Asia regulators say G20 reform driven by U.S., Europe

November 29, 2010

By Daisy Ku and Rachel Armstrong

HONG KONG, Nov 29 (Reuters) – The lack of a unified Asian voice in the Group of 20 leading economies means the United States and Europe are driving the overhaul of global financial regulation with several of the new rules posing significant challenges for emerging markets, regulators said in a regional summit on Monday.

The G20 has endorsed a series of major reforms to banking and financial market regulation, which the five Asian members of the group and Financial Stability Board members Hong Kong and Singapore have signed up to.

But Asian regulators say a number of these rules pose significant difficulties for their markets, while others don’t address the way the crisis hit their economies. This, they say, is partly due to the fact that the United States and Europe find it easier to arrive at a common approach to regulatory change.

“There isn’t a uniquely Asian voice and I think that’s a challenge,” Martin Wheatley, head of Hong Kong’s Securities and Futures Commission (SFC), told the Pan-Asian Regulatory Summit held by Thomson Reuters unit Complinet.

New rules on banking liquidity, part of the so-called Basel III framework, were highlighted as one area where the reforms hadn’t taken into account the size of some emerging markets’ debt capital markets.

“Asian countries are facing significant challenges in meeting these liquidity standards,” said Lee Jang Yung, senior deputy governor of South Korea’s Financial Supervisory Service.

Those standards mean banks must hold a certain level of highly liquid assets, such as government bonds, so they can still meet their funding obligations at times of stress in the financial system.

Such rules though depend on there being an adequate supply of government debt and other liquid assets to begin with.

“We have to make sure these new liquidity standards will not put anyone at a disadvantage because of their capital markets,” said Lee.

Another area posing concern to Asian regulators is the issue of dealing with banks judged “too big to fail”.

The G20 endorsed a framework at its Seoul summit earlier this month that requires large banks with a high degree of cross-border operations to be subject to extra supervision.

But Thirachai Phuvanatnaranubala, secretary general of Thailand’s Securities and Exchange Commission, said he is concerned the rules won’t take into account the risk one large international institution might pose to a single emerging market country such as Thailand.

“The problem is some of these institutions can be too big to fail in one jurisdiction,” he said, pointing to the impact the failure of the U.S. insurance giant AIG had on Thailand.

“Until it is clear how the FSB will deal with this, then I am afraid the option of forcing these institutions into having local subsidiaries (rather than branches) may be attractive,” he said.

Phuvanatnaranubala added that one of the main reasons Asia struggles to push these issues on a global basis is the diverse set of legal structures across the continent.

“At times we feel it is difficult to harmonise the rules, even among a small group of ASEAN (Association of South East Asian Nations) countries,” he said.

The SFC’s Wheatley added that another reason for the lack of a strong voice on regulation is that the primary reform needed in this region is the economic goal of shifting to consumption-led economies.

“So it’s on an economic level rather than on a regulatory level that the big changes are needed,” he said.

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