Navigating the Complexities of Payments Regulation and Compliance in APAC

Navigating the Complexities of Payments Regulation and Compliance in APAC

by June 11, 2024

One of the most visible drivers in the Asia-Pacific (APAC) economy in 2023 has been the rapid adoption of digital technology combined with the innovations that arose during the COVID-19 pandemic.

In the area of e-commerce and payments, consumer habits have shifted, and businesses and governments have embraced these new digital channels of creating, exchanging and transmitting value.

In the region, non-bank financial institutions and fintechs have proliferated in recent years, giving banks a run for their money.

These fintechs provide consumers and businesses with financial services such as mobile banking, micro-lending, crowdfunding, investment management, remittances, and more.

However, a key challenge faced in the APAC region arises from the fact that there is no common regulatory framework across the region for financial services and payments to support cross-border trade, commerce, and payments.

Key challenge for fintechs and non-banks: no unified financial services supervisory regime

Source: Freepik

Fintechs and non-bank financial institutions with global ambitions encounter different supervisory regimes and the possibility of coming under multiple licensing and regulatory requirements across the jurisdictions they operate in.

Unlike the EU, there are no passporting (license-sharing) arrangements in APAC. While the supervisory frameworks for payment services across the region often share common principles, specific laws and regulatory mechanisms may differ significantly between countries/territories.

Among the ten-member bloc of Southeast Asian countries (ASEAN), there is no adopted uniform set of regulations governing financial services and payments. Neither is there an ASEAN regulator.

In fact, some countries have more financial regulators than others. In Indonesia, two regulators have responsibility for the authorisation and supervision of banks, insurers, and other financial institutions: Bank Indonesia (BI) and the Financial Services Authority, Otoritas Jasa Keuangan (OJK).

In Singapore, the MAS (or Monetary Authority of Singapore) is the integrated supervisor overseeing all fintechs and financial institutions operating within its jurisdiction.

Regulators take their responsibilities seriously to monitor financial markets and institutions to detect and prevent fraudulent or illegal activity; to enforce laws and regulations related to financial services and products, and to conduct investigations and bring legal actions against violators.

As digitisation within the financial services sector evolves and increasingly becomes the norm, new concepts and terminologies emerge, and comprehensive regulations can take time to enact.

Licensing requirements can differ across the countries within the APAC region, which includes markets of varied sizes and at various stages in technological and economic development.

Regulatory and compliance requirements are addressed in diverse ways across countries, and legal grey areas are common.

These added complexities can make compliance across jurisdictions even more challenging.

Navigating the Costly Path of Compliance

Source: Freepik

The compliance burden is compounded when one includes the different laws and regulations, including data privacy, data localisation and data storage, that can differ from country to country.

Firms, especially startups, can find themselves having to navigate the uncertain waters of cross-border business and payments as well as manage regulatory and compliance risks appropriately, which can be an expensive undertaking indeed.

A 2021 survey by the Financial Action Task force (FATF) asked banks, payment service providers, fintechs, and electronic money issuers about the impact on payments of anti-money laundering (AML) divergence in different jurisdictions.

Source: FATF

66% of respondents said that compliance cost was the ‘most significant’ or ‘significant’ challenge.

Meanwhile, 55% of respondents observed that varying AML rules had a ‘most significant’ or ‘significant’ impact because of compliance friction that reduced the speed of payments and settlements.

Meeting AML/CFT requirements across different jurisdictions can adversely affect businesses.

Even the rise of regulatory technology (regtech) solutions has not guaranteed efficacy and low cost.

It is not just technology that needs updating; people also need retraining and processes have to be embedded—all these measures take time to implement and come at a high cost.

When “know your customer” processes are not done well, delays in opening accounts are the norm, and customers may even be offboarded at a high rate.

Such inefficiencies contribute to increased costs and reduced transaction speed– also a high operational cost.

The reality is that cross-border transactions are rife with such inefficiencies.

The way forward

When looking to expand into a new jurisdiction, it is incumbent upon businesses to be proactive and enquire into any unique regulatory requirements.

Operating while being non-compliant is the equivalent of piloting an aeroplane in a fog – failures can come at an excessive cost of lost assets, financial penalties, and reputational damage.

Licensed fintechs and businesses can utilise strategic partnerships with established solution providers like Currencycloud, a provider of B2B embedded cross-border solutions, to streamline operations and help alleviate the challenges of managing diverse compliance obligations across the region.

Such providers have existing networks set up with regulatory and compliance frameworks they use to navigate each market within the region.

Currencycloud can help businesses track and manage cross-border payments or collections in real time, helping avoid unforeseen hazards and providing efficient service and peace of mind.

Find out how Currencycloud can help you build your payments infrastructure by speaking to one of their experts today.