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ASEAN Economic Community (AEC) implications and opportunities

Eight opportunity areas for UK financial and related professional services firms (FRPS).

Overview

The ASEAN region accounts for the world’s third-largest consumer base and a 3.2 percent share of global gross domestic product. A proportion that is set to rise in the coming years, driven by rising cross-border trade, strong build-out of new infrastructure and rapid digitisation. Further, the creation of the ASEAN Economic Community (AEC) will provide an added impetus for growth.

Against this backdrop, ASEAN is vital to the future success of the UK-based financial and related professional services (FRPS) industry. In Accenture’s view, there are clear opportunity areas where the UK FRPS industry can leverage its existing advantages most effectively.

It is important to assess and prioritise these opportunities in light of the specific context, competitive environment and potential barriers that apply in each case.

Background

The penetration of financial services is currently very low in emerging ASEAN markets. Combined with the region’s inherent dynamism, strong growth prospects and large consumer base, it indicates significant growth potential for financial and related professional services (FRPS) firms.

Moreover, the scheduled creation of a common market within the ASEAN Economic Community (AEC) from the end of 2015, advancing to a semi-integrated financial market by 2020, will further improve the growth potential, particularly for UK-based firms—given the UK’s strong track record on services exports, and close commercial and economic ties to several key ASEAN hubs.

This Accenture paper, presented to TheCityUK’s ASEAN Market Advisory Group (MAG), explores eight key areas of opportunity arising from current trends and developments in ASEAN including the creation of the AEC, which UK-based FRPS firms should prioritise.

However, to realise the full potential of the ASEAN market, UK-based FRPS firms need to overcome certain challenges, particularly around integration of markets and cross-border alignment of regulation. At the macro level, the timeline for the AEC’s semi-integrated financial market remains aspirational rather than definitive, with different countries progressing at different rates.

Analysis

Opportunities and challenges for UK-based FRPS firms in ASEAN:

In banking: While the freer flow of products and services will open opportunities in retail and wholesale banking, differing national laws will impact cross-border payment integration and bank regionalisation.

In capital markets: Ongoing digitisation and improvements in connectivity will enhance opportunities for mass-market wealth and asset management services. However, existing infrastructure capabilities in some AEC member countries need to be enhanced to accommodate higher-speed connections.

In insurance: Rising volumes of cross-border trade will boost demand for lines such as marine and trade credit insurance, while ASEAN manufacturers’ closer integration into global supply chains will benefit business interruption insurance. However, regulators will need to harmonise regulations for cross-border consumer protection, resolution in cases of crisis, and a framework to address violations.

Recommendations

Our analysis suggest that the UK FRPS industry could leverage its existing advantages most effectively in eight key areas:


  • Infrastructure public/PPPs
    ASEAN’s need for infrastructure investment will require deep understanding and skills in PPP structures.

  • Capital markets growth, integration and development
    Opportunities include building trading platforms for localised non-traditional financial instruments and setting up real-time wealth management platforms.

  • Internet finance/digital services
    ASEAN’s rapid growth in digital services needs to be guided by regulatory frameworks around consumer protection, data privacy, fraud and cyber security.

  • Risk analytics/credit bureaus for financial inclusion
    ASEAN would benefit from the creation of credit bureaus and advanced risk analytics.

  • Disaster recovery/catastrophe/agriculture insurance and reinsurance
    As ASEAN becomes an important link in global supply chains, demand for disaster recovery insurance will increase.

  • Islamic finance
    Opportunities in areas such as Islamic banking, Islamic/Sukuk bonds and Islamic/Shariah insurance.

  • Professional services
    Growth in trade and economic activity will spur demand for legal representation.

  • Framing trade policy and forging relationships
    Policy agendas will play a major role in the development of the AEC, and political and diplomatic relationships will also make a contribution.