ASEAN Economic Community (AEC) implications and opportunities for UK financial and related professional services - Presented by Accenture to

 
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.

                                                                                                     3
Introduction

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.

4
The 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.

                                                          5
The 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
       8
Figure 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
                                                                                                                                                                                                             9
The 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.

10
Figure 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

12
In 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.

                                                         13
Opportunities 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

                                                                                              15
Opportunities 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.

16
Given 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.

                                                       17
A 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

18
FS 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

                                                                                                                                    19
Prioritising 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

                                                                                                                                                   21
In 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

22
Conclusion: 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

                                                                                                23
Reference                                          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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