It's fair to say that banks aren't impressed by the greater regulation that has befallen the financial services industry since the global financial crisis but, for the IT outsourcing and consultancy industry, FATCA, Basel III and Dodd-Frank are a gift.
The dilemma is particularly acute in Asia as banks, especially local and regional institutions, have struggled to meet some of the deadlines and face particular language issues when it comes to adapting their IT systems and processes.
This perhaps helps to explain why Capco, a global business and technology consultancy with a focus on financial services, opened an office in Hong Kong last month to serve as its new Asia-Pacific hub -- in addition to its existing operations in India.
“We got our second client in the region because of FATCA; a multi-million dollar contract with a Thai bank,” Peter Schurau, Capco’s chief executive for Europe and Asia-Pacific, told FinanceAsia.
Capco is relatively new to the game, having been set up in 1998 with offices in Belgium, London, Frankfurt and New York. But it counts many of the world's biggest banks as clients, as well as regional and local financial services institutions.
The group, which was bought by US financial technology firm Fidelity Information Services in 2010, specialises in the regulatory issues now facing financial groups and in post-merger integrations. In essence, Capco consults on business and technology change in financial services.
“Why does Asia need another consultancy?” asked Schurau rhetorically.
In large part the answer lies with what is happening to the financial services industry, which is creating a lot of opportunities in the region. As banks comply with the shifting regulatory landscape, so their IT systems must change as more stringent demands are placed on the signing up of customers (on-boarding) and the storage and usage of data.
Washington issues FATCA
The US Foreign Account Tax Compliance Act -- or FATCA -- is proving especially troublesome in this regard, as banks and other financial groups will be required from July 1 to ask prospective customers whether they are US citizens. This may sound simple enough but it creates huge implications for the physical appearance of online customer forms; not to mention the process by which customer data is circulated around financial groups.
The issue is compounded by poor or slow communications from Western regulators, according to some financial institutions in the region.
“The IT departments within banks are saying that the information they are getting from regulators isn’t precise enough to build systems, which is where we can help,” Neil Ramchandran, CEO of Capco in India and Hong Kong, told FinanceAsia.
With regulations similar to FATCA being touted by other countries and regions, including a scheme pushed by the G20 group of industrialised and developing countries which takes effect next year, it is clear financial groups have their work cut out -– and that means more business for IT consultants.
“If FATCA was a one-off you could get away with just bolting it on. But the fact there is all this other stuff going on [means] we are seeing a lot of institutions saying they are going to revisit how they on-board customers,” Tim Clough, PwC’s risk and control solutions assurance partner, told FinanceAsia.
Regulatory compliance, client data and infrastructure
Research and advisory firm Gartner estimates that the IT outsourcing industry could be worth US$288 billion in 2013 and enjoy a compound annual growth rate of 5.4% from 2012 to 2017. Furthermore, it expects bank IT spending in Asia-Pacific to reach $70 billion in 2015.
According to Schurau, there are three clear issues facing financial groups where the IT consultancy industry is vital: regulatory compliance, client data and infrastructure.
FATCA, for example, is simply the latest manifestation of an ongoing global battle against tax evasion, and financial privacy has become regarded as something of a red flag for fraud. With that in mind, customer data is a highly sensitive issue.
“The Swiss [for example] have been hammered. Protecting data is important but protecting relationships is very important," said Schurau. The key, he added, has been moving customer data to Asia from New York and Europe without compromising it. “This [type of business] is the most important gateway [for us] into Southeast Asia, particularly Singapore.”
Getting the right people
Therein lies the challenge. Capco is headquartered in the US and has offices across Europe. It claims to have 9 out of 10 of the top 100 global banks as clients. Nonetheless, cracking Asia is proving tough.
“It is super-difficult here to find the right people, skilled people. There is a huge war for talent,” Schurau said.
As such, Capco is set to bring 20-30 people over from the US and Europe over the next quarter, to add to a further 50-60 locals that it intends to hire, with the aim of having 100 staff in Hong Kong by the end of the year.
“In three years we will have 1,000 people,” Schurau added.
Schurau said there are three stages to Capco’s Asian plan. Stage one is to open in Hong Kong; stage two is to move into mainland China and Southeast Asia, focusing on Singapore and the Philippines; and stage three is to expand into Japan and South Korea.
Tough competition
Grandiose ambitions, perhaps. But the potential downside is also large: the IT outsourcing and consultancy industry is – of course – highly competitive.
There are the big Indian IT outsourcers such as Wipro, Tata Consultancy Services and Cognizant Technology Solutions, the Big Four global consultancy groups – Deloitte, PwC, Ernst & Young and KPMG – and also strategy houses such as McKinsey and Accenture.
Although these operate in slightly different, albeit overlapping, segments of the market, they are still big beasts. Gartner, meanwhile, last year warned that the industry was set for intense consolidation, with many traditional outsourcers “facing extinction”.
It is therefore no surprise that Capco is seeking to differentiate itself from its the stable of rivals.
“Our aim is to eliminate bureaucracy. We are small and nimble [relative to our rivals]. The Big Four [for example] are giving more functional advice, where we offer a managed service. The philosophy is not how big we can get but how specialised we are,” Ramchandran said.
In Asia, that is a timely approach, what with local banks and other financial groups struggling with compliance perhaps more than their Western peers.
“Clients and prospective clients are [being] overwhelmed, not just left behind,” Ramchandran said.
