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By Rachel Armstrong
SINGAPORE, May 7 (Reuters) - Banks have a new buzzword todescribe their strategy in Asia: diplomacy.
Stung by regulatory probes into allegations ranging from thehiring of the offspring of senior state officials in China torate manipulation in Singapore, and grappling with reams of newrules brought in after the global financial crisis, firms aregoing on a charm offensive with the region's regulators andgovernments.
Executives brought in to head banks' businesses in majorAsian financial centres are now expected - by management andregulators themselves - to devote more time to building theirrelationships with financial watchdogs.
"Regulators have become major stakeholders - as important asbig corporate clients - so firms are recognising how key theyare for business," said Judy Vas, regulatory leader for Ernst &Young's financial services business in Asia.
Barclays recently promoted its Asia head of tax, LiLi Kuan, to become country head for Singapore, stressing one ofher primary duties was to manage "regulatory relationships" inthe city-state.
Her appointment was relatively unusual, given country headroles are more often filled by "rainmakers" - corporate orinvestment bankers there to close deals and look after majorclients. But priorities are starting to shift.
JPMorgan brought in former DBS Vickers boss EdmundLee as its Singapore head last year, replacing Philip Lee, whohad been more focused on investment banking clients, noting oneof his key duties would be to manage relationships with thegovernment and regulators.
Thomson Reuters Cost of Compliance survey found complianceteams at finance firms in Asia saw the biggest rise in 2013,compared with other regions, in the amount of time they spendpreparing reports for their management boards. More than a thirdof teams in Asia spent at least one day a week on this work,compared with around 20 percent in 2012.
Banks are also building up their regulatory or governmentaffairs' offices, an area they've previously put less focus onin Asia.
"Although many firms have established regulatory policy andstrategy functions in the U.S. and Europe, most firms have avery nascent function or none at all in the Asia Pacificregion," said Chris Cook, a head-hunter for Executive Access inHong Kong.
TALENT POOL
That presents a tall order for head-hunters such as Cook,who says his firm is currently trying to fill several suchpositions, since there's not an established pool of talent inthe region to tap from.
JPMorgan in January turned to former Asia IMF head AnoopSingh to become its Asia head of regulatory affairs, whileGoldman Sachs brought in former U.S. ambassador toSingapore David Adelman as head of government relations.
UBS in January 2012 hired former Wall Street Journaljournalist Peter Stein as its head of group governmental affairsfor Asia Pacific.
"You will see front office staff made redundant in order toramp up these areas," said Marc Baloch, the Asia Pacific head ofHarvey Nash Executive Search.
He notes how HSBC, which increased its number ofcompliance staff by 54 percent between 2012 and 2013, is lookingto hire people into this function with a "diplomatic" skill set.
The challenge for these roles in Asia is the sheer number ofregulators that banks in the fragmented and diverse region musthandle. JPMorgan interacts almost daily with more than 30 Asianbanking regulators, a spokeswoman for the firm in Hong Kongsaid.
The bank, in common with its global peers in Asia, reportsto more than 100 regulators in the region across the full rangeof its businesses including banking, insurance and commodities.
However the payback for banks from investing in this area isbecoming clearer.
Many Asian regulators took a back seat when the UnitedStates and European governments drew up a slew of newregulations on bank capital and derivatives trading in the wakeof the 2008-09 financial crisis.
That left the region facing a set of rules that regulatorsand firms felt did not work for them, such as regulations onderivatives trading that were tailored towards more liquidmarkets like the United States rather than Asian ones.
That has prompted regulators from financial centres such asSingapore, Hong Kong and Australia to become more vocal ininternational forums such as the International Organisation ofSecurities Commissions and the Financial Stability Board.
"The Asian voices are asking for more workable solutionswhile following the global principles," said Ernst & Young'sVas. "So it makes it a more worthwhile investment for the Asianbusiness heads to have a dialogue with the regulators locally sothey can help drive the shaping of solutions globally." (Reporting by Rachel Armstrong; Additional reporting byLawrence White in HONG KONG; Editing by Alex Richardson)
