Increasing enforcement of local regulation across Asia-Pacific, particularly in mainland China, will put extra strain on companies and their boards in 2015. Companies will need to step-up internal compliance measures to cope with ever growing local regulations, combined with increasing global fraud and corruption enforcement.
Asia-Pacific regulators will conduct more inspections and audits within the financial services industry in 2015, as part of a shift in focus to deal with financial crime as a holistic issue.
The prevalence of cybercrime will increase and will become an issue that sits high on the agendas’ of company boards, as it is recognized as a real and damaging business risk.
Chris Fordham, Asia-Pacific managing partner of EY fraud investigation and dispute services, commented, “In 2014, we saw multinational and local companies in Asia-Pacific continually challenged by incidences of fraud, bribery and corruption. In 2015, we expect that companies across Asia-Pacific will also be challenged by increasing local enforcement of regulations. Companies, more than ever before, will need robust anti-fraud and anti-bribery measures that meet not only global but local regulations – failure to do this will be detrimental to business operations.”
The major trends expected in 2015 include:
1. Increased enforcement of local regulations in Asia-Pacific. The US Foreign Corrupt Practices Act (FCPA) remains the most robustly enforced anti-bribery legislation globally. However, we expect that in 2015 there will be increasing enforcement of local regulations targeting fraud, bribery and corruption in Asia-Pacific. This will particularly be the case in mainland China, as we continue to see authorities there investigate numerous industry sectors. Continuing enforcement actions in the country will have a follow-on effect across the region and businesses operating in China will face greater scrutiny of compliance processes and internal controls.
2. Regulators will deal with financial crime via an integrated approach, looking at anti-money laundering, anti-bribery and anti-fraud together. Previously financial crime has been dealt with by regulators looking at anti-money laundering, anti-bribery and anti-fraud as individual streams. In 2015, regulators will conduct more inspections and audits within the financial services industry and financial crime will be addressed as one holistic issue. Financial institutions will face pressure to implement robust controls and, more importantly, demonstrate that they have teams in place that understand the complex compliance issues and know how to utilize sophisticated monitoring systems.
3. Cybercrime will become a major business threat. EY’s 2014 global fraud survey found that nearly half of the respondents believe cybercrime represents a very or fairly low risk to their business. In 2015, we expect that cybercrime will be seen as a major business threat for companies and regulators with the realization that cybercrime is not just about hacking but also about fraud, the potential loss of intellectual property and sensitive commercial assets. The reputational damage and ensuing business cost associated with cybercrime means that in 2015 the threat of cybercrime will be directly on the radar of general counsel and senior management – it will no longer solely be an issue for the chief information security officer. Additionally, regulators will require companies to explain the defenses and controls they have in place as incidents of cybercrime become more common in Asia-Pacific.
4. Big Data equals big opportunities for medium-size businesses. Big data and, specifically, forensic data analytics (FDA) used to be solely in the domain of larger organizations and multinational companies. In 2015, medium-sized companies will better utilize FDA to proactively address fraud, bribery and corruption challenges as technology becomes more accessible. Forensic data analytics will become a core business capability, with boards and compliance officers requiring the visualization of big data to focus on the hot risk areas within the business.
5. Greater transparency and understanding of third-party relationships. Third-party relationships provide many business benefits particularly for those organizations operating in local markets. However, corruption cases over the last few years have shown that there are also numerous business and reputational risks associated with third-party relationships. As local enforcement of anti-fraud and anti-bribery regulations increases, head offices will demand greater transparency and in-depth understanding of third-party relationships at a local level. In 2015, we expect organizations to increasingly conduct comprehensive local checks of third-party relationships in order to reduce compliance risks.
