Global change, regional context

2016 will be an important year for Asia. The Asia Pacific region and its institutions will have a heightened opportunity to voice their opinions on the international agenda and its impact across our divergent financial systems, economic needs and stages of development. This paper gives a high-level view of the themes that Asia Pacific institutions should be considering for action both internally and within the broader policy context.

While each theme may have a varying relative level of importance across each institution and jurisdiction, we believe that in combination these themes will dominate strategic considerations in the coming period across the Asia Pacific region. Below please find four major themes for 2016:

Resilience

Much crisis response regulation has concerned making institutions and markets resilient to financial stress. Despite substantial reforms already, these initiatives will continue through 2016 and beyond. They include:

• Bank

   - Implementation of Basel III’s Net Stable Funding Ratio (2018) and calibration of the Leverage Ratio (2017)

   - Changes to how bank RWAs are calculated and a capital floor (end 2015 and through 2016)

   - Implementation of total loss absorbing capacity for G-SIBs (starting 2019), with possible application of similar requirements to D-SIBs

   -  A new comprehensive Pillar 3 framework (end 2016)

• ŸInsurance

   - Finalisation of insurer capital standards and higher loss absorbency for G-SIIs

• ŸSecurity

   - Ongoing work on OTC derivative reforms, including the September 2016 commencement of margining for non-cleared transactions and resiliency work on CCPs

Culture and conduct

A major area of recent regulatory activity has concerned the behavior of financial institutions and their staff with respect to consumer and investor protection and market integrity. The Financial Stability Board now sees misconduct as a systemic risk and is overseeing policy reforms to address it.

Technology

Regulators will likely want to incorporate FinTech within the regulatory perimeter to ensure they meet their financial system and institutional stability, market integrity and investor protection objectives. However, regulators are also aware that they need to encourage FinTech. These imperatives will likely be addressed by trying to maintain minimal regulatory burdens on new entrants while still subjecting them to relevant standards.

Implementation

Beyond the themes arising from new or recalibrated regulations, we believe that financial institutions will continue to face implementation challenges in 2016, such as reform fatigue and confusion, frustrate the desire for uniform operating models, last but not least, branch institutions facing challenges in securing regulatory change and compliance funding.