Asia regulators call for new harmonisation debate

Author: Brian Yap | Published: 10 Dec 2015
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Financial regulators in Asia have called for the need to establish the common regulatory infrastructure for the region's capital markets, rather than simply importing Western regulatory regimes.

Regional leaders have stepped up their efforts in recent years to expedite financial integration by broadening mutual access of domestic corporates to each of their respective capital markets.   

But, speaking at Asia Securities Industry and Financial Markets Association's (Asifma) Annual Capital Market Conference last Wednesday, financial regulators pointed to unnecessary debate hindering efforts to maximise the interconnectivity of market access.

“We mustn’t just get into this existential battle between black versus white or regulation versus less regulation, and should (focus) on catalysing that benefit and making it an access mechanism for across different borders (in Asia),” said James Shipton, executive director at Securities and Futures Commission (SFC) in Hong Kong.

Shipton also emphasised the absence of a pan-Asia financial regulatory regime like the Alternative Investment Fund Managers Directive implemented in Europe for regulating the flow of private funds in Europe.

“The AIFMD is a good example of how you can have sound regulation facilitating different markets by enhancing market access to third countries provided that they get to a regulatory standard,” said Shipton

KEY TAKEWAYS 

  • Financial regulators in Asia have called for the need to establish the common regulatory infrastructure used to regulate all regional capital markets, rather than simply importing Western regulatory regimes;
  • Regional leaders have stepped up their efforts in recent years to expedite financial integration by broadening mutual access of domestic corporates to each of their respective capital markets;   
  • But speaking at Asifma’s Annual Capital Market Conference last Wednesday, financial regulators pointed to unnecessary debate hindering efforts to maximise the interconnectivity of market access.

While many ASEAN nation states have adopted Anglo-American regulatory regimes, such as the Basel III capital requirements, such grafting of extra-territorial rules has stymied the development of a regional framework.

“The challenge is to find a third way, namely taking what I call the political capitalists (governments) of regulatory reform to try and build the best possible regulatory infrastructure in each of our jurisdictions and our markets,” said Shipton.

Financial regulators from ASEAN have recently turned to the Hong Kong-Shanghai Stock Connect for inspiration, with some calling for its adoption in strengthening financial integration in Southeast Asia.

James Shipton
James Shipton, SFC
“The Hong Kong-Shanghai Stock Connect is a classic example where mutually-agreed rules prevail through well-regulated infrastructure, said Yao Loong Ng, executive director with the Monetary Authority of Singapore, adding that “regulators on both sides monitoring the interaction feel comfortable because proper surveillance has been done.”


Currently, under the ASEAN Trading Link jointly established by Singapore, Malaysia and Thailand in 2012, brokers from the three economies assist their clients in trading on each of three exchanges through an electronic “order routing” platform.  

But such cross-border stock trading is confined to only the three said economies, which are among the richest in the region, with the system being hampered by the absence of post-trade clearing and settlement mechanisms.  

Shipton argued that, in order for such a stock connect to ever take place in Southeast Asia, optionality given to investors wishing to access a stock market is needed and supported by sufficient understanding among sovereigns involved.  
“Behind any of these initiatives and market infrastructure and market-access developments, there is a tremendous amount of regulatory backbone,” said Shipton, adding that “without that backbone, to use the bridge analogy, you don’t have a pillar for that bridge or that bridge is built on sand and will collapse.” 

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