Adapting to fast changing regulations remains the biggest risk facing businesses in key Asian financial centers, according to a new survey of 260 business executives and legal managers based in Hong Kong, Singapore and Tokyo by global law firm Baker McKenzie.
Respondents from Singapore (65.5%) and Hong Kong (62.5%) believe that they are well prepared for potential regulatory investigations by having good, albeit untested, policies in place, the law firm said.
By contrast, half of the respondents in Tokyo (53.8%) said they are still unsure where all key risks lie or how to prepare, the firm added.
The lack of dawn raid training among mature economies
As regulators around the world are stepping up their efforts to clamp down on corporate abuses and non-compliant behavior, dawn raids are becoming a more frequent tool for enforcement agencies, Baker McKenzie pointed out.
However, a significant portion of the surveyed companies in Tokyo (62.2%) and Singapore (43.8%) do not have dawn raid guidelines in place, the company said.
This contrasts with Hong Kong, where 61% of the respondents said they have developed internal guidelines and processes in preparation for any unannounced inspections, it added.
Yet most of the surveyed companies in all three economies (Tokyo, 82%; Singapore, 61%; Hong Kong, 48%) haven’t conducted any dawn raid training to help prepare their employees for such a stressful situation.
A disorganized response to a dawn raid could have significant impact on businesses, said Mini vandePol, the Asia Pacific chair of Baker McKenzie's Global Compliance and Investigations Group.
"Employees could be exposed to the risks of unknowingly obstructing the raid or providing the authorities with access to legally privileged information she said. “There’s also the reputational risk which can be very damaging to the business."
It is imperative for businesses to ensure that they are prepared for a dawn raid, vandePol pointed out.
"That means not only by having guidelines and protocols in place that would safeguard the company's rights and interests; but more importantly, providing necessary training to their staff and even carrying out mock dawn raids so that all the relevant individuals are attuned to the appropriate responses and actions when the enforcement agencies knock on your office door unexpectedly,” she advised.
Other issues that keep C-suites up at night
Besides regulatory compliance, "cyber security", "rising cost pressure" and "increasing protectionism and geopolitical risk" are challenges that are keeping C-suites and in-house counsel up at night, the law firm observed.
Business executives (more than 40% in each of the three economies in our survey) expect that their companies will further invest in developing internal policies and procedures over the next 12 months so that they can be better prepared to manage any risks and crises that may arise, it said.
Transactional risk mitigation
With cross-border M&A deals on the rise, mitigating transactional risks through due diligence has become a major concern for dealmakers, the firm noted.
Respondents also indicate that "how to structure the due diligence process under an accelerated deal timetable" and "how to manage the risks arising from inaccurate/misleading/false information found during the due diligence process" continue to be two of their top challenges, Baker MacKenzie said, adding that the issue of "when to invoke a warranty & indemnity (W&I) insurance policy" also requires careful consideration.
"Each cross-border transaction comes with its own unique set of challenges — be it regulatory compliance, different tax and accounting systems, cultural differences and business practices,” said Yoshiaki Muto, Asia Pacific chair of Baker McKenzie's Dispute Resolution Practice. “Therefore, there’s no one-size-fits-all approach to pre-closing risk mitigation and due diligence process and post-closing crisis handling.”