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Asia Pacific Regulatory Update
A regular publication from Deloitte’s Asia Pacific Centre for Regulatory Strategy, which provides an overview of the significant local and international regulatory developments impacting financial services firms operating in the region.
Competition and business model sustainability
The impact that FinTech is having on business model sustainability was a common theme during February. The Basel Committee on Banking Supervision (BCBS) released a report that highlighted banks could struggle to maintain their operating models because of the rise in competition from new FinTech players, as well as changes in technologies available and customers’ expectations. Hong Kong’s Monetary Authority issued a letter urging authorised institutions to study the BCBS report “carefully” and advising that major banks will be asked how they plan to cope with the challenges brought by technological advancement. The Governor of Bank Negara Malaysia warned financial institutions not to “lay idle as innovations will be relentless in accessing and penetrating the traditional market”. Australia’s Productivity Commission meanwhile made several recommendations to boost competition in the financial services industry, which it found had been subordinated to concerns about financial stability over the past ten years, potentially paving the way for increased participation of new FinTechs in the Australian financial services ecosystem.
Basel III capital requirements
Regulators also responded to final calibrations of the Basel III capital framework, which were announced by the BCBS in December 2017. The Bank of Japan urged major jurisdictions to implement Basel III faithfully in accordance with the agreed timeline to ensure a level playing field. The Australian Prudential Regulation Authority outlined proposed revisions to the risk-based capital requirements for authorised deposit taking institutions that, compared to Basel III, impose higher capital ratios for several asset classes, as well as earlier implementation dates.
Conduct and culture
Korean and Singaporean regulators identified culture and conduct as a priority for the year ahead, while China’s banking regulator issued comprehensive guidelines on employee conduct management. Following similar developments in Hong Kong (Managers-in-Charge) and Australia (BEAR), Malaysia’s central bank set out a proposed accountability framework for individuals who have senior roles in financial institutions.
Foreign investment and recovery/resolution planning
Regulators in China and India further revised rules to facilitate foreign investment. India’s central bank introduced a new framework for the resolution of stressed assets, Hong Kong’s recovery planning legislation was updated in accordance with international norms, and Chinese regulators took control of one of the country’s biggest insurers amidst concerns about financial mismanagement.
Identity verification and virtual/crypto currency
Back on the theme of innovation in financial services, regulators in Hong Kong and Singapore amended identify verification requirement to facilitate non-face-to-face and technology enabled customer on-boarding. Virtual currencies (VCs), cryptocurrency trading and initial coin offerings (ICOs) continued to be a hot topic. Following the theft of ¥580mn in cryptocurrency, Japan’s Financial Services Agency required VC exchange companies to review and report on their system risk management. In Malaysia VC exchanges were ordered to comply with anti-money laundering (AML) rules, Thailand’s central bank urged financial institutions not to engage in or support transactions involving cryptocurrency, and Singapore’s Deputy Prime Minister said that although there is presently no strong case to ban cryptocurrency trading in that a country, intermediaries will be subjected to AML regulations. Hong Kong’s securities regulator meanwhile issued a second warning on ICOs and cryptocurrency exchanges, this time drawing attention to the role of gatekeepers and advisers.
Please download the report for more detail of these and other significant international and regional regulatory developments during February.