ASIFMA - Asia Regulatory Review | 21 - 27 January 2014

21 - 27 JANUARY 2014 | Issue 188 Spotlight Kung Hei Fat Choi - ASIFMA wishes you all a healthy, happy & prosperous year of the Horse! The Asia Regulatory Review will take a short break and return on 11 February. China reveals 2014 financial reform priorities China's four major financial authorities have announced their priorities for 2014. The People's Bank of China (PBOC), the central bank, will continue to expand the cross-border use of the Chinese currency, the Renminbi, this year. At the same time, it will stick to prudent monetary policy and maintain steady credit growth, improve the multi-tier capital market, and engage further in international financial regulation policy-making. (Xinhua) Update CHINA Top reform group sets up 6 task forces The central authority's leading group aimed at steering China's overall reform on Wednesday held its first meeting. It set up six task forces targeting specific sectors ranging from the economy to disciplinary inspection. The group was first unveiled at the conclusion of the Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee last November and was officially set up on December 30, 2013. The six task forces will champion reforms to the economic and ecological civilization systems, democracy and the rule of law, culture, social systems, Party building systems as well as in the disciplinary inspection system. (Global Times) China: Xi puts faith in reforms as growth slows China has entered 2014 on a wave of domestic optimism thanks to a commitment from its communist leaders to overhaul its flagging economic model and enhance its status on the global stage. President Xi Jinping, after just over a year as leader of the worlds most populous nation, has ruthlessly and skilfully consolidated power and launched an ambitious economic reform agenda as part of his plan to realise the 'Chinese dream' of a 'great rejuvenation'. (FT) China Banks Get Greater Freedom on Small Loans China is moving ahead with reforms to overhaul its financial system by helping banks clean up their balance sheets and launching a trial program to give smaller lenders easier access to cash. The actions join a swift injection of liquidity by the central bank Tuesday into the banking sector as Beijing seeks to avert a cash crunch ahead of the Lunar New Year holiday when demand for funds rise. (WSJ) State Council discusses draft government work report The government work report is delivered by China's premier to its National People's Congress at the top legislature's annual session. It serves as a general guideline for the government's work as it reviews progress in the previous year, makes plans and sets targets for the current year. Li said the government will solicit social opinions, especially opinions from the grassroots, so that it can revise the report to address the people's concerns and prioritize major issues in this year. (Xinhua) China approves 12 more free trade zones China's central government has given the nod to 12 free trade zones following the one in Shanghai, amid a spurt of nationwide enthusiasm for such schemes. Tianjin municipality and Guangdong province have been green-lit to set up FTZs, a source with knowledge of the approval told Xinhua-run Economic Information Daily on Wednesday, refusing to leak the remaining 10. (China Daily) PBC & CSRC carry out joint evaluation of financial market infrastructures (Chinese Only) PBC and CSRC published 'Notice on Carrying out Evaluation of Financial Market Infrastructures'. Among those to be evaluated are China Foreign Exchange Trade Center System (CFETS), China National Clearing Center of the People's Bank of China, China Government Securities Depository Trust & Clearing Co. Ltd. (CDC), China UnionPay Co., Ltd., Interbank Market Clearing House Co., Ltd., Clearing Center for City Commercial Banks, Rural Credit Banks Funds Clearing Center, China Securities Depository & Clearing Corporation Limited (CSDCC), Zhengzhou Commodity Exchange, Shanghai Futures Exchange, Dalian Commodity Exchange and China Financial Futures Exchange and its Payment Systems (PS), Central Securities Depository (CSD), Securities Settlement System (SSS), Central Counterparty Payment (CCP) and Transaction Database (TR) (hereinafter referred to as financial market infrastructures). With Principles for financial market infrastructure: Disclosure framework and Assessment methodology released by CPSS and IOSCO as evaluation method, the evaluation will be carried out in two stages - internal and external evaluation. China races to prevent trust loan default Chinese authorities are racing to prevent the default of a soured $500m high-yield investment trust, in a closely watched test case for the countrys shadow banking sector. (FT) China Bank Regulator Said to Issue Alert on Coal Mine Loans China's banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults. The China Banking Regulatory Commission also told its local branches to closely monitor risks from trust and wealth-management products, said the people, who asked not to be identified as the matter isn't public. (Bloomberg) China's ICBC says will help repay investors in troubled shadow-banking scheme China's top lender will help bail out investors in a troubled high-yield investment scheme, local media said on Friday, in a move that risks reinforcing the view among Chinese savers they are effectively insured against poor investment decisions. (Reuters) HONG KONG SFC Regulatory Forum looks at creating more resilient financial markets The forum follows SFC-hosted meetings of the Asia-Pacific Regional Committee (APRC) of the International Organization of Securities Commissions, attended by representatives from 21 jurisdictions, to discuss a broad range of regulatory and market issues. Hong Kong, China regulators reach deal allowing funds to be sold to retail investors on either side Regulators in Hong Kong and China have agreed to terms on a deal that would allow funds in both markets to be sold to retail investors on either side, potentially allowing billions of dollars of cross-border investment in stocks and bonds. A deal allowing 'mutual recognition' of funds domiciled on both sides of the border is expected to be finalized soon, said Alexa Lam, deputy chief executive officer of Hong Kong's Securities and Futures Commission. (WSJ) Mainland eyes more HK trade liberalization A senior official with the Ministry of Commerce has said it is seeking closer trade and economy ties with the Hong Kong Special Administrative Region. Sun Tong, deputy head of the ministry's Department of Taiwan, Hong Kong and Macao Affairs, revealed on Thursday that a supplement to the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), an accord to boost trade and economic cooperation and exchanges, will be signed this year to secure more service trade liberation between the two regions. (Global Times) SINGAPORE Licence Applications Open to Invest Offshore Renminbi in Chinese Securities Markets The Monetary Authority of Singapore (MAS) announced today that eligible financial institutions can submit applications for the Renminbi Qualified Foreign Institutional Investor (RQFII) licence that will enable these institutions to offer RMB investment products and invest offshore RMB into China's securities markets. The applications are to be made to the China Securities Regulatory Commission (CSRC) via approved custodian banks. SGX to introduce circuit breakers on 24 February 2014 Singapore Exchange (SGX) will introduce circuit breakers in the securities market from 24 February as an additional market safeguard. Circuit breakers will initially apply to Straits Times Index and MSCI Singapore Index component stocks and all those securities priced $0.50 and above. This will also include stapled securities, funds, exchange traded funds, exchange traded notes and extended settlement contracts. These securities account for about 80% of trading on the Singapore stock market. INDIA RBI reform of monetary policy a hard sell to India's politicians Mr Rajan faces the challenge of persuading New Delhi's political establishment - which still has legal authority over the RBI - to agree to moves that would bring great change to the central banks policies and operating style. (FT) India Divisions Deepen as Election Clouds Economic Outlook Within the pink-walled capital of India's largest state, Om Prakash joined thousands of people last month cheering on the Bharatiya Janata Party after it won an election seen as a stepping stone to reclaim national power. (Bloomberg) Rigour and risk in Reserve Bank of India's reform push The biggest overhaul of India's monetary policy in 15 years aims to tackle the nagging inflation that pushes up credit costs and stifles investment, but the changes risk imperilling already weak economic growth in the absence of broader reforms. (Reuters) Setting a Course for India's Inflation Nirvana In a report out Tuesday, a committee of top Reserve Bank of India officials and outside economists appointed by central bank chief Mr. Rajan made some notable recommendations, especially establishing a target for consumer-price inflation. This is likely what Mr. Rajan wanted to hear. He made similar recommendations when he chaired such a committee five years ago as a private citizen. This time, he has the power to implement them. (WSJ) India Lures Back Bond, Currency Investors Global investors are jumping back into India's bond and currency markets, spurred by a shrinking trade deficit and the central bank's efforts to bolster Asia's third-biggest economy. (WSJ) JAPAN BOJ Sticks to Upbeat View, Leaves Policy Unchanged The Bank of Japan stuck to its upbeat inflation and economic outlook on Wednesday, dashing expectations for imminent fresh policy easing. The bank decided unanimously to maintain its policy of increasing the monetary base at an annual pace of 60 trillion Yen (575 billion Yen) 70 trillion Yen in an effort to fight deflation. (WSJ) Japan is set to beat deflation, says Shinzo Abe Shinzo Abe committed Japan to much faster and deeper economic reform on Wednesday, as he declared in Davos that his country was about to 'break free' from about 15 years of deflation. In a passionate address in English to open the World Economic Forum, Japans prime minister focused on his plans to add structural reforms to loose monetary policy and fiscal flexibility - the so-called third arrow of 'Abenomics' - but also addressed Japans strained relationship with China and South Korea. (FT) AUSTRALIA Australian Dollar Falls to Fresh Low on Ridout Comments The Australian dollar fell to a fresh three and a half year low Friday after an influential central bank board member said the currency needed to fall further. "A dollar around US$0.80 would be a fair deal for everybody" including the country's importers and exporters, said Heather Ridout, an external board member of the Reserve Bank of Australia who helps shape interest-rate policy but doesn't speak on behalf of the central bank. "I think it hasn't fallen far enough." (WSJ) SOUTH KOREA South Korean Central Bank Concerned About Yen's Devaluation South Korea's central bank governor said any further depreciation of the Japanese yen would cause widespread pain to South Korean exporters, but he ruled out a competitive devaluation of the won as a response. (WSJ) THAILAND Bank of Thailand's Monetary Policy Committee pauses, cuts view The Bank of Thailand's Monetary Policy Committee kept its policy rate unchanged yesterday even though it slashed this year's economic growth forecast to about 3%. The rate-setting committee said the current benchmark rate of 2.25% is conducive to economic recovery and that maintaining financial stability remains a cornerstone. (Bangkok Post) Thailand to allow foreign IPOs Thailand will allow initial public offerings of foreign companies for the first time as Asia's 11th-largest equity market seeks to compete with Hong Kong and Singapore as a regional hub for stock listings. (Bangkok Post) Emergency status threatens to dampen investment climate Business leaders have expressed concern that foreign companies may put their investment decisions on hold as the emergency decree invoked two days ago further dampens the investment climate in Thailand. Simon Landy, chairman of the British Chamber of Commerce, said imposing a state of emergency makes a very big impact on foreign direct investment. (Bangkok Post) INTERNATIONAL IMF warns more work is needed to tackle big bank risk Big banks still pose a threat to the world financial system because there is a general assumption that governments will come to their rescue in case of trouble, an International Monetary Fund executive said on Thursday. (Reuters) Basel Committee sets out fundamental elements of banks' capital planning processes The Basel Committee is today issuing A Sound Capital Planning Process: Fundamental Elements, which sets out sound practices that foster overall improvement in banks' capital planning practices. BIS Working Paper - Monetary policy and financial stability: what role in prevention and recovery? Edging closer towards that goal calls for incorporating systematically long-duration and disruptive financial booms and busts - financial cycles - in policy frameworks. For monetary policy, this means leaning more deliberately against booms and easing less aggressively and persistently during busts. What is ultimately at stake is the credibility of central banking - its ability to retain trust and legitimacy. UNITED STATES US swaps trading rules have 'Split market' New US legislation for swaps trading has dramatically fragmented the transatlantic market in the past three months, with European dealers unwilling to trade with US counterparts and shunning clearing, an industry study has found. A study of clearing house data by the International Swaps and Derivatives Association found that the market for US and euro interest rate swaps, two of the most widely used products for hedging, had split since October. (FT) EUROPE ECB Confronted by Banks Testing Exit, Threat to Recovery Rising market rates are posing a dilemma for European Central Bank officials trying to keep their ultra-expansive monetary policy in place. Overnight borrowing costs for banks have surged above the ECBs benchmark rate even as policy makers argue that it's not yet time to exit emergency stimulus. (Bloomberg) EU Commission publishes memo on European financial framework and Banking Union The EU Commission has published a memo summarising the steps that have been taken to create a new financial framework for the European Union and setting out the progress that has been made in building the Banking Union. ESMA publishes technical advice on procedural rules to impose fines on trade repositories ESMA has published its final technical advice to the EU Commission on the future regulation on the procedural rules to impose fines and periodic penalty payments to trade repositories, which will be adopted by the Commission in the form of a delegated act under the European Market Infrastructure Regulation (EMIR). In order to deliver its advice, ESMA consulted market participants regarding the proposed procedural rules. ESMA has indicated that all of its major proposals were supported by the respondents to the consultation. ESMA updates list of non-EEA central counterparty applicants under EMIR The European Securities and Markets Authority (ESMA) has published an updated list of central counterparties established in non-EEA countries which have applied for recognition under Article 25 of the European Markets Infrastructure Regulation (EMIR). The list is not necessarily exhaustive and remains subject to further updates. Money markets sound alarm for ECB Sudden rises in very short-term market interest rates - the cost of borrowing overnight, for instance - usually spell trouble. Soaring Chinese interbank borrowing costs at the end of last year highlighted the central banks difficulties in curbing the most egregious financing practices of the country's banks. Less noticed beyond a few specialist circles, the European Central Bank has this year also seen market interest rates rising - not as acutely as in China, but possibly sufficiently to force a change in strategy. (FT) UK's European court blow to shape Libor supervision Britain's defeat in the European Union's top court over short-selling rules strengthens the case for EU-level supervision of market benchmarks like Libor, lawmakers said on Thursday. The European Court of Justice ruled on Wednesday that an EU body, the European Securities and Markets Authority (ESMA), does have the power in emergencies to ban short-selling or bets on falling share prices. (Reuters) EU Court Dismisses U.K. Challenge to Short-Selling Laws The European Union's top court dismissed a U.K. challenge to the bloc's short-selling rules Wednesday, ruling that the EU market watchdog's powers to ban short-selling in an emergency are legally watertight. The European Court of Justice said emergency powers handed to the European Securities and Markets Authority that allow it to ban or curb short-selling in several member states or the entire EU, even against the will of national authorities, are "compatible with EU law." (WSJ) Merkel Allies Call for Tough EU Response to Libor-Fixing Scandal German coalition lawmakers demanded a tough stance on regulating Libor, with greater supervision to shine a light on the role of banks in setting the international benchmark at the center of a rate-rigging scandal. The comments by two senior members of Chancellor Angela Merkels Christian Democratic Union party are the first indication of the German governments response to revelations of banks manipulation of the London interbank offered rate, or Libor. Both lawmakers called for more transparency and the introduction of an overhauled system for rate-setting that allows for independent verification. (Bloomberg) OECD chief economist sees deflation risk in Europe The European Central Bank should be ready to take measures including quantitative easing to ward off the danger of deflation in Europe, the OECD's chief economist said. "There is a deflation risk, but I don't know how large it is," Pier Carlo Padoan of the Organisation for Economic Co-operation and Development told Austria's Der Standard newspaper in an interview published on Wednesday. (Bloomberg)