2018 was a mixed year for the Asian banking and finance sector. On the one hand, there was a decrease in lending, particularly in leveraged facilities where deal flow weakened. On the other hand, the market saw an increase of foreign investment in Chinese financial institutions, a development that was encouraged and permitted under new domestic rules.
An interesting change in the sector during 2018 which is expected to continue into 2019 and beyond is the increased utilisation of technologies, principally in the fast-growing areas of blockchain, IA and cloud technology. China has recently introduced a series of cybersecurity and data protection regimes which can and will affect the operation of the banking and finance sector.
Following increased investment activities which were backed by domestic liquidity into the One Belt One Road regions, Chinese financial institutions are not only investing into traditional industries such as infrastructure and transportation, but also now in the technology and insurance sectors. 2019 is likely to see more sophisticated deals in the market with major Chinese companies increasingly employing these vehicles when structuring offshore investments.
Offshore jurisdictions are quick to adopt and/or refine legislation as they strive to be major technology hubs. In particular, the offshore market is seeing more structures being utilised for technology projects, an increase in the use of offshore vehicles to launch security or other asset-backed tokens and increased amounts of advisory work for regulatory compliance, e.g. reporting requirements and disclosure, data protection, tax filing and transparency and economic substance requirements and filing. Offshore structures in projects for One Belt One Road investments will continue to be prominent throughout the year, along with more structured offshore products, repackaging and securitisation.
More generally across Asia, there is an increased focus on regulatory compliance and transparency as these standards continue to be adopted globally. As in previous years, the One Belt One Road countries will continue to benefit from Chinese investment, although the number and size of the projects will likely be affected by the performance of the Chinese economy in 2019. It is currently unclear as to how the outcome of current geopolitical uncertainties such as the trade war may affect the Chinese economy and the Asian banking and finance sector overall in 2019.
The year ahead is likely to bring further decentralisation of data and with it an increasing deployment of FinTech in both existing and new sectors. There will also be an increased focus on regulatory compliance, global convergence on regulatory requirements relating to data protection and also disclosure. The performance of the Chinese economy will have an effect on the region as a whole, which will create new challenges and opportunities along with it. Offshore jurisdictions such as Bermuda, the British Virgin Islands and the Cayman Islands have continued to implement various global standards and regulations promulgated by the UK, US and the EU which puts these jurisdictions in a strong position for the year ahead. These include but are not limited to clarity around how businesses need to demonstrate adequate economic substance and reporting standards such as OECD and BEPs.
About the author
Fiona Chan is a partner in the corporate department of Appleby’s Hong Kong office, advising on a full spectrum of banking and finance, non-contentious insurance, private client and trust matters relating to the laws of Bermuda, British Virgin Islands and Cayman Islands.