Midyear perspectives on compliance in the Asia Pacific

Viewpoints
July 31, 2023
2 minutes

Management of compliance matters and internal investigations across the Asia Pacific have contributed to a busy first half of 2023. We do not anticipate this to slow down in the second half of the year. As we reach the midway point, below are some observations.

Cloud of uncertainty

Like elsewhere, the cloud of uncertainty is still hanging over the region as the global economic recovery remains sluggish, the Ukraine war persists, and the fractious geopolitical environment continues. As you would expect, the US-China political environment continues to cast a heavy shadow including across compliance and investigations.

The tide has gone out 

As Warren Buffett said: “Only when the tide goes out do you learn who has been swimming naked.” Travel limitations worldwide imposed during COVID-19, as well as social distancing and other movement restrictions at the local level, hampered compliance processes and training, internal controls and internal audit functions. As the world has opened up and site visits have resumed, in combination with challenging economic conditions, the toll on compliance of these restrictions has become apparent.

A particular issue we have seen is the emergence of stronger “cliques” and “fiefdoms” within business units, with a consequential impact on compliance and investigations.

Boots on the ground in Southeast Asia 

As foreign companies continue to diversify their global supply chains, the allure of Southeast Asia has increased. However, several countries have their challenges relating to bribery, corruption and export control issues.

Emerging market countries within the region often do not have locally-based compliance teams. As this region develops and foreign investment continues to increase, we may start to see more compliance teams located in these countries. Despite the enhancements of technology and communications, from a compliance perspective there really is no substitute for having boots on the ground. Being available to listen to concerns first hand is important if local employees are hesitant to putting issues in writing. As elsewhere, the challenge may be finding (and retaining) appropriately qualified personnel.

Hong Kong is still a key Asian business hub

Reports of the death of Hong Kong are greatly exaggerated. Following Hong Kong’s final lifting of all COVID-19 measures by the start of Q2 2023, there has been a surge of visitors to Hong Kong for business development. The city remains a key hub for Asia, particularly for private equity, asset management and adjacent sectors. While there are challenges as it shakes off the effects of the pandemic, there is a sense of optimism for the medium- and long-term future of Hong Kong.