Asia Pacific Financial Services Regulatory Updates, Quarter Four 2020

The Deloitte Asia Pacific Centre for Regulatory Strategy is pleased to share with you the key regulatory updates from around our region for Q4 2020.

COVID-19 is now entering a second or third wave around the region, with several geographies seeing daily infection cases figures spiking along with lockdowns and restriction on economic and social activities. China mainland and Taiwan are perhaps the exceptions to this pattern and are now seeing robust economic recovery and social activity returning to (a new) normal.

Despite this, financial systems in Asia Pacific are generally operating smoothly thanks to the assistance from the temporary relaxation of financial regulations. The first wave of more tactical measures to ensure financial stability has been fully implemented; regulatory and monetary support is continuing, with some adjustment at the margins and representing a significant number of the updates this quarter. However, this does not imply that these measures will continue indefinitely; eventually they will be rolled back.

China mainland is perhaps the best example of how regulators may attempt this. The People’s Bank of China (PBOC) noted in their Q3 2020 Monetary Policy Report(published in Nov. 2020) that the Bank would “improve the systems of financial risk prevention, early warnings, resolution and accountability”, and also look to support banks “to step up efforts to set aside loss provisions for non-performing loans and carry out write-offs”. This suggests that the PBOC may begin normalising its financial supervisory policies given China mainland’s robust economic recovery. The timing and manner of the exit from the current policy support will vary by geography, but the work being done by the PBOC could serve as an important model for other regulators in the region.

As well, we also saw a number of updates that are connected with emerging risk areas, such as climate change, operational resilience, or non-financial risk management, signaling the importance regulators are giving to these more long-term challenges. Some important examples of this from this quarter include the Hong Kong Monetary Authority (HKMA) officially inviting selected Authorized Institutions (AIs) to take part in the climate risk stress test pilot in 2021 and the Australian Prudential Regulatory Authority (APRA) plan to move to a new supervision risk and intensity (SRI) model, which will see a “greater elevation of non-financial risks whilst preserving the importance of financial resilience”.

What has been particularly notable this quarter was the number of announcements made about the use of technology in financial services –perhaps unsurprising given that both the Hong Kong SAR and Singapore fintech weeks were held in November.

An exciting development in this vein was the announcement that that users of Singapore’s Pay Now and Thailand’s Prompt Pay will be able to send money instantly and securely across the two countries using their phone numbers at competitive rates from mid-2021. Such a linkage of national faster payments systems is the first of its kind in the world.

Not to be outdone, both Hong Kong SAR and Japan announced progress in their activities to investigate, pilot, and develop a central bank digital currency (CBDC). In Hong Kong SAR, a proof of concept has been developed and next steps include exploring business use cases such as cross-border trade settlement and capital market transactions that may involve bringing banks and large corporates into the project to undertake testing using actual trade transactions. The Bank of Japan released its Approach to Central Bank Digital Currency, a report that discussed the background of CBDC as well as the preliminary research work the BOJ has undertaken with other central banks in North America and Europe, including the UK.

While Hong Kong SAR and Japan made announcements on CDBC this quarter, more generally it is a rapidly developing area in our region. China mainland is already piloting the technology while Singapore, Hong Kong SAR, Thailand, Cambodia, and Vietnam all following quickly behind in various stages of development.

For queries or more information on these updates or other regulatory topics, please get in touch. In the meantime, we wish everyone safe and peaceful holidays, and the very best for 2021.