Asia Regulatory Review | 18 - 25 Mar 2014

18 - 25 March 2014 | Issue 196 Spotlight Asian watchdogs battle to keep pace with western regulations Mark Austen, chief executive of ASIFMA in Hong Kong, said: "A lot of it doesn't make sense. Regulators here are increasingly saying to the US and EU: 'You're going to kill our markets before they've even developed. We don't have big markets or systemic risk.'" (Financial News) "Virtual" progress expected in China's interest rates liberalization A vice governor of China's central bank on Saturday promised "substantial" progress will be achieved in liberalization of deposit interest rates by next year. The People's Bank of China (PBoC) will prioritize reform on deposit interest rates this year after removing floor limit for lending interest rates in financial institutions in 2013, Yi Gang said on the sidelines of the China Development Forum in Beijing. (Xinhua) Update CHINA China's cabinet divides government tasks for 2014 China's cabinet, the State Council, on Wednesday convened a meeting to delegate major tasks for this year within its own system. The meeting, presided over by Premier Li Keqiang, listed 15 areas and 55 key tasks of general government work and delegated them to various departments and institutions of the State Council. (Xinhua) PBoC says some debt defaults 'healthy' China's central bank hinted on Sunday that it was willing to accept some debt defaults in the $1.8 trillion wealth management market, as the world's second-largest economy struggles to curb bad debts that pose a risk to the financial system. "Under the premise of preventing systematic risks, allowing some default cases to happen naturally in compliance with market forces will... help rectify behaviours of product issuers and investors and benefit the healthy development of the wealth management market," People's Bank of China (PBoC) deputy governor Pan Gongsheng said at a forum in Shanghai. (Himalayan Times) People's Bank formulating regulatory measures for online finance Under the policy of encouragement, as well as the principles of a "negative list" and segmented regulation, the People's Bank of China, China's central bank, and a number of Cabinet-level agencies are accelerating the formulation of regulatory measures for internet finance, according to Chinese-language China Business News. (Want China Times) China Foreign Exchange Trade System launched direct trading between RMB and NZD With the authorization of the People's Bank of China, the China Foreign Exchange Trade System (CFETS) has announced on 18 March, 2014 to launch direct trading between RMB and New Zealand dollar (NZD) on the interbank foreign exchange market. This is an important step in strengthening bilateral economic and trade connections between China and New Zealand. And China and New Zealand will make further efforts to mutually promote the direct trading between the two currencies based on market principle. (NAFMII Newsletter) Shanghai Stock Exchange updates trading rules for QFIIs and RQFIIs The Shanghai Stock Exchange (SSE) has issued the 'Implementing Rules on Securities Trading of Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors on the Shanghai Stock Exchange'. The rules supersede all previous trading rules applicable to Qualified Foreign Institutional Investors (QFIIs) issued by the SSE and apply to Renminbi Qualified Foreign Institutional Investors (RQFIIs) as well. China unveils pilot rules, paves way for firms to issue preferred shares for first time China's securities regulator on Friday issued rules for a pilot programme allowing listed companies to issue preferred shares, paving the way for the long-awaited scheme to be launched soon in what the regulator called a major capital market reform. Three types of listed companies would be allowed to issue preferred shares either to the public and to institutional investors via private placements. (Reuters) Investment agreement with China key to boost trade ties: EU An investment agreement between China and the European Union is good for their overall trade relations, said the EU ahead of crucial investment talks before Chinese president's visit. "Investment is one of the keys motors of any economy and is instrumental in generating growth and creating jobs," said EU Trade Commissioner Karel De Gucht in a statement. (Xinhua) Beijing guides investors towards Britain China's state planning agency has issued a one-of-a-kind guide for Chinese investors interested in Britain, following a Downing Street push to attract 50bn pounds sterling of foreign capital to finance UK infrastructure projects. (FT) HONG KONG Response of the Chief Executive of the Hong Kong Monetary Authority regarding his re-appointment In response to the Financial Secretary's decision on his re-appointment as the Chief Executive of the Hong Kong Monetary Authority through September 2019, Mr Norman Chan said, "I am very grateful to the Financial Secretary for his recognition of the hard work and efforts of the HKMA in the past four years." FSTB consults on introducing new open-ended fund company structure The Financial Services and the Treasury Bureau (FSTB) has published a consultation paper on the proposal to introduce a new open-ended fund company (OFC) structure to expand Hong Kong's legal structure for investment fund vehicles. SFC issues circular concerning US FATCA The Government of Hong Kong has been in discussions with the US Department of the Treasury, with the objective of concluding an inter-governmental agreement (IGA) designed to facilitate compliance with FATCA by foreign financial institutions (FFIs) in Hong Kong. According to the SFC, the extent to which issuers of SFC-authorised investment products might be affected and exempted will depend on the final scope of the IGA and its terms. HKEX concludes consultation on proposed changes to connected transaction rules The Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), has published its consultation conclusions on the following proposed changes to the listing rules (the rules) set out in the consultation papers of 26 April 2013 on: - Proposed changes to the connected transaction rules; and - Proposed changes to align the definitions of connected person and associate in the rules. SINGAPORE MAS responds to feedback on review of regulatory framework for unlisted margined derivatives offered to retail investors and consults on draft regulations The Monetary Authority of Singapore (MAS) has published its responses to the feedback it received on its 28 May 2012 consultation paper on the enhanced regulatory requirements for holders of capital markets services (CMS) licence and financial institutions exempted from holding the CMS licence. INDIA RBI Deputy Governor Dr. K. C. Chakrabarty seeks Early Departure Dr. K. C. Chakrabarty, Deputy Governor, Reserve Bank of India requested a slightly earlier departure (on April 25, 2014) than the scheduled term end, for personal reasons. His term was scheduled to end on June 30, 2014. Sebi gets board nod for fee hike, budget for next fiscal Market intermediaries and corporates will soon have to pay higher fees to Sebi as its board today approved proposals for fee hike to bolster financial resources of the capital markets regulator. The Sebi board also approved the budget estimates for the next financial year 2014-15, beginning April 1, while investor protection, capacity building, enhanced market surveillance and investigation functions have been identified as key areas. (Economic Times) Government proposes to set up botnet cleaning centre The proposal is part of national cyber security policy to cleanup botnet infections in Internet-enabled devices. Faced with the massive increase in botnet infections across Internet-enabled devices in the country, the government has proposed a botnet cleaning centre at a cost of around Rs.50 crore, as part of the overall national cyber security policy that was released in July last year. (Live Mint) Report OTC trades in corporate bonds within 15 minutes: Sebi To bring in more transparency, Sebi has directed stock exchanges and intermediaries to ensure that all over-the-counter (OTC) trades in corporate bonds are reported within 15 minutes of such transactions. "It is advised that all OTC trades in corporate bonds shall be reported only on any one of the reporting platform provided in the debt segment of stock exchanges viz NSE, BSE and MCX-SX within 15 minutes of the trade," Securities and Exchange Board of India (Sebi) said in a circular. (Economic Times) JAPAN Japan Firms Continue to Hoard Cash Despite robust profit growth and signs of a pickup in demand, Japanese firms opted to build up their already ample cash reserves late last year, suggesting an undercurrent of skepticism toward Prime Minister Shinzo Abe's economic policies runs through the corporate sector. Mr. Abe has been trying to reassure businesses that Japan's economy can exit decades of stagnation on the back of his pro-growth policies and has been urging them to spend more. (WSJ) Abe adviser warns on impact of tax rise A close adviser to Shinzo Abe has called for the Bank of Japan to take action "within one or two months" of next week's increase in consumption tax, if data were to indicate that consumers were struggling to cope with the fiscal squeeze. (FT) AUSTRALIA ASX chief seeks level playing field in derivatives clearing Two years ago, the Australian Council of Financial Regulators decided to leave it to the market to determine where over-the-counter derivatives transactions should be cleared. ASX chief executive Elmer Funke Kupper, however, is still arguing the case for mandating domestic clearing while investing heavily in developing its own platform. (The Australian) THAILAND Court Nullifies Thai General Election Thailand's Constitutional Court on Friday nullified the inconclusive Feb. 2 general election and ordered a new poll, dealing a setback to the government and adding to the country's political uncertainties. (WSJ) UNITED STATES U.S. swaps regulator gives EU firms more time to meet rules The U.S. derivatives regulator on Friday gave European trading platforms more time to register and meet strict new rules to make the market more transparent, in anticipation of comparable rules abroad. The delay was issued by the agency in a so-called no-action letter after an agreement the Commodity Futures Trading Commission struck with the European Union in February, which will in practice affect firms in London only. (Bloomberg) SEC Said Examining Hidden Electronic Bond Trading Prices The practice of dealers showing clients different prices for the same securities on electronic bond-trading platforms is drawing the scrutiny of the U.S. Securities and Exchange Commission, which is concerned that smaller investors are being penalized. (Bloomberg) Shadow Banking Deals Prompt SEC Plan to Cap Broker Leverage U.S. regulators concerned that banks and brokerage firms remain too dependent on risky types of short-term funding are weighing new rules designed to reduce reliance on parts of what is often called the shadow banking system. The SEC is considering new funding rules for brokers as well as a limit on leverage similar to those used by the Federal Reserve and other regulators for banks, according to a regulatory document and SEC officials familiar with the matter. (Bloomberg) All big U.S. banks but one pass Fed's health test U.S. big banks have enough capital buffers to withstand a drastic economic downturn, the Federal Reserve said on Thursday, announcing that 29 out of 30 major banks met the minimum hurdle in its annual health check. (Reuters) EUROPE ECB's Lautenschlaeger Welcomes Banking Union Deal The European Union struck a deal Thursday on the final leg of its banking union after all-night talks, closing the chapter on a key project that it is hoped will prevent euro-zone banking crises from bankrupting entire countries. The deal brings to an end months of tough negotiations between European lawmakers and national governments over the shape of a so-called single-resolution mechanism, which will centralize control of failing euro-zone banks. (WSJ) ESMA launches Discussion Paper on Central Securities Depositories Regulation ESMA is calling for public feedback on possible content to draft technical standards on matters such as settlement discipline, CSD registration and requirements, including confirmation rules (acceptance or rejection of terms in good time before the intended settlement date) for trading venues and investment firms, as well as access to CSDs by other CSDs, participants and other market infrastructures. Virtual Currencies Not a Threat to Stability Virtual currencies such as bitcoin don't endanger the stability of prices or the financial system in Europe, but are a threat to their users, a European Central Bank executive board member said Monday. "In Europe, virtual currencies do not pose a risk to price stability or financial stability, but do pose a risk for users," said Yves Mersch in remarks prepared for delivery at a conference in Rome. (WSJ) EU Orders Luxembourg to Hand Over Tax Information European Union antitrust authorities ordered Luxembourg on Monday to hand over information on its tax practices as part of a broader investigation into fiscal deals that allow some major global corporations to pay little or no tax in the region. The European Commission, which acts as the 28-member bloc's top antitrust regulator, is scrutinizing whether tax arrangements for companies like Apple and Starbucks violate EU state-aid rules, which forbid tax breaks or subsidies that provide a competitive advantage to favoured groups. (WSJ) Carney Starts Hiring Push to Kickstart BOE Management Revolution Acting on the advice of management consultants McKinsey & Co., Carney is attempting to create "One Bank" as the BOE grapples with its newly won powers to oversee the financial system. He announced the roles last week, along with the appointments of two deputy governors and a swathe of internal promotions. The strategic plan "breaks down barriers between areas within the Bank through a reorganization that puts greater emphasis on joint working and moves key senior staff between areas," Carney said. (Bloomberg)