking: payables
internationalization of local banks & receivables finance, cash
Corporate Banking management - focus on
businesses, China emerging as
ASEAN’s leading trade partner multinational corporate clients
• RMB capability and possibly its
internationalisation supporting
the Asian Development Bank
and the AIIB
Pan-ASEAN Rising consumer demand Entrenched relationships with • E- and m- payments services
with economic growth; local banks and consumer connecting the payments
Retail Banking ecosystem, in e-commerce
free flow of services and lending risk; AEC banking
individuals under the AEC integration likely to delay for instance
beyond 2020
• Digital banking services/
internet finance (see below)
Local SMEs and Development of micro and Credit risk due to paucity • Private and Public credit
small medium enterprises of supporting documentation bureaus covering MSME
trade financing credit information
is an AEC priority, including and credit history; cost
their participation in of administration
global value chains • Develop high quality data
with analytics for use by
microfinance/ commercial banks
Financial inclusion In-country regulatory changes Credit risk due to lack • Private and public credit bureaus
underway e.g. microinsurance; of credit history; high
‘equitable development of cost of administration • Unique Identity rollout for
Cambodia, Lao, Myanmar and for small accounts citizens to enable inclusive
Vietnam’ is an AEC priority finance
• Mobile wallet/mobile financial
services for telco-dominated
markets like Indonesia
Internet finance/ Mobile/digital cheaper and Digital readiness differs across • UK, as Fintech leader, providing
more accessible than traditional ASEAN; differing regulations by digital/technology innovations
digital services
FS infrastructure; e-ASEAN jurisdiction for internet finance
and ICT Masterplan of AEC • Alternative funding platforms
such as peer-to-peer lending
and crowdfunding
18FS Segment Opportunity driver Barriers/challenges How the UK can support
Infrastructure finance An estimated US$550 billion Long tenor finance exposed to • Formation of PPPs, and
investment until 2020 to fulfil political and currency risks infrastructure project
and management governance and management
infrastructure needs
• Green financing in Singapore
• Syndicated lending, project
finance
Islamic finance Malaysia’s ambition to develop Relatively narrow opportunity • Product development and
KL as international centre, as a niche segment in select capability exchange between
Muslim population in Indonesia markets London and Kuala Lumpur, also
and other pockets leveraging Singapore/Indonesia
Capital markets’ Market growth following AEC Cross-border fragmentation, • Build/facilitate ‘Shared Market
initiatives on trading links, disjointed capital markets’ Utility’
development
exchanges links, capital flows infrastructure
• Differentiated trading platforms
to foster new markets and
asset classes
Wealth and Rising affluence esp. ASEAN-4 Competitive threat, esp. in • Holistic wealth management
(Indonesia, Malaysia, the cross-border asset management platforms: real time, interactive
asset management services, advice on-demand
Philippines, and Thailand); from the Asia Funds Passport
AEC targeted liberalization of underway⁵
Trading For Own Account; Asia • Experiences of Europe’s UCITS
Funds Passport underway framework for Funds Passport
Insurance Free flow under AEC is an Cross-border fragmentation; • Developing regulatory
opportunity for lines such as liberalisation in insurance more frameworks for insurance
(excluding Natural marine, trade credit insurance than others subject to national
Catastrophe insurance) policy objectives • Training e.g. actuaries and
upskilling
• Product development capability
Climate change/ Region has high climate- Challenges in structuring and • Risk policies and insurance
demography vulnerability index; pricing products mechanisms for customers
NatCat insurance but also governments
ltd. insurance coverage
Professional services, Market growth and demand for Liberalisation in legal will be • Follow demand in specific
related legal services last to come through after AEC industries and markets, e.g. PPPs
i.e. legal in the Philippines
19Prioritising the opportunities in ASEAN/AEC for UK FRPS 20
As the table above confirms, the core • Islamic finance
characteristics of the ASEAN market and • Development of capital markets
ASEAN Economic Community—diverse,
dynamic, rapidly digitizing and increasingly • Wealth and asset management
moving towards cross-border integration— • Insurance life and non-life
offer specific opportunities across many
segments and product/service areas of • Climate change/natural catastrophe
FRPS, including: insurance
• Professional services, such as Legal
• Cross-border corporate banking
However, across all these segments, the
• Pan-ASEAN retail banking opportunities outlined in table will not be
• Local SMEs and trade financing accessible to a uniform degree in all ASEAN
member countries. The prioritisation matrix
• Financial inclusion
shown in Figure 8 sets out an analysis
• Internet finance/digital services of the likely size of each opportunity by
• Infrastructure finance and management
country, and its accessibility to UK FRPS
players over the short versus long term.
Figure 8: A prioritisation matrix for the ASEAN opportunity for UK FRPS
Sub-sector SG MY TH IN PH VN BCLM Rationale
Cross-border Corporate Banking Differentiation mainly with MNCs
Pan-ASEAN Retail Banking Differentiation mainly in Digital
Local SMEs and trade financing SME is AEC priority esp. in CLMV
Financial inclusion FI is AEC priority esp. in CLMV
Internet finance/digital services Digital Readiness differs by market
Infrastructure finance & mngt. Infra dev. is an AEC priority
Islamic finance Intl. centres link: KL-London
Capital markets’ development Maturing markets i.e. ASEAN-4
Wealth & asset management Differentiation in Digital/platforms
Insurance (ex NatCat) Potential to guide mkt. growth
Climate change/NatCat insurance UK expertise on NatCat insurance
Professional services Maturing markets i.e. ASEAN-4
Large or near term opp. Limited or long term opp. Not applicable
Source: Accenture Research; members of TheCityUK’s ASEAN Market Advisory Group
21In Accenture’s view, eight key areas of 4. Risk analytics/credit bureaus product development, with ongoing
opportunity stand out clearly where there capability exchange between London
for financial inclusion
is close alignment between the nature of and Kuala Lumpur. Other niche areas like
the ASEAN opportunity and the established A key success factor for all financial service microinsurance also offer great potential,
strengths of UK FRPS firms. Our analysis providers is the ability to accurately assess particularly through the use of mobile
suggest that the UK FRPS industry could and manage credit risks. This capability models in telco-dominated markets such
leverage its existing advantages most becomes more critical for inclusive as Indonesia to reach the underpenetrated
effectively in eight key areas: finance, considering the fact that limited populations with low-but-rising incomes.
transactional history and supporting
information is available for low-income
1. Infrastructure public/private 7. Professional services
individuals and micro, small and medium
partnerships (PPPs) enterprises (MSMEs). ASEAN would benefit As highlighted above, UK law firms’
ASEAN’s massive need for infrastructure from the creation of credit bureaus and established strength and scale across
investment over the coming years and advanced risk analytics—which are strengths ASEAN, and their substantial networks
decades will require deep understanding of UK-based FRPS firms. of offices and relationships at a regional
and skills in PPP structures, which UK-based and national level, position them to gain
major opportunities from realisation of
FRPS firms are world leaders in designing and 5. Disaster recovery/
delivering. For example, UK banks can oversee the AEC vision. General growth in trade
catastrophe/agriculture and economic activity will spur demand
the structured finance components while UK
law firms are supremely positioned to put insurance and reinsurance for legal representation, including tax and
the deals together, especially since these are The freer flow of manufactured products compliance expertise at a local level in
often founded on UK law. UK engineering and services across and beyond ASEAN each jurisdiction—a particular strength of
contractors can also provide world-class will result in the emergence of centres of UK law firms. Other elements of the AEC
management of the resulting projects. specialisation. Examples might include agenda, including rising infrastructure
Cambodia and Vietnam producing low- investment and PPP contracts, and the
2. Capital markets growth, value goods using cost-effective labour, focus on developing the SMEs segment
and Thailand and Myanmar specialising and IPR frameworks, will also generate
integration and development substantial work for law firms. Corporate
in automotive, electronic and computer
Opportunities for which UK firms are goods. As ASEAN becomes an increasingly reporting standards in emerging ASEAN
especially well-suited include building important link in global supply chains, are inadequate, and there is potentially
trading platforms for localised non- demand for disaster recovery and business important work to build capacity liaising
traditional financial instruments fostering interruption insurance will increase, with development banks, as well as
transparency, efficiency and lower cost; and alongside lines such as marine, aviation, both the private and public sectors.
potentially building a Utility⁶ for post-trade transport, and trade credit insurance.
processing, reference data management, UK reinsurance firms’ strength will 8. Framing trade policy and
and cross border regulatory compliance as
a service to ASEAN financial services firms.
also be an advantage across all these forging relationships
areas and more, particularly natural
There is also the potential to be involved To enable UK-basedFRPS firms of all
catastrophe and agriculture insurance.
in setting up holistic, real-time wealth types to realise the full potential of the
management platforms to take advantage of AEC, they will need policymakers to lobby
6. Islamic finance on their behalf and help them to forge
AEC’s targeted liberalisation of individuals’
trading for own account, and to provide Malaysia’s ambition to develop Kuala strong relationships across the region.
new internet finance platforms such as B2B, Lumpur as international centre for Islamic Useful initiatives might include bringing
C2B, crowdfunding and P2P to leverage finance, together with the large Muslim regulators and other industry stakeholders
the ASEAN SME Strategic Action Plan. population in Indonesia and other pockets to the UK to see at first hand how the UK
across ASEAN, creates opportunities for FRPS sector operates and is regulated,
UK-based FRPS firms in areas including opening up trade opportunities the other
3. Internet finance/digital services
Islamic banking, Islamic/Sukuk bonds, way. Policy agendas will play a major role
ASEAN’s rapid growth in digital services, as and Islamic/Shariah insurance. In takaful, in the pace and direction of development
driven by market forces and supported by the or Islam-compliant insurance, ASEAN of the AEC, and political and diplomatic
state, will need to be guided by regulatory countries represented one-quarter of global relationships will also make a contribution.
frameworks around consumer protection, gross takaful contributions in 2013, with
data privacy, fraud and cyber security. US$3.5 billion. Malaysia is the second-
Internet finance also poses risks from largest takaful market in the world, with
shadow banking that central banks seek industry growth of 24.2% in 2013, and
to manage. UK firms’ experiences in these the country’s low insurance penetration
areas will be valuable for ASEAN—possibly and young population present significant
more than the technology applications that potential for growth. London is already
London’s FinTech sector can export. established as a centre for Islamic insurance
22Conclusion: finding a mutually
beneficial way forward
Our goal in producing this paper was to set out the
opportunities and barriers for UK FRPS firms springing
from current trends and developments in ASEAN,
including the creation of the AEC. We hope our analysis
will help to set the scene for a positive and productive
debate on how UK firms can realise these opportunities.
At the inaugural meeting of TheCityUK’s the UK-ASEAN Business Council, the City
ASEAN MAG, key priorities were identified of London Corporation, Asia House and the
and discussed. These will form the basis of UK government, and interlocutors in the
initial activity the Group expects to deliver, region to influence the development of
including capital markets development, the business environment to these ends.
infrastructure financing and PPP, Islamic
finance and insurance/reinsurance. As the region of the world most likely to
witness strong and sustained growth in
Crucial to underpinning work in these areas financial products and services, ASEAN
will be the broader activity that needs to is vital to the future success of the UK-
be engaged in to improve market access to based FRPS industry. Now is the time to
goods and services, createe more predictable identify the opportunities it will generate,
and transparent regulatory regimes, and and create strategies to seize them.
protect investors effectively. The ASEAN
MAG will work with key partners such as
23Reference TheCityUK About Accenture
1. ASEAN’s half a trillion dollar infrastructure TheCityUK represents the UK-based financial Accenture is a global management
opportunity, Goldman Sachs, May 2013 and related professional services industry. consulting, technology services and
We lobby on its behalf, producing evidence outsourcing company, with more than
2. The Road to ASEAN Financial Integration, of its importance to the wider national 323,000 people serving clients in more
Asian Development Bank, 2013 economy. At home in the UK, in the EU than 120 countries. Combining unparalleled
and internationally, we seek to influence experience, comprehensive capabilities
3. TheCityUK’s London Employment Survey, policy to drive competitiveness, creating across all industries and business functions,
Feb 2015 jobs and lasting economic growth. and extensive research on the world’s
most successful companies, Accenture
4. ADBI and other reports, Accenture UK-based financial and related professional collaborates with clients to help them
Research analysis services contributed 12% of UK GDP in become highperformance businesses and
2013. Over 2 million people work in the governments. The company generated net
5. Asia Funds Passport is an initiative to industry across the country, two thirds of revenues of US$30.0 billion for the fiscal
provide a multilaterally agreed framework whom are outside London. Our industry year ended Aug. 31, 2014. Its home page
to facilitate the cross border marketing employs 7% of the population and the is www.accenture.com.
of managed funds across participating productivity of these jobs is 70% above the
economies in the Asia region UK average. Foreign companies invested
6. A Utility is an entity created by a
around £100bn into UK financial companies Contacts
since the start of 2007, more than in any Sushil Saluja
variety of industry participants in the
other sector. The UK is Europe’s financial Senior Managing Director for Financial
basic belief to create efficiencies across
centre and leads the way in international Services in Europe, Africa, Middle East &
organizations by collectively performing
banking, fund management, international Latin America, Accenture and Chairman,
a set of non-differentiating functions that
insurance, private equity and derivatives TheCityUK’s ASEAN Market Advisory Group
are similar across the member companies
trading. The UK also holds a leading position sushil.saluja@accenture.com
in the delivery of accounting services, legal
services and management consulting. Bryan Cress
Head, Asia Pacific, TheCityUK
Financial and related professional services bryan.cress@thecityuk.com
are the UK’s biggest exporting industries.
We make a £55bn contribution to the Madhu Vazirani
balance of trade, helping to offset the Thought Leadership Senior Principal,
trade in goods deficit. TheCityUK creates Accenture
market access for its members through madhu.vazirani@accenture.com
an extensive programme of work on trade
and investment policy. To achieve this, Lynda Stewart
we work closely with governments and UKI Financial Services, Management
the European Commission to represent Consultancy, Accenture
member views and help deliver the best lynda.c.stewart@accenture.com
outcomes in international trade and
investment negotiations. Allied to this, With special thanks for contributions from:
we have a country-focused programme Members of the TheCityUK’s ASEAN Market
to build relationships and to help open Advisory Group: Christie Pang (HSBC Bank
markets where our members see significant Plc), Catherine Clark (Prudential Plc) and
opportunities. We also have a strong focus Gerwin de Boer (The Law Society of
on ways of influencing and delivering England and Wales)
regulatory coherence through dialogue
with regulators, governments and industry
bodies internationally.
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