Central banks and financial regulators in Asia Pacific have recently introduced new digital and open banking licensing frameworks.Despite delays caused by the COVID-19 pandemic, there is clear direction and impetus to allow for greater competition and consumer choice.

The entry of fintech-enabled providers will benefit consumers and small businesses with better experiences and lower costs through more agile and operationally efficient business models. Regardless of the differences in their methods and approach, incumbent banks and virtual challengers face the same stringent and complex regulatory environment.

Larger banks have developed the scale, expertise, and infrastructure to ensure regulatory compliance. However, the same cannot always be expected of smaller banks, as high costs and investment fees could impact their ability to compete.

Innovative regulatory technology that utilises software-as-a-service and cloud hosting provides virtual and smaller banks the option of outsourcing their compliance and reporting requirements to a larger and more proficient specialist provider.

The choice of a more cost-effective solution is a seemingly clear and straight-forward one. Of the eight virtual banks granted licences to operate in Hong Kong, half have selected Wolters Kluwer’s OneSumX for Regulatory Reporting as their regulatory reporting software provider.

Today, we are in Singapore, on the Singapore Flyer, overlooking the beautiful skyline on Singapore, and speaking with Rainer Fuchsluger, managing director of Wolters Kluwer’s finance, risk and reporting business in APAC, joins us to discuss the challenges that banks and financial institutions in the region may encounter in meeting their reporting requirements.

He will also cover the drivers for selecting an outsourced regulatory reporting solution and share his views on developments in the Hong Kong virtual bank market as well as digital banks operating in the rest of the region.

The following is the edited transcript of the interview:

Foo Boon Ping (BP): What are some of the challenges that banks and financial institutions in Asia Pacific are encountering when trying to meet their regulatory reporting requirements?

Rainer Fuchsluger(RF):  think in terms of the COVID-19 pandemic, this really has been a change agent to rethink about operational excellency, and keeping the lights on across the industry. I think what's the impact is really that the whole industry will not go back to the previous normal. We will have to adapt and banks will have to revisit some of the technology stack that you have today.

Some of the banks started to embark on a digital transformation agenda before COVID-19. But we still see a lot of banks out there with a legacy footprint. And I think they have to accelerate, they have to invest to come out of the crisis with a better understanding of their risk, the return, the liquidity they have, and the capital adequacy, in terms to weather the storms of the current pandemic.

The regulatory change itself is continuously increasing, the frequency is increasing. And the complexity, we see this across multiple jurisdictions, whether that's in Singapore here, whether that's in Hong Kong, in Australia, in most of the core markets.

But even in the emerging markets, more and more central banks are looking for granular data reporting. So, all the way down to transaction level reports.

BP: What are the drivers for an outsourced regulatory reporting solution with software-as-service and why is it an optimum option for smaller banks?

RF: I think it's twofold. One, is truly the cost and the scalability. They pay on demand when they go to the cloud, but at the same time, you have high security of your data. And you can scale it out, but just to comply for regulatory reports. But also, you can use that data for driving insights and analytics for financial reporting and risk management reporting. And we see a lot of banks jumping on that technology stack as we speak.

BP: How do you see virtual banks developing and competing in this region; and what are the key learnings from the Hong Kong market, especially against the backdrop of COVID-19? And, based on your view of the regulatory environment in the region and the challenges that it presents to new players, how can they remain competitive?

RF: We see aspiring digital banks challenged by a couple of things, First is really the people and so they start pretty much from ground zero. And I think it's important for them to find the right talent as they embark on the banking journey with the people comes domain expertise and comes culture.

The second which is very important that it's about technology. It's about the scalability, and it's about the flexibility in terms of supporting that kind of journey. A lot of the digital banks really don't have a lot of legacy. So, with that comes a lot of competitive advantage.

They can really tap on the advanced technology out there, which is cloud computing, which is around the concept of open banking, together with smart analytics, and AI, to cater to those differentiated business models that they develop for the underserved, for the SME segments, and many others out there where they want to provide banking for.

With data, what's very important for regulatory reporting is also to have a good state of management and data governance and lineage so that you not only use the data for regulatory reporting, but having a holistic approach to data can help you to maximise the return on the investment for the technology to cater for other reports like for finance and for risk.

So you have a clear handle and can take with the advanced technology, the right decisions as you navigate through a lot of change. And we can see change occurring during the current COVID-19 pandemic.

I think that's where we saw a lot of appetite for cloud computing and when we deliver our leading software OneSumX on-premise.

And some of the digital banks still use it in the initial stage. But others chose cloud, whether that's a private cloud, whether that's a public cloud, which can help them in the long-term as they want to scale out the operation. It's quite exciting to see all these pockets of digital banks, challenger banks or virtual banks popping up across the region and not just in Asia Pacific.

We have seen them in Europe too. So, we have seen them in Australia. We have seen initially from Japan, Korea, we see reforms being introduced from other regulators within Southeast Asia, whether it's currently with MAS (Monetary Authority of Singapore), as the applicants go through those applications, processes, whether that's in the Philippines,

in Malaysia, in Indonesia, so I think it's a fantastic opportunity to challenge the status quo. Especially also the reviewing from our perspective, the technology footprint, both for the challenger banks who come in as well as for the digital banks, and it's good for the end consumer.

I think it really drives the concept of open banking and be more customised and be more mindful about the solutions and products they provide for the end clients.

BP: What is your foothold in the industry among all your competitors? Data quality and data lineage has been a top agenda for regulators. How can Wolters Kluwer’s OneSumX Finance, Risk and Regulatory Reporting help in keeping data management costs down?

RF: Wolters Kluwer has a rich history. We are a 160-year old company, and we have transformed ourselves. So, we have expert solutions, catering across industries. For financial services, we have about 15,000 financial institutions globally, providing domain expertise and software. So it's really about our main purpose.

Our core mission is really to provide the Content, the Software, and the Services to help our clients to succeed with their obligations to regulators as well as to their own board of directors I think it's important in the current state as regulatory change is not just occurring on a monthly basis or on a quarterly basis, it's really a daily reporting requirement.

And not just for the regulators, as I said, but also for their board of directors to remain agile and to remain resilient to the market disruptions we can see. Wolters Kluwer takes pride about delivering 100% proven record services on time, on budget.

I think it's very important to thank our clients and to be seen as a trusted partner. Not just to deliver a report but to deliver domain expertise. We have over 1,000 technology experts, we have over 600 content experts, the monitoring of regulatory change to help the banks to interpret the change and that impact for their jurisdictions to operate in, that makes us very unique.

That's regulatory update service is almost like an insurance that if there's change coming, we are updating our software on the back end. The banks can remain focused on their clients, and they can use the data management capabilities with a good lineage and governance to really drive smart decisions across regulatory reporting, financial reporting, and risk reporting.

With the introduction of Basel, and with the Basel III or IV finalization, BIS 239, being published in 2013, you will see more and more requirements about data accuracy, comprehensiveness, and that's really where we come in as the trusted provider.

We are quite privileged and humbled to be the leading provider for regulatory reporting in Asia Pacific, whether that's for regulatory reporting. A lot of banks are also embarking with on an integrated solution for taking advantage from that data set and its lineage to try for additional reports for finance and for risk management.

We do have over 200 banks today in Asia Pacific who consider us a trusted technology partner. At the side of that accolade from the industry and from the trusted relationships we are pleased with is also a lot of accolade coming from the independent research institutes and analysts.

So last year, over 20 industry awards, and this year so far, I think more than 10, really speaks for itself in terms of how committed we are to provide the leading software domain expertise and technology for the market.