Mutual recognition, stronger capital markets,
and extraterritoriality are at the heart of the
region’s growth prospects
The Asia Securities Industry and Financial Markets Association
(Asifma) has grown rapidly over the past 12 months. Its CEO
Mark Austen speaks with IFLR about the Association's
plans for 2014, how global regulatory initiatives will affect
Asia, and why regulators must start trusting one another.
How have Asifma's goals developed as it has grown and how
is it planning to expand?
Our goal is still the same: we're focusing on developing
Asia's capital markets to encourage economic growth in the
region. Throughout our expansion phase, that hasn't changed or
The only difference is that we've added equities and foreign
exchange to the fixed income piece, and have also emphasised
compliance, post-trade issues, and better connecting Asia with
what's happening globally as part of regulatory reform.
Originally, we've been a predominantly sell-side
organisation. We have the global and regional banks on board as
well as market infrastructure players such as law firms and
credit rating agencies. But we're in the process of launching a
buy-side division to further strengthen our organisation and
communicate with regulators both from the intermediaries' and
the investors' point of view. That should also strengthen our
message to the regulatory community across the region, as we
can then represent the views of most institutional market
What are some of Asifma's existing initiatives, and what
should we expect from the Association in the coming year?
A major initiative is the launch of our capital markets white
paper for Asia, which will set out our views on what needs to
develop in the region's capital markets to support economic
growth, particularly as Asia moves from an export-dominated
economy to one more focused on domestic consumption. That's
already happening throughout much of the region, including
China. And developed capital markets are needed to further that
doesn’t fit all in terms of regulatory
We expect that to accelerate because many western economies
are shrinking – they're certainly not growing
– and if Asia wants to continue to grow, there needs
to be more focus on domestic consumption and greater
intra-regional trade that will require deeper capital
From a global point of view, there are a number of
developments that are extremely important to Asia. We've
focused on extraterritorial regulations such as the US'
Dodd-Frank Act and European Market Infrastructure Regulations
(Emir), and how aspects of them can negatively affect the
development of Asian capital markets, as well as the liquidity
available in Asia.
We've encouraged greater cooperation among Asian regulators
and have encouraged them to speak more loudly to protect their
own sovereign interests.
In addition, we've been looking at global regulations that have
come out of the Basel Committee, Financial Stability Board
(FSB), and G20. The bulk of those regulations has been in
response to a global financial crisis that really happened in
mature economies in the west. One size doesn't fit all in terms
of regulatory reform on a global basis. A lot of the complex
products that caused the crisis and that are now being heavily
regulated in the west haven't really developed in Asia.
regulators start trusting each other, these global
systems can’t work"
Our view is: why should we put in place a Rolls Royce regime
when a Honda will do? If Asia is to follow regulation that was
effectively designed in the west, it will have a negative
effect on the development of the market. Regulations need to
match the risk involved. Underdeveloped markets do not pose the
same risks. Asian regulators need to undertake a cost benefit
analysis vis à-vis global reforms and determine
whether these standards are fit for purpose in their
Mutual recognition and substituted compliance are tied to
global standards as well as extraterritorial regulations.
Ultimately regulators need to start trusting each other more,
and accepting that the standards and practices in another
jurisdiction are equal to their own. We live in a global
economy, and we anticipate this globalisation to continue. This
process has brought great benefits to economies and individuals
including those within Asia. We should be careful to not undo
it by putting up barriers to cross-border investment or
creating additional costly regulatory burdens.
Therefore, the banking sector and financial markets must be
globally integrated. Regulators should not re-regulate matters
that are already being properly regulated by other countries.
We are encouraged that Asian regulators such as the Hong Kong
Securities & Futures Commission's Ashley Alder, and the
chair of Iosco's [International Organization of Securities
Commissions] cross-border regulation task force will focus on
this going forward.
In some ways, I must say that trusting each other is a big ask.
Regulators aren't paid to take on risk, and in this world right
now, they're especially risk averse as the political fallout
from getting it wrong can be immense. But in reality, unless
they start trusting each other, these global systems can't
work. There is no global government – each of these
regulations must be implemented in each jurisdiction –
and they must accept working side by side for the mutual
benefit of their financial markets and economies.
"Why should we
put in place a Rolls Royce regime when a Honda will
With the addition of the buy-side, issues such as mutual
recognition and passporting will become an even bigger focus
for Asifma. We want to see investors having the opportunity to
invest in many different products around the region, free from
unnecessary barriers and regulations that hinder their ability
to do so. This will be highlighted in our capital markets white
paper. Increasingly we live in a global village in which retail
and institutional investors will continue to demand access to
foreign markets to improve their returns. We need to encourage
these flows and match them with real long-term investment needs
in such things as infrastructure and social safety nets in the
various Asian economies.
National markets on their own are generally not able to
develop the liquidity and depth of a regional market.
Therefore, Asia will need to develop more regionalised
platforms going forward, otherwise it is always going to be at
a disadvantage to the deeper, more liquid markets of the
western economies. As Asia bridges the GDP gap with the mature
economies, the problems and costs related to fragmented markets
will play an even greater role in slowing down growth. Greater
cooperation is obviously a challenge and comes with risks, but
standing still is possibly an even greater risk. We expect the
competition to attract capital to be greater than ever in the
future. Those markets that are open, liquid, transparent and
stable for all investors are the ones likely to attract the
long-term investment that all economies crave.
Which upcoming regulatory developments are the biggest
threats to the global financial markets?
From a global point of view, one of the big issues is the
leverage ratio coming out of the Financial Stability Board and
Basel. We're concerned about how it is calibrated at the
moment: it invites negative consequences by encouraging banks
to take more risk. For example, it will drive up the cost of
funding for governments as banks will be unable to net
securities transactions in the repo market. Banks will have an
incentive to hold higher risk assets to enable them to earn an
adequate return on higher levels of required capital.
We don't disagree with the leverage ratio in principle and
there is a need for a simple, non-risk based leverage ratio to
serve as a 'backstop' to risk-based capital requirements. But
we believe the current proposal, unless modified, could have
adverse consequences and would work at cross purposes with
other important post-crisis financial reforms.
"We’re in the process of launching a
We're also not sure if we're out of the woods in the
eurozone yet, although the situation has improved and funding
for governments is nowhere near as high as it was a year or so
ago. I'm not saying that there's going to be another crisis,
but it's something that we're constantly monitoring. If it were
to blow up, it would have a huge impact on Asia as Europe is an
enormous export market for most Asian countries.
Another development that's been well-documented is the US's
tapering of quantitative easing. We saw what happened earlier
this year to Asian markets when tapering was a threat. That's
something that's still on the cards and will likely happen.
We'll be watching its fallout on the Asian markets, and are
hopeful that it will encourage Asian economies to reform their
capital markets and undertake structural reforms. Quite
honestly, we have not seen a rebalancing in Asia among
investors away from more volatile high yield assets to more
stable low yield high-grade assets. The scare earlier this year
has not had the desired impact. So stay tuned when tapering
begins to happen.
Asifma is supporting IFLR's Asia Capital Markets Forum,
which will be held on November 27 at Hong Kong's Conrad Hotel.
Asifma will also be holding its annual conference from November
19-20 in Hong Kong.