China is riskiest market for compliance, regulation – study
29 Sep 2017

China is viewed by asset management and private equity firms as the riskiest place in the world to do business, ahead of the UK and US, with the regulatory factor playing a key role, according to global law firm Ropes & Gray.

In a new study conducted by the firm, more than a third of the two groups surveyed, 38% of asset managers and 36% of private equity firms, viewed China as the riskiest market, while 19% of asset management firms and 14% of private equity houses cited the UK as the market that poses the ‘most significant risk’ to their businesses.

The US was identified by both groups (11% of asset managers and 14% of private equity firms) as the world’s third riskiest market.

Amanda Raad, international risk partner at Ropes & Gray, which conducted the survey, highlighted the ‘dramatic change’ in the regulatory and enforcement scene in both China and UK.

“China is anti-corruption driven, especially in recent years where the government has launched a crackdown on crime,” she said, referring to a media report which stated that between 2012 and 2016 China punished nearly 1.2 million people for corruption, repatriated 2,600 fugitives, and recovered $1.2 billion worth of assets.

“For the US and UK, when it comes to extraterritorial reach, there’s no doubt that these have the strongest teeth, and the US has had a lockdown for some time. However, UK regulation, such as its Proceeds of Crime Act, is tougher and has more people going through the hoops than the US’ regulation,” she added.

The report also revealed industry’s concerns regarding compliance matters. The majority of multi-nationals do not feel their current risk management policies and practices meet present needs, and even more worry their current practices will not be enough in the future.

In addition, most multi-national companies (57%) listed ‘regulation and compliance’ as the top type of risk they’re least prepared to address, with 78% saying they intend to devote the most risk management resources to deal with regulation and compliance risks in the future.

“There are so many resources [already] being put into it. It’s really about getting the structure [right], or a little bit about designing protocols,” said Raad.

As the regulatory focus has slowly evolved over time, Raad said, “many companies have tried to address each risk on an individual basis, rather than taking a co-ordinated, centralised approach. This is leaving many companies now struggling to effectively prioritise and efficiently tackle the breadth of risks they face.”

The research was based on a global survey of 300 senior-level executives working for multi-national businesses in regions such as North America, EMEA and Asia Pacific.

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