Managing Upstream Risk Regulatory Reform Review: An Asian perspective

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Managing
Upstream Risk
Regulatory Reform Review:
An Asian perspective
Mid-year review
June 2013
2
Contents
Foreword4
Editorial6
Regulatory Updates
16
1.
Banking16
1.1 Basel III
1.2 Financial Benchmarks
1.3 Bank Licensing
1.4 Corporate Governance and Culture
1.5 Recovery and Resolution Planning
1.6 Bank Failure
2.
Capital Markets 21
2.1 Foreign Exchange
2.2 Stock Markets
2.3 Algorithmic Trading
2.4 Free Float for Public Companies
2.5 Debt and SME Trading Platforms
2.6 Investor Protection
2.7 Mutual Funds
2.8 High Frequency Trading
2.9 Collateralised Assets
3.
AML26
4.
EMIR29
5.
OTC Derivatives
32
6.
Islamic Finance
34
7.
Money Markets
35
8.
Retail Payment Systems
36
9.
FATCA37
10. International Taxation
38
11. Dodd-Frank Act
39
12. Insurance40
13. Asset Management
41
Watch This Space
54
Contact Our Experts
55
Glossary56
Foreword
The financial services industry in last few years has seen
unprecedented international regulatory reforms. Regulatory (as well
as tax and accounting) reforms remain short term drivers (1 to 2
years). Some of these reforms, if I may sum up, range from:
• Fostering stability and strength of FIs that are resilient to crisis
and to contain any resultant systemic impact whilst also setting
the tone for greater investor/ depositor protection. These include
enhanced capital and liquidity measures and adopting effective
crisis preparation and management strategies, together with
orderly resolution frameworks and other measures to mitigate the
impact of bank failures;
• Fostering robust market discipline through sound supervisory
practices in the areas of corporate governance, risk culture,
disclosure and transparency as well as sales practices;
• Enhancing governance, controlling executive remuneration,
disclosure and transparency, liquidity and risk management – with
the new and expected standards being extremely demanding;
• Utilising “political muscle” to create consistency in practices across
global level – with far reaching and in some cases extra territorial
implications;
• Greater focus on SIFIs; and
• Setting out the framework of a more effective and enhanced
oversight by regulators – which translates into greater
intervention by regulators in implementation of and compliance
with rules both from prudential and conduct perspective.
4
Regulatory Reform Review | Editorial
We have seen some of the practical implications of these with rules
developed by regulators at domestic level and implementation
challenges faced by the industry. Regulatory reform also continues to
linger as a key concern for CEO of FIs. This is evidenced by PwC’s global
CEO survey published in January 2013 where 95% of banking and
capital markets CEOs said that governments and regulators influence
their strategy, almost as much as customers (97%). This is reflected in
concerns about growth due to:
• Excessive regulation (81%),
• Protectionist policies (50%),
• Tax burden (59%),
• Government response to debt and fiscal burden (67%), and
• Industry leaders are continuing to strengthen engagement with
government and regulators (77%).
An additional issue that seems to have emerged is the fragmentation
of financial sector reforms due to national interests. The IMF warns
that while major UK and core euro area banks have been actively derisking and deleveraging, much needs to be still done to strengthen their
balance sheets. The IMF in its Global Financial Stability Report in April
2013 noted its concern about the possibility of another phase in the
global financial crisis if regulatory reforms are not concluded.
The various global regulatory initiatives and those undertaken in the
home countries of banks operating in Asia will have spillover effects on
their operations. With Asia gaining growth momentum and attention as
a business jurisdiction, the importance of Asia has to be reckoned with.
Regulatory reforms will continue in order to enhance the credibility of
Asian markets which simply means that FIs in Asia will have to continue
to be nimble to respond to such reforms.
The fragmented nature of Asian regulatory landscape poses greater
compliance challenges for institutions operating in Asia. Whilst some
regulatory convergence and cooperation has been seen (such as the
ASEAN fund passporting regime) more action is warranted to address
harmonisation of regulatory standards and cooperation amongst
regulators in Asia.
Dominic Nixon
Asia Financial Services Leader, PwC Singapore
Snapshot | Regulatory Reform Review
5
Editorial
Asia - 2013 at a glance
As we look back at the last 6 months of the year,
2013 presented an interesting year with regulatory
reform topping the agenda for both FIs and global
and regional regulators. In the first six months, we
have witnessed aggressive reform initiatives and
activities in not only the banking landscape but
also within the insurance and asset management
industries.
As the G20 and global regulators push for greater
reform efforts and set higher standards, regulatory
authorities in each country have been keeping up
with global timelines as well as moving in tandem
with their counterparts. Being “compliant-ready”
is a priority especially when failure to do so may
jeopardise bilateral or multilateral business ties
or worst – tarnish the image of a financial hub for
being a recalcitrant.
The regulatory web that emerged as a result
of numerous regulations has created immense
pressure on FIs in navigating through the sticky
and complicating labyrinth. From an Asian
standpoint, key regulatory trends have emerged
in plain sight with regional regulators rolling out
policies and recommendations one after another.
In addition, the industry has also been dealing
with extra territorial regulations.
Take for example FATCA, where non-compliance
could result in a withholding penalty that may
be costly for businesses. In addition, in Asia an
insurmountable task has been faced by industry
for preparing and keeping up to date with recovery
and resolution plans for G and D-SIFIs, Basel III
readiness and compliance, aligning operations
for OTC derivatives trades, AML supervision and
combating tax crimes, governance, enhanced
disclosure and risk culture, investor protection
initiatives and harmonising requirements across
their home, local and regional regulations.
Asian nations are stepping up their efforts for
reform evidenced by the following:
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Regulatory Reform Review | Editorial
• Anti-money laundering – Strengthening
the robustness of their AML framework,
especially with increasing clamp-down by the
FATF. In April, Thailand was removed from
the FATF’s grey list with the Philippines not
far behind. It is especially significant that
countries with otherwise undeveloped legal
frameworks are moving towards countering
illegal activity and also a sign that these
countries are ready to break away from their
traditional ways of doing business.
• Another step in the right direction is the
indexing of financial benchmarks. With
international regulators BIS and IOSCO
issuing guidance and recommendations for
benchmarking standards, Asian regulators
follow suit, as seen in HKMA’s issuance
of a “Code of Conduct for Benchmark
Submissions” in April, and how Indonesia
and Malaysia have adopted the approach of
fixing their own onshore rates to minimise
manipulation, taking more accountability
and responsibility for their economies. MAS
issued a consultation in June 2013 which will
close in one month and 20 banks expected
to hold additional liquid assets and embark
on remediation plans. Banks are expected
to significantly improve their governance
arrangements for participating in financial
benchmark activities and some regulators
requiring registration or licensing for certain
activities.
• Subsidiarisation – In order to protect domestic
interest and priorities, regulators have been
urging banks to subisidiarise their operations.
The Branch model is somewhat unpopular
with regulators given the issues posed during
the global financial crisis. In the UK, non-EU
deposit taking institutions are being nudged
to incorporate locally. The US is forcing
foreign banks to ring-fence their operations.
Singapore has announced that banks which
are deemed to be ‘significant’ to the domestic
market to incorporate locally, at least for
retail banking and SGD payments. Malaysia
has required foreign banks that take deposits
to incorporate locally since 2008. India is
intending to move in the same direction.
Japan has been considering this, but current
view is to use an MLA-type approach.
• Last but not least – the efforts in relation to
OTC derivates rules and infrastructure in
Hong Kong, Singapore and Japan as well as
the need for financial institutions to comply
with the US and EU/ UK requirements in their
readiness in respect of international trades.
• Corporate governance and culture. The
World Bank commended Malaysia in its
large improvement regarding governance
in a February 2013 report. Hong Kong and
Singapore have also ranked high on the
governance scale by the ACGA.
Recent progress has also been made in the asset
management space, with key IFCs establishing
co-operation arrangements with EU regulators,
a precondition of the AIFMD to allow fund
managers based outside the EU to access EU
markets. In April 2013, Malaysia, Singapore
and Thailand opted-in first to the ASEAN fund
passport scheme, encouraging ease of business
over multi-jurisdiction offerings of equity and
plain debt securities. Lastly MAS’ RFMC for
licensing of FMCs will help mitigate risk arising
from the industry. Further in this bulletin we
will also provide coverage of Asia’s insurance
landscape.
• Investor protection efforts made across Asia
– Particularly in Singapore, India and Hong
Kong to name a few.
We depict in the following pages some of the key
global and Asian regulatory developments thus
far in 2013:
Editorial | Regulatory Reform Review
7
Key global developments
Global
Q1
Q2
• Basel III comes into
force
• FSA was dissolved and • WFE review on HFT
replaced by the PRA
• BIS report on asset
and FCA in April
encumbrance,
• Half of G20
financial reform and
jurisdictions issued
demand for collateral
final regulations for
assets
Basel III
• G20’s self-imposed
• IOSCO published a
September 2013
final report on market
deadline to reach
surveillance
a resolution
on supervising
• IOSCO published
derivatives market
consultation paper
on structured retail
products
• Final consultation on
Uncleared Derivatives
Margin
• Second consultation
on margin for
uncleared swaps
• Policy statement
on reporting
requirements for FSAregulated firms
• Consultation for
Financial Benchmarks
EU
Q3
Q4
• Legal entities to
determine if they have
FFI characteristics to
comply with FATCA
• IOSCO communiqué
on transparency
among CRAs
• Compromise text for
Crisis Management
Directive published
• Vote in Parliament and • Adoption of Crisis
• Adoption of UCITS VI
agreement on Crisis
Management Directive
• EMIR rules on
Management Directive
• Publication of CRD IV
reconciliation and
• EMIR technical
• EMIR technical
into Official Journal
compression, dispute
standards published in
standards in force
resolution in force
• Implementation of
Official Journal
• EMIR implementation
AIFMD
• CCP clearing
Q&A issued
• EMIR reporting of
obligations applied
• TR reporting
interest rate and credit
• Consultation on
requirements to go
derivatives in effect
Benchmark-setting
into effect
• MiFID II trilogues
expected
• CRD IV to be agreed
on
• Remuneration
guidelines for AIFMs
published
US
• Cross Border
Exemptive Order
finalised
• Cross Border
Guidance published
• Mandatory clearing
for CDS and IRS in
effect
8
Regulatory Reform Review | Editorial
• IRS releases draft
form for foreign
entities to declare
their withholding
status
• FATCA deadline to
register with the IRS
Key developments in Asia
RRP
China
Hong Kong
India
Japan
Singapore
• Supervisory
requirements
for resolvability
assessments
• No legal
requirement
for
resolvability
assessments
• No
requirements
for
resolvability
assessments
• Consultation
issued in
January and
finalized
proposed
guidance in
February
• No legal
requirement
for
resolvability
assessments,
but
assessments
undertaken
as a matter
of policy
on several
systemically
important
institutions
• Powers to
require changes • Supervisory
powers to
to firm structure
require
and business
changes to
practices
firm structures
(can be used
• Supervisory
for purposes of
requirements
resolvability)
for RRPs
(systemically
• No
requirement
important or
for RRPs
critical)
• No powers
to require
changes to
firm structure
and business
practices
• No
requirements
for RRPs
• Powers to
require
changes to
firm structure
and business
practices
• Supervisory
authority
to require
resolvability
assessments
• Supervisory
requirement
for RRPs
Subsidiarisation
• Encourages
subsidiarisation
as of February
with an added
incentive if
banks operate
as subsidiaries
instead of
branches
• The Bill for
Amendment of
the Financial
Instruments
and Exchange
Act, etc in
Japan passed
the Diet in
June, clarifying
foreign bank
branches’
licensing
standards
Others
• MAS
consultation
paper on
proposed
amendments
to the MAS Act
in January
• MAS issued
the control and
resolution of
FIs regulations
2013
• No formal
rules in place;
usage of
moral suasion
on QFBs to
subsidiarise
• Increased
penalty for
violations
• Required to
continuously
reserve
assets equal
to minimum
capital
requirement for
domestic banks
• Obligated to
explain to
depositors that
deposits are
not covered
by the deposit
insurance
system in Japan
• Act on Special
Measures for
Reorganisation
is applicable to
foreign bank
branches
Editorial | Regulatory Reform Review
9
Key developments in Asia (continued)
Capital
Requirements
China
Hong Kong
India
• Minimum
CAR for banks
of systemic
significance at
11.5%; 10.5%
for other banks
by end 2013
• Basel III in
effect as of Jan
• Has framework • Published final
guidelines on
in place to
the supervision
adopt Basel
of banks and
II norms and
financial
implement
instruments
Basel III capital
business
regulations in
operators
Jan 2013 and be
fully applicable
• Q&A on
in March 2018
administrative
notice for Basel
III released
• To review credit
risk mitigation
techniques by
AIs
• HKMA released
• Systemically
circular on
important
revisions by
commercial
BCBS to LCR
banks minimum
leverage ratio of • Announced
4% by end 2013
shortened
notice period
• Delay in
of tapping the
Basel III
RMB liquidity
implementation
facility to 1 day
OTC
Derivatives
• Launched new
body for central
clearing
• Approved
trading
contracts and
rules for index
futures
• Expected to
introduce credit
default swaps
by end 2013
• Will launch
central clearing
for interest rate
swaps
10
Japan
• All OTC foreign • “Plain vanilla”
• Establishing
swaps subject
exchange and
CCP clearing
to mandatory
interest rate
facility for OTC
CCP clearing
derivatives
transactions
between Cat
• Information
• Issued joint
1 and their
on OTC
consultations
clients shall
derivatives
on proposed
be reported
transactions
regulatory
on the CCIL
must be
regime for HK’s
platform
reported to
OTC market
authorities
• Tightened
• Consultation
from trade
eligibility and
conclusions,
repositories
exit criteria
supplemental
and CCPs
for stocks in
consultations
derivatives
• Released final
on proposals to
segment
Cabinet Offices
regulate OTC
Ordinances
• Published
derivatives
on mandatory
regime for
market
clearing, trade
Reporting
• Issued
data storage
Platform for
guidelines for
reporting
OTC Foreign
intermediaries
obligations
Exchange and
performing
Interest Rate
product due
Derivatives
diligence
for Code of
Conduct
Singapore
• Announced
higher capital
adequacy
requirements
than Basel III
standards of
6.5% for CET1,
8% for Tier 1,
and total CAR
of 10% from
Jan 2015
• Capital
conservation
buffer of 2.5%
• Consultation
on proposed
review of Riskbased Capital
Framework
for Insurance
Business
• Amended SGXDC Ltd rules
• Expanded scope
of Securities
and Futures Act
• Consultation on
amendments
to the Notice
to implement
capital
requirements
for bank
exposures to
CCPs
• Consultation
on proposed
changes to
requirements
on banks’
transactions
with related
parties
• Consultation
on Securities
and Futures
Act with policy
proposals
relating to OTC
derivatives
Others
Key developments in Asia (continued)
Short Sales
China
Hong Kong
• Announced
domestic
securities
brokerages can
participate in
margin trading
and short
selling
• Permits
• HKex changed
short selling
notional short
criteria for
sale from the
designated
HFT portfolio
securities
on secondary
available for
market
short selling,
transactions
eligibility
in government
securities
criterion related
to market
• Relaxed norms
capitalisation
for short-selling
from $1 billion
government
to $3 billion
debt
and from
40% to 50%
respectively
• 15% ceiling on
short selling
rate
• Shanghai stock
exchange and
4 open-ended
exchange
traded funds
will become
eligible for
margin trading
and short sales
in Dec
CRA
• Planning a
• CRAs in the
CRA that will
SFC are in line
charge investors
with ESMA’s
rather than
regulation in
borrowers for
the EU
risk assessments
India
Japan
Singapore
• “Uptick rule” in
place
• Published
guidelines on
short selling to
provide market
participants
with a better
understanding
of short selling
and to set out
MAS’ position
on short selling
• Removed
• In line with
requirement
IOSCO’s
of taking prior
principles since
approval by the
2009
CRAs from SEBI
for change in
constitution
• CRAs must
be licensed
by Capital
Market Services
and subject
to licensing
obligations
Others
• Need approval
from SEBI if
there’s a change
in control
• 4 CRAs
accredited
for risk
weighting the
banks’ claims
for capital
adequacy
• Mandatory to
appoint a SEBI
approved CRA
for valuing
structured
products and
market linked
debentures
11
Key developments in Asia (continued)
China
FATCA
Investor
Protection
Hong Kong
• Has not signed
any IGA with
the IRS
12
Japan
Singapore
• Announced
• To sign a Model
that the country
1 IGA with the
is close to
IRS
concluding the
IGA
• Released
circular
to remind
registered
institutions
to establish
appropriate
controls to
protect their
operations and
clients
• Consultation on
amendments to
the professional
investor regime
and client
agreement
requirements
Corporate
Governance
& Culture
India
• Ranked highly
in the ACGA
corporate
governance
report along
with Singapore
Regulatory Reform Review | Editorial
• Initiated
measures to
protect the
interests of
small investors,
to streamline
KYC norms and
revisit norms
relating to
insider trading
Others
• South Korea,
Taiwan and
Thailand are
in negotiations
with the IRS
• Issued FAIR
• Investment
Advisers
Regulation
in effect from
April 2013
• Amended
Corporate
Governance
Code
• Consultation
and response
for corporate
governance
regulations for
insurers
• Malaysia
commended
by the World
Bank on having
good corporate
governance
practices
Key developments in Asia (continued)
AML
Financial
Benchmarks
China
Hong Kong
India
• Implementing
new rules that
were issued in
Dec 2012
• Announced
to double size
of AML team
to strengthen
supervision
and intensify
scrutiny of
monitoring
systems
• Launched
investigations
and took action
against banks
that violated
rules after
an expose by
Cobrapost
• Strengthened
mechanism
used to set
HIBOR
• Added more
supervisory
powers to
HKMA
• Gazetted a
final statutory
guideline on the
code of conduct
for benchmarks
submissions
Japan
Singapore
Others
• Designation
of tax crimes
as money
laundering
predicate
offence
• Philippines
signed new
law boosting
safeguards
against AML on
par with FATF
standards and
was removed
from blacklist
• Announced that
a review into
KYC norms is
ongoing
• RBI suggested
that MIBOR and
RBI reference
rates be based
on dealt rates
• Thailand
removed from
high-risk list
• MAS releases
consultation
paper on
financial
benchmarks
and a yearlong review
on SIBOR
and bank
submissions
• Malaysia and
Indonesia
fix their own
onshore rates
Editorial | Regulatory Reform Review
13
Consultation papers due in June
3 June
FINMA consultation on distribution of CIS
4 June
MAS consultation on FAIR
11 June
EBA consultation on technical standards
13 June
IOSCO consultation on regulation on retail
structured products
14 June
ESMA consultation on draft RTS – prospectus
supplements
21 June
BCBS consultation on supervisory guidance on
external audit of banks
26 June
HKex consultation on connected transaction
rules
28 June
BCBS consultation on measuring and controlling large exposures
Emerging Markets
Emerging markets are taking centre stage with global
emerging market regulators corroborating to play a
more active role in global regulatory reform efforts.
At a meeting in Panama City on 21 – 23 May 2013,
EMC members reinforced the need for emerging
market considerations to be reflected in reform
efforts. The meeting also oversaw the electoral
succession of Ranjit Ajit Singh, Chairman of the SC
Malaysia, as new chair of the EMC. He emphasised
that there is major opportunity for emerging markets
to contribute to global discussions and must develop
a stronger and inclusive voice to be supported by
efficient structure and process. The EMC also held a
public conference discussing the impact of regulatory
reforms on emerging markets. The Committee plans
to take on a streamlined approach in conduct and
prudential regulation, so as to communicate its views
at a higher level. At the meeting, the EMC agreed
adopt a new name – the Growth and Emerging
Markets Committee – to better reflect the nature of
the markets in which its members operate. The 86
members include some of world’s fastest growing
economies and 10 of the G-20 members and make up
75% of IOSCO’s membership.
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Regulatory Reform Review | Snapshot
Following this, Myanmar’s government announced
in June the revolutionisation of its central bank,
empowering it to adjust monetary conditions
independently, stop financing of government debt
and appoint external experts for policy setting.
Myanmar’s government will dissolve the central
bank’s current leadership structure and replace it
with a nine-member board chaired by the central
bank governor, consisting of three other central
bank executives as deputy governors and five nonexecutives from other professions nominated by
the president’s office and subject to parliamentary
approval thereafter. The board will also get a resident
advisor on regulation and supervision from the IMF.
Under the new regime, the central bank will shift its
policy focus to adjusting underlying demand for and
supply of bank reserves via open market operations
and deposit auctions and aim for a certain rate of
money supply growth rather than shifting to inflation
targeting. In August 2013, the central bank will
commence deposit auctions issue regulation for the
setting up of a treasury bill market in September. The
new central bank law will be signed at the end of
July 2013 after current parliamentary sessions have
concluded.
Europe
Some of the key notable regulatory developments in
Europe that will have far reaching implications across
the operations of UK / EU banks in Asia would be ring
fencing and executive remuneration.
On ring fencing - be it the Vickers, the Liikanen or
the Volcker way, the structures proposed by various
jurisdictions may be different but the end result
to be achieved is to separate risky and proprietary
business to protect depositors savings in order to
preserve confidence in traditional banking. Some
local regulators are pushing their way forward
with subsidiarisation which is yet another method
of ring fencing operations and assets to meet the
expectations of the local master. The challenge for
G-SIFIs have been to determine assets, funding,
liquidity and capital buffer management, business
operations, governance and systems that fall under
the “end entity” and being segregated meaningfully
to satisfy different but potentially related
requirements.
Meanwhile, the EU’s proposal to cap the bonuses
of bankers as part of CRD IV – the EU’s Basel
III implementation – is targeted to commence
on 1 January 2014. These terms on executive
remuneration will also apply to staff of subsidiaries
of European banks operating outside the European
Economic Trade Area (in Asia and elsewhere).
Interesting point to note is that bankers are still
being paid top dollar. The Hay Group in its report
on 6 February 2013 noted that “the median total
pay for Chief Executive Officers in the finance sector
outperformed their counterparts in other industries
by over half a million dollars”. The real impact of
the provisions on “claw back”, “bail-in-able” and the
capping of bonuses to avoid recourse to tax payers
and revert banking to its prudent and conservative
business (as opposed to being highly lucrative and
speculative) will only be seen in due course – 2014
onwards.
Banking | Regulatory Reform Review
15
More recent events - On 16 May 2013, the IMF announced that it
would send a team to Spain the following week to produce the Fund’s
third independent monitoring report of the country’s banking sector.
Spain, the fourth-largest economy in the Eurozone, has been trying
to cut annual public deficit with austerity measures in the aftermath
of a property bubble that imploded in 2008. A preliminary report
and final report is expected to be ready in June. On 7 June 2013, the
Spanish government approved a reform to rein in regionally based
savings banks so as to limit savings banks to lending to companies
and families only in their region, reassuming the role they had before
expanding nationwide. According to the reform, savings banks may
no longer have assets worth more than 10 billion euros or a deposit
market share of more than 35% in their region. Otherwise, they will
be transformed into foundations whose banking business will be
managed by ordinary banks. Savings banks will also be placed under
strict supervision by the Bank of Spain.
At the EC meeting on 29 May 2013 where the Commission published
country-specific recommendations to boost competitiveness and
increase economic dynamism, Commission President José Manuel
Barroso commented the ongoing debate about austerity versus
growth was counter-productive, and that European countries should
focus on promoting the European consensus by being more ambitious
when it comes to economic reforms. The following were concluded
from the meeting:
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Regulatory Reform Review | Editorial
We do not see the regulatory pressure
becoming any lesser in the remaining
course of 2013 which will continue to
shape the financial services landscape
moving forward.
• There are fewer countries under excessive deficit with 16
currently, down from 24 in 2011. Economic and Monetary
Affairs Commissioner, Olli Rehn, recommended that EDP be
removed for Hungary, Italy, Latvia, Lithuania and Romania, and
that the Council should open one for Malta. Meanwhile France,
Spain, Poland and Slovenia received an extension of two years
to cut their deficits below the EU ceiling of 3%, and Portugal and
Netherlands received an extension of one year each.
• The Commission proposed a one-year extension for Belgium,
even though the country had not taken effective action to put
an end to the deficit in the past three years. The country will
not be fined, as the six-pack legislation of reinforced economic
governance only entered into force in December 2011.
• Italy was praised for having a large structural adjustment over
the past two years to keep deficits below 3%.
• Recommendations to France, Spain, Slovenia and Germany
regarding wages, cost of labour and recession.
The EU heads of states will convene on 27-28 June 2013 to endorse
the recommendations with adoption of the terms to be in effect
from July 2013.
It is evident that so far in 2013 countries have stressed on the
importance of regulatory reform and acting towards establishing
themselves as competitors in an equal playing field and negating
any regulatory arbitrage.
What this means for the financial services industry is that
regulatory compliance that has far reaching impact on their
business models, capital and liquidity and strategy will continue to
be reckoned with. What is desired is attaining equilibrium in terms
of a suitable or workable model and institute solutions that will
benefit the organisation in the long run and ensure that it remains
relevant in the market space.
Editorial | Regulatory Reform Review
17
Regulatory Updates
1.Banking
1.1 Basel III
Malaysia
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Malaysia’s Central Bank issued CIMB Bank a
preliminary approval for a subordinated ringgit
bond that will count towards its Tier 2 capital,
and may launch the deal in the next few weeks.
Another local lender, Public Bank, will follow
suit. Should the deals materialise, they will set a
template as the first in Asia, excluding Japan and
Australia. Banks across Asia have until now held
back from replacing their old-style Tier 2 debts,
in part due to concerns over the cost of doing so.
In Malaysia, investors are looking for a Basel IIIcompliant Tier 2 issue to pay a yield of 6%-7% to
offset the increased risk of losses. That would be
200bp-300bp above outstanding old-style Tier 2
paper. CIMB, however, will be hoping for a good
response from investors, who have been starved
of new issues since March when the primary
market ground to a halt ahead of a general
election. As well as setting a benchmark for
pricing, CIMB’s issue will provide more clarity
on the structures that are acceptable - to both
regulators and investors.
“As the EU Capital Requirements
Directive (CRD IV) moves into
the final stages of approval in
the European Parliament and
Council, the capital aspects of
Basel III are pretty much a done
deal, and the focus is now shifting
more towards the liquidity ratios,
notably the LCR.”
Chris Matten
Banking & Capital Markets
Advisory Leader,
PwC Singapore
1.2 Financial Benchmarks
Singapore
MAS on 14 June 2013 announced a proposed
framework for financial benchmarks and a yearlong review of the Singapore dollar interest rate
benchmarks and processes relating to banks’
benchmark submissions. The two tables below
detail the findings from the review.
Table 1: Results and supervisory actions for banks
Table 2: Results and supervisory actions for traders
Findings
Supervisory actions
Findings
20 banks found with deficiencies in the governance,
risk management, internal
controls and surveillance systems for their involvement in
benchmark submissions.
• MAS has censured these
banks and directed them to
adopt measures to address
their deficiencies.
A total of 133 traders were
• The respective banks have
found to have engaged
taken disciplinary actions
in several attempts to
against the traders involved.
About three-quarters of these
inappropriately influence the
benchmarks. While there is no
traders have resigned from or
conclusive finding that SIBOR,
have been asked to leave their
SOR and FX Benchmarks were
banks. The rest of the traders
successfully manipulated, the
who remain employed by
traders’ conduct reflected a
their banks have been, or will
lack of professional ethics.
be, subject to disciplinary
actions.
• Banks are required to report
their progress to MAS on a
quarterly basis, and conduct
independent reviews to
ensure the robustness of
their remedial measures.
• The banks are required
to set aside additional
statutory reserves with MAS
at zero interest for a period
of one year. Supervisory actions
• MAS has referred some
cases to the Commercial
Affairs Department and
the Attorney-General’s
Chambers.
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1.2 Financial Benchmarks
4. Requirements for submitters of key
benchmarks will include:
Singapore
Summary of the consultation “Proposed
Regulatory Framework for Financial
Benchmarks”
a. Compliance with the code of
conduct for submitters developed
by the respective administrators;
and
1. MAS will introduce specific criminal
and civil sanctions under the Securities
and Futures Act for manipulation of any
financial benchmark. This will cover all
financial benchmarks including SIBOR,
SOR, and FX Benchmarks.
b. Appointment of an external
auditor to conduct an annual
independent review of the
submitter’s benchmark submission
activities and submission of this
auditor’s report to MAS.
2. MAS intends to subject the setting of
key financial benchmarks to regulatory
oversight. MAS will have the powers under
the SFA to designate key benchmarks
based on considerations such as the
systemic importance of a benchmark
and an assessment of its susceptibility to
manipulation. MAS proposes to designate
as key benchmarks the SIBOR, SOR and FX
Benchmarks currently administered by the
ABS.
3. Requirements for administrators of key
benchmarks will include:
a. Establishing effective arrangements for
regular monitoring and surveillance of
benchmark submissions;
b. Putting in place robust governance
arrangements to identify and mitigate
actual and potential conflicts of
interest; and
c. Establishing a committee that will
be responsible for overseeing the
benchmark administration process and
code of conduct for submitters.
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5. The industry will be announcing new
measures to improve the financial
benchmark setting process for existing
benchmarks. MAS welcomes these
measures.
The consultation will close for comments
on 15 July 2013.
Indonesia
Bank Indonesia set its first fixing for the
rupiah 0.2% stronger than an equivalent
rate in Singapore, where the central bank
has started a probe to ascertain whether
onshore rates were manipulated. Bank
Indonesia has followed the example
of BNM to require lenders under its
oversight to use an onshore benchmark
for transactions in tandem with its Jakarta
Interbank Spot Dollar Rate, which it fixed
at 9760 per dollar on 20 May 2013 for
currency derivatives. That compared with
the 9778 set by the Association of Banks
in Singapore, which is used to settle nondeliverable forwards in the rupiah.
UAE
1.4 Corporate Governance and Culture
Update
On 5 – 6 June 2013, the OECD held an Asian
Roundtable on corporate governance in
partnership with the government of Japan
in Kuala Lumpur to better understand the
particular features and challenges associated
with equity market developments worldwide
and corporate governance policies and practices
and their relationship to equity market growth
in Asia. The discussion will be structured
according to the five following themes:
US lender Citigroup will cease to participate in
the Gulf’s benchmark-setting process, and will
leave the EIBOR setting panel on 25 June 2013.
With Citi’s departure, the panel reduces to a
total of 11 banks and will further increase the
dominance of local banks over foreign banks in
the panel.
1.3 Bank Licensing
India
Following RBI’s publication of “Guidelines for
Licensing of New Banks in the Private Sector”
earlier in February 2013, the authority on
3 June 2013 released a clarification note in
response to the queries received and also setting
out the following two changes:
• Validity period for the in-principle approval
– RBI has decided to extend the validity
period of the in-principle approval from one
year to 18 months.
• Applicability of norms of other regulators –
It has been decided that while the structure
prescribed in the guidelines is the preferred
structure, the intending applicants
should approach the other financial
sector regulators for bringing the entities
regulated by them under the NOFHC.
Their decision in this regard would prevail.
Therefore, at the minimum, the proposed
bank and all RBI regulated entities will
necessarily be under the NOFHC.
• Risks and opportunities of controlling
owners in Asia;
• Asian equity markets and long-term
growth;
• The role of institutional shareholders in
Asia;
• Board nomination and election in Asia:
recommendations; and
• Public supervision and enforcement in Asia:
breakout sessions.
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Singapore
1.5 Recovery and Resolution Planning
EU
Following the Eurozone’s recent experience in
Cyprus’ bailout, ECB President Mario Draghi
said that it is imperative that Europe’s leaders
create a new agency empowered to restructure
failed banks to help propel the region out of the
economic and financial crisis once and for all, and
keep troubled banks from burdening governments
through bailout costs. In his speech made in
London on 23 May 2013, he said that the new
agency – or single resolution mechanism – will be
able to force banks creditors and shareholders to
take losses first when a bank goes under instead of
turning to taxpayers for help. Earlier in the year,
the EU put the ECB in charge of supervising with
the power to suspend banks’ licenses. The job of
taking control of a failed bank will then be where
the new agency comes into action. Although
individual countries have agreed for a centralised
EU approach, Germany said that such a central
resolution authority will require changes in basic
treaties governing the EU which in turn could take
years. The country, Eurozone’s biggest economy,
suggested creating a network among national
authorities to deal with the issue in the interim.
The agency is said to be set to be created when the
ECB takes over banking supervision next year.
MAS published responses to its August 2012
consultation paper “Legislative changes relating
to requirements on key executive persons
and directors for insurers” after receiving
comments from 15 firms. The amendments will
be reflected in the authority’s new Insurance
Regulations to be introduced by 2014.
The list below sets out the topics that MAS
consulted on and provided clarification in its
responses:
• MAS’ Prior Approval for Appointment of
Chairman, Director or Key Executive Person;
• Powers to Remove Chairman, Director or
Key Executive Person;
• Definition of Chief Executive;
• Appointment of Deputy CE;
• MAS’ Response;
• Written Approval by the Board of Directors
on the Appointment of Appointed Actuary;
• Investigation Conducted by Certifying Actuary
into Financial Condition of General Business;
• Expanded Roles and Responsibilities for AA
and CA;
• Reporting Line for AA and CA;
• Notification of Other Actuarial
Engagements by AA and CA;
• Additional Roles by Director or Key
Executive Person;
• Fit and Proper Policy
• Criteria for Assessing Appointment of
Directors and Key Executive Persons; and
• Treatment for Captive Insurers.
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Regulatory Reform Review | Banking
1.6 Bank Failure
Japan
The Japanese government endorsed changes
in legislation dealing with failed FIs, allowing
brokerages and insurers to be eligible for
emergency capital from the state-run deposit
insurance agency. Mitsubishi UFJ Financial
Group Inc., Sumitomo Mitsui Financial Group
Inc. and Mizuho Financial Group Inc. - Japan’s
three “megabanks” - will seek approval from
their shareholders later this month to amend
corporate rules in accordance with the new law.
The revisions will allow banks to issue preferred
shares that can be converted into common stock
or written off if firms become non-viable.
2.
Capital Markets
2.2 Stock Markets
2.1 Foreign Exchange
India
India
On 24 May 2013, RBI announced that it
will continue taking steps to curb excessive
volatility instead of specific levels in the
currency market. The Central Bank plans
to allow exporters and importers to rebook
and cancel up to 50% of their total hedged
exposure, an increase from the existing cap
of 25%. Also, the documentation for booking
forward contracts up to $200,000 will be
simplified. Although having seen increasing
trends in the past few years, India still accounts
for a very small portion of the global foreign
exchange market turnover with the entire bulk
of international trade in India denominated in
the US dollar.
On 31 May 2013, SEBI announced that it will
increase the number of stocks to be borrowed
and lent. Stocks that fulfil the criteria of an
average monthly trading turnover of at least Rs
100 crores will be allowed to be borrowed and
lent out. SEBI also indicated the introduction
of liquid Index ETF as eligible for trading, with
the ETF deemed liquid provided it has traded on
at least 80% of the days over the past 6 months
and its impact cost over the past 6 months is
less than or equal to 1%. The relaxing of rules is
part of the regulator’s efforts to ramp up India’s
securities lending market.
The country’s newest stock exchange, MCX-SX,
commenced live trading on its debt-trading
platform on 10 June 2013. The debt segment
was launched on 7 June 2013 when its equity
segment daily turnover crossed Rs 1000 crore,
while turnover of its flagship store index crossed
the Rs 500 crore mark. The NSE and Bombay
Stock Exchange will also deal in its dedicated
debt platform.
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2.3 Algorithmic Trading
2.4 Free Float for Public Companies
India
India
SEBI issued a circular on 21 May 2013 about
guidelines on Algorithmic Trading with the
following revisions:
Indian markets will have to be prepared for
a paper flood as private companies rush to
offload their promoters’ stake in the market
to comply with the SEBI-mandated deadline
that enjoins listed companies to ensure a
minimum public shareholding of 25% by 3
June 2013. A study showed that shares worth
another $680 million will be available from 12
public sector companies that need to achieve
a minimum public float of 10% by 9 August
2013. The market has already seen 44 out of
an approximate 72 companies come out with
their offer for sale of securities, while eight
others have devised institutional placement
programmes to comply with the rules.
• Stock brokers and trading members shall
subject their algorithmic trading system
to a system audit every six months to
ensure that requirements are effectively
implemented;
• Such system audit shall be undertaken
by a system auditor with the following
certifications:
o CISA from ISACA;
o DISA from Institute of Chartered
Accountants of India;
o CISM from ISACA; and
o CISSP from International Information
Systems Security Certification
Consortium.
• Deficiencies of issues identified during the
process of system audit of trading algorithm
will be reported to the stock exchange
immediately on completion of the system
audit and immediate corrective action shall
be taken to rectify the issues.
• In case of serious deficiencies or issues,
the stock exchange will not allow the
system to be used until issues are rectified
and a satisfactory system audit report is
submitted.
• The stock exchange may also impose
penalties if satisfactory corrective action is
not taken within the time-period stipulated.
SEBI is tacitly acknowledging that certain
algorithms are useful to both investors and
traders by clamping down on high frequency
trading software. The circular will be applicable
with effect from 27 May 2013.
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2.5 Debt and SME trading platforms
India
SEBI granted MCX Stock Exchange, a new
entrant in India’s capital markets, final approval
for trading in debt segment, and an in-principle
nod for separate SME platforms. The regulator
will also approve leading bourse, BSE, to launch
a separate debt trading segment.
In the debt segment, banks, insurance
companies, pension funds, provident funds and
retail investors can become members of the
bourse and trade in this market. There will be
separate order books for retail and institutional
investors. This concept of dedicated debt trading
platforms is part of SEBI’s efforts to boost the
country’s corporate debt market.
2.6 Investor Protection
2.7 Mutual Funds
India
India
On 18 May 2013, SBI said that either RBI or
SEBI should take up major campaigns to create
awareness among investors lured to ponzi
schemes. The West Bengal based Saradha Group
was most recently accused of duping investors
of thousands of crores of rupees in savings. SBI
chairman Pratip Chaudhuri said that either
regulator should work in line with Jago Grahak
Jago, Woolmark or Hallmark (gold) to create
awareness, and more needs to be done in terms of
penetration with low branch and ATM coverage.
SEBI has put in place a colour coding system
and a product labelling mechanism to be
adhered to by fund houses starting 1 July 2013.
The new scheme will display three colours –
blue, yellow and brown – on the application
form and offer document, each denoting a
different level of risk. The labelling mechanism
will label the scheme objective, whether to
create wealth or provide regular income and the
instrument it will invest in – equity or debt.
In a move to filter out unauthorised entities
giving advice to investors, SEBI’s “Investment
Adviser Regulations” stipulates that anyone
seeking to act as an investment adviser will
first have to obtain a certificate of registration
from the Board. In the regulator’s press release
published on 29 May 2013, SEBI states that
the applicant is required to submit the form
with a fee of RS 5000 by way of bank draft,
and will receive a reply from SEBI within one
month. The law, enacted in January 2013,
made it mandatory for investment advisers to
register with the capital market regulator and
also require them to disclose all issues that
could result in conflict of interests. Now, to
ensure more transparency, banks, non-banking
financial companies and corporates — would
have to segregate their investment advisory
services from other activities.
Table 3: Colour scheme for mutual funds
Colour
Level of
risk
Examples of funds
Blue
Low
Debt funds – income, gilt,
dynamic bond funds, fixed
maturity plans
Yellow
Moderate
Hybrid products – monthly
income plans, balanced
funds, multi-asset funds –
e.g. gold
Brown
High
Diversified equity, index
and sectoral funds
This system can help investors better choose
funds that are suited to their risk profiles while
providing a basic understanding of the risk
associated with the product. However, it will
not be able to capture the risk details of each
scheme.
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2.8 High Frequency Trading
Update
The WFE released on 29 May 2013 a review on
HFT, noting initiatives and risk management
practices that exchanges have adopted to
enhance the safety, stability and integrity
of the markets. Key points of the report are
summarised as follows:
• Strategies using algorithmic trading
and HFT play a central role on financial
exchanges, alternative markets, and some
banks’ OTC dealings;
• Exchanges have adapted to the speed
and automation of today’s markets by
deploying sophisticated risk mitigation and
surveillance technology, and are continuing
to innovate in these areas to further
enhance the safety, stability and integrity of
the markets;
• Today’s exchange markets are faster,
more transparent and more efficient
than the market structures before. The
empirical research concludes that HFT
has measurable beneficial impacts on a
variety of core market quality metrics,
such as tighter spreads, increased liquidity,
more efficient price formation, reduced
transaction costs for market participants
and lower market volatility;
• HFT appears to have stagnated in markets
where automated trading and highly advanced
technology infrastructures have been in place
for some time and HFT levels in the US and
Europe are estimated to be trending even
slightly downward in recent years;
• While the trend is flat to down among the
earliest markets to adopt HFT, the Tokyo
Stock Exchange has seen HFT activity
grow over the past three years to levels
comparable to the US and Europe. HFT still
appears to be growing relatively rapidly
in developing markets, in correlation with
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advances with the technology environment;
• There is a considerable library of academic
literature on HFT and critics have focused
on qualitative issues concerning fairness and
systemic risk. While the rules concerning
HFT are clearly defined on transparent or
‘lit markets’ such as exchanges, it is difficult
to find rules or statistics about the ways
that HFT is used in some dark pools, OTC
markets, and by brokers who internalise their
order flow; and
• International cooperation among market
operators is important to accelerate shared
learning and promoting high standards for
enhancing the safety and integrity of markets.
2.9 Collateralised Assets
Update
On 27 May 2013, BIS published the report “Asset encumbrance, financial reform and the demand for
collateral assets”, recommending that banks should disclose the assets pledged as collateral for loans
so that investors have a better gauge of risk. The report examines how greater collateral use and asset
encumbrance may impact the functioning of the financial system and draws lessons for policy makers.
Table 4 provides a summary of the BIS report.
Table 4: Summary of key findings in the BIS report
Topic
Details
Increasing
collateralised
funding and asset
encumbrance
• There is evidence of increasing bank reliance on collateralised market funding, particularly in Europe.
A key driver of this development is perceptions of higher counterparty credit risk amongst investors,
who demand more collateral or charge higher risk premia on unsecured debt.
• The share of collateralised funding differs significantly among banks and between jurisdictions. Indeed,
different business models, market structures and regulatory frameworks will tend to generate – and
support – structurally different levels of collateralised funding in bank balance sheets
• Greater reliance on collateralised funding raises the share of bank assets that are encumbered.
Asset encumbrance is also rising on account of initial margin requirements of central and bilateral
counterparties to cover derivatives exposures and other aspects of regulatory reform.
No aggregate
collateral
shortages, but
differences
amongst
jurisdictions
• The demand for HQA that can be used as collateral will increase due to a number of key regulatory
reforms. Examples are stricter standards for initial margin requirements on OTC derivatives
transactions, both for central and for bilateral clearing arrangements, and the introduction of the
liquidity coverage ratio under Basel III. This comes on top of greater demand for collateral assets in
secured bank funding.
• Current estimates suggest that the combined impact of liquidity regulation and OTC derivatives reforms
could generate additional collateral demand to the tune of $4 trillion. Other measures suggest even
greater increases in supply.
• Concerns about an absolute shortage of HQA appear unjustified. Yet as the situation varies markedly
across jurisdictions, temporary HQA shortages may arise in some countries.
Implications
for markets and
financial stability
• Private sector adjustments can mitigate shortages of HQA. Such adjustments include broader eligibility
criteria for collateral assets in private transactions, more efficient entity-level collateral management
and increased collateral reuse and collateral transformation.
• Yet while lessening any collateral shortage, such endogenous responses will come at the cost of greater
interconnectedness in the financial system, for example in the form of more securities lending or
collateral transformation services. They may also increase concentration, if these responses rely on the
services of only a small number of intermediaries, and will add to financial system opacity, including
via shadow banking activities, and increase operational, funding and rollover risks.
• Increased collateralisation of bank balance sheets mitigates counterparty credit risk, but adds to the
procyclicality of the financial system. The channels through which this occurs, in times of financial
stress, are the exclusion of certain assets from the pool of eligible collateral, higher haircuts on
collateral assets, increased margin requirements on centrally cleared and non-centrally cleared
derivatives trades and marking-to-market of bank assets in collateral pools.
• Greater encumbrance of bank balance sheets can adversely affect the residual claims of unsecured
creditors during bank resolution, increase risks to deposit insurance schemes and reduce the
effectiveness of policies aimed at bail-in. Given limited disclosures on encumbered assets, the ability of
markets to accurately price unsecured debt can also be impaired.
*Source: BIS
Capital Markets | Regulatory Reform Review
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3. AML
Update
IMF warned that low interest rates risk harming
the economy, contrary to the BoE’s view that
loose policy is the most beneficial. BIS concurs
with IMF that inflation may be hard to get back
under control and eventual rising of interest
rates will make it more difficult and dangerous.
On 17 May 2013, FINRA publicised penalties
against three companies and four associated
individuals after finding that they had failed to
establish and implement adequate procedures
for detecting money laundering and other
suspicious transactions in violation of the
Bank Secrecy Act. The Authority announced
settlements of three formal disciplinary
proceedings that in total imposed $900 000 in
sanctions and suspensions.
The US Treasury also identified Liberty Reserve,
a web-based money transfer system designed to
facilitate money laundering in cyber space, an
FI of primary money laundering concern under
the USA Patriot Act. This regulatory action
comes after the unsealing of an indictment by
the US Attorney’s Office, which charged Liberty
Reserve and seven of its principals for their
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Regulatory Reform Review | AML
alleged roles in running a $6 billion money
laundering scheme and operating an unlicensed
money transmitting business. FinCEN has
delivered to the Federal Register a regulatory
finding explaining the basis of the actions
as well as a notice of proposed rulemaking
that, if adopted as a final rule, would prohibit
covered US FIs from opening or maintaining
correspondent or payable-through accounts
for foreign banks that are being used to
process transactions involving Liberty Reserve.
The notice also proposes to require covered
FIs to apply special due diligence to their
correspondent accounts maintained on behalf of
foreign banks to guard against any transactions
involving Liberty Reserve. If adopted, these
measures would effectively cut off Liberty
Reserve from the US financial system. After
publication in the Federal Register, the public
will have 60 days to comment on the proposed
rule against Liberty Reserve.
In addition, the Federal Reserve has also
launched an investigation into the possible risks
in online payment systems such as PayPal Inc.
and the virtual currency bitcoin to come up with
best practices for consumer protection as the use
of these online services grow.
Australia
The Australian Financial Review reported on 31 May 2013 that
Technocash, a firm accused of being used as part of a money laundering
scheme and received a government grant worth almost USD100,000
during start-up in 2000. US authorities have alleged made a mutual
assistance request to aid with the investigation against Technocash.
Technocash uses National Australia Bank and Commonwealth Bank of
Australia-owned Bankwest accounts for Australian dollar transactions,
but it was only Westpac’s Technocash link that has been included in the
US investigation as it uses accounts for customer transactions involving a
range of international currencies.
Cyprus
part of a banking conglomerate – with
insurance, mutual funds and brokerage arms
– rendering the review necessary to ensure
that each operation is properly maintained to
avoid systemic risk. The RBI note also suggested
taking up this issue with the FSDC or its subpanel so that it can be approached in a holistic
manner. Earlier this year, RBI had ringfenced
banking operations from other activities
of promoters and group companies in its
guidelines for new banks. On 24 May 2013, RBI
Governor D Subbarao briefed a parliamentary
panel on regulatory issues and discussed steps
to prevent a repeat of the recent chit-fund scam
in West Bengal. RBI will also address the issue
of RBI officers’ involvement in the scam in a
separate written reply.
The CBC accused troika of distorting
information in a document for a 13 May 2013
Eurogroup meeting that summarised the
island’s status regarding AML measures by
making inferences where none existed. CBC
said that the summary did not give a synopsis
of main findings but rather a description of the
perceived weaknesses of the system and failed
to refer to any of the positive aspects from the
original document which includes:
• That 29 unreported potentially suspicious
cases had been identified in an analysis of
590,000 transactions during the last 12
months;
• CDD requirements of the Cyprus legal
framework are more detailed and
prescriptive than many other EU member
states; and
• A solid level of compliance on CDD and
identification of customers.
CBC authorities are in the process of providing
a detailed response to the troika and the
Eurogroup.
India
RBI is stepping up its resilience against money
laundering and fraud following a series of
incidents regarding this issue in the past few
months. The Central Bank has proposed a
review of all banking licences from the ‘fit and
proper’ angle, after the money laundering
allegations by Cobrapost naming the country’s
three largest private banks guilty of violating
AML guidelines. In its note to the finance
ministry, RBI stated that the issue relates to
inter-connectedness among entities forming
In the internal audit report by the Authority, it
found that over 30 banks have failed to follow
prescribed rules and guidelines regarding KYC
norms, for example generating Cast Transaction
Reports and Suspicious Transaction Reports
because of the absence of a unique customer
identification number. RBI’s review revealed
that the violations also spread across third-party
products like insurance and mutual funds and
the sale of gold coins. RBI has forwarded all the
findings to each of the 30 banks implicated and
will begin taking action effective immediately.
However, in a separate news article, it has
been reported that RBI takes some time to take
action against banks violating KYC norms due
to existing system and procedures to follow.
Rajiv Takru, Secretary from the department
of financial services, clarified that the degree
of overall KYC conformity of scheduled
commercial banks is good, but perhaps the
mishaps were due to inadequate attention to
existing rules and regulations.
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Hong Kong
The HKMA Banking Supervision Department
on 7 June 2013 issued a letter to all AIs on tax
evasion, reiterating the supervisory body’s
commitment to safeguard the financial system
from being used to facilitate tax evasion and
reminding AIs to act prudently in the conduct
of their customer relationships. HKMA has
recently indicated its intention to include tax
evasion as one of the focus areas during its
forthcoming on-site examinations of AIs’ AML/
CFT systems and controls. The letter continues
to recommend the following for AIs:
• Ensure that measures to combat tax evasion
are deliberated by senior management in
the committee having responsibility for the
oversight of AML/CFT; and
• Adequate records should be kept in the
meeting minutes of these deliberations,
which should include
Nepal
o how the AI identifies and assesses tax
crime related risks through existing
customer due diligence,
o
the implementation of control measures
that are commensurate with the risks
identified,
o staff training and assurance measures
and
o how the AI is monitoring international
developments in this area.
The HKMA’s 2013 AML/CFT seminar will be
themed “tax evasion” and held later in 2013.
On 14 June 2013, the Chief Executive-in-Council
of the HKMA approved the UN Sanctions
(Iran) (Amendment) Regulation 2013 under
the United Nations Sanctions Ordinance.
The Amendment Regulation amends existing
sanctions with an updated scope of prohibited
items subject to sanctions include all items,
materials, equipment, goods and technology
as per the International Atomic Energy Agency
documents Part 1 and 2, and the UNSC
document S/2012/947.
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Regulatory Reform Review | AML
In the last edition of Managing Upstream Risk,
we covered the two ordinances on AML that
the Nepalese Ministry of Finance forwarded to
the cabinet for approval in hopes to avoid being
blacklisted by the FATF. On 7 June 2013, the
president of Nepal endorsed both ordinances,
which came into immediate effect.
UAE
UAE’s Central Bank is considering introducing
new legislation to raise the minimum capital
required to operate exchange houses following
the revoking of licences of two companies for
violating industry rules this month. Under
the existing capital requirements from 1992,
exchange houses with unlimited liability were
required to have a minimum capital of Dh1m
and Dh2m to operate as a money exchange
business and remittance business respectively.
The capital requirement rises to Dh50m if the
business wants to operate with limited liability
under the proposed changes. The Authority
may also plan to strengthen its AML rules as
it believes exchange houses are at particular
risk of being targeted by money launderers. In
May, Al Hilal Exchange was sanctioned by the
US Treasury for providing financial services to
previously designated Iranian banks.
4. EMIR
Update
Table 5: Key dates under EMIR
15 September 2013
• Periodic reconciliation with counterparties
• Processes for dispute resolution and reporting of disputes agreed with counterparties
• Consider at least semi-annual portfolio compression if more than 500 non-cleared contracts exist
with a counterparty.
23 September 2013
Credit and interest rate derivatives (including cross-currency swaps and swaptions) – Report all new
transactions and all transactions entered into on or after 16 August 2012 and still open 23 September
2013
23 December 2013
Credit and interest rate derivatives – Report all transactions entered into before 16 August 2012 and
still open 23 September 2013
1 January 2014
FX, commodity, equity and other derivatives – Report all new transactions and all transactions
entered into on or after 16 August 2012 and still open 1 January 2014
1 April 2014
FX, commodity, equity and other derivatives – Report all transactions entered into before 16 August
2012 and still open 1 January 2014
23 September 2016
Credit and interest rate derivatives – Report all transactions terminated between 16 August 2012 and
23 September 2013
1 January 2017
FX, commodity, equity and other derivatives – Report all transactions terminated between 16 August
2012 and 1 January 2014
Table 6: Derivative confirmation deadlines for NFCs
Credit and interest rate
derivatives
To 31 August 2013
5 business days
To 31 August 2014
3 business days
After 31 August 2014
2 business days
FX, commodity, equity and
other derivatives
To 21 August 2013
7 business days
To 31 August 2014
4 business days
After 31 August 2014
2 business days
AML | Regulatory Reform Review
31
Update
The EC published a note on 13 May 2013
explaining EMIR on CCPs established outside
of the EU but wish to provide services to market
participants established in the EU. Under EMIR,
EU clearing members can only access non-EU
CCPs that are recognised under EMIR.
third country that is considered as having
equivalent systems for AML/TF to those of
the EU; and
• Cooperation arrangements have been
established between ESMA and the
domestic supervisory authorities.
The EC has asked ESMA to provide technical
advice on the supervisory framework applicable
to third-countries and is expecting to receive
a reply for technical advice for the first and
second set of countries by 15 June 2013. All
regulatory technical standards under EMIR
came into effect on 15 March 2013 and all
non-EU CCPs currently providing services to EU
clearing members must apply for recognition to
ESMA by 15 September 2013.
Update from PwC UK’s Centre of
Excellence
On 6 June 2013 ESMA released an update to
its first EMIR FAQ that expands on answers to
existing questions, adds more than 20 questions
and presents the long awaited transaction
reporting scenarios section. Below is a summary
of key points of the update, with new questions
marked with an asterisk:
Clearing issues
Benefits of being recognised under EMIR for nonEU CCPs
• Able to continue providing services to EU
clearing members and trading venues
whilst remaining exclusively subject to their
domestic legal and supervisory framework;
• Benefit from the application of the
clearing obligation in the EU where EU
counterparties subject to the clearing
obligation are obliged to use either CCPs
authorised in the EU or non-EU CCPs
recognised under EMIR; and
• Qualifies as a “qualified CCP” on the capital
treatment of EU banks’ exposures to CCPs
under the new Basel III rules as transposed
in the EU.
Main conditions for the recognition of non-EU
CCPs under EMIR
• The EC has adopted a positive equivalence
decision with regard to regulatory
framework applicable to CCPs in the CCP’s
home country;
• The CCP is authorised and subject to
effective supervision and enforcement in its
home country;
• The CCP is established or authorised in a
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Regulatory Reform Review | AML
1. NFC clearing threshold
• Excluding trades executed outside of
a regulated market, but subject to its
rules, (eg cleared by the regulated
market) from the definition of 'OTC
derivatives'. Such trades can be
deducted by NFC firms from the
clearing threshold;
• Clarifying that activities of third country
NFC group companies will be included
in the threshold calculation, if such
entities would be subject to clearing in
the EU;
• *Advising on the calculation of notional
amounts of various types of derivatives;
and
• *Providing guidance on the hedging
definition.
2. Intra-group and pension clearing
exemption application timing – Question
6 amended to note that pension firms
should also provide notice that they intend
to rely on their clearing exemption from this
date. Also states that national competent
authorities can arrange for intra-group and
pension exemption notices to be received at
an earlier time.
3. CCP client margin
• Advises that any excess margin called
by clearing members and relating to
segregated accounts must be posted to
the CCP; and
• *Refusal to allow clearing members
to exclude segregated accounts
from exposures calculations used to
determine default fund contributions.
4. Clearing member segregation and
portability obligations – Advises that
clearing members must have processes in
place to meet segregation and portability by
the time the CCP is EMIR authorised.
Non-centrally cleared risk management
1. Art 11 operational risk issues
• Clarifies that timely confirmation
applies innovation and portfolio
compression trades and provides
guidance on extensions for confirming
with counterparties in different time
zones/jurisdictions;
• *Sets out justification for when firms
decided not to undertake compression;
and
• *Application of Art 11 operational risk
obligations to open trades.
2. Third country firms legal liability re
Art 11 operational risk requirements –
*Confirms that third country entities have
no legal obligation to comply with any art
11 operational risk requirements when
dealing with an EU counterparty.
3. Reporting of unconfirmed trades –
*Clarification on timings and confirms that
firms should report to national competent
authorities only when requested.
Reporting
1. Transaction reporting
• *Guidance on reporting of collateral
and valuations;
• *Guidance on reporting information not
available at the time a backloaded trade
is concluded;
• *Requirement to file end-of-day trade
report, not provide multiple intra-day
contract variation reports; and
• *More guidance on use of client codes
in lieu of LEIs, confirmation that preLEIs should be used now, requirement to
provide daily updates.
2. *Transaction reporting scenarios –
Provides a useful summary of EMIR
reporting principles and three execution
scenarios: 1) bilateral trades, 2) riskless
principle (back to back trades) and 3)
agency trades.
AML | Regulatory Reform Review
33
5. OTC Derivatives
Update
Leaders of the G20 announced a self-imposed
September 2013 deadline to reach a resolution
on supervising derivatives markets. The leaders
had long pledged to make off-exchange traded
derivatives like credit default swaps more
transparent but have been delayed due to the
differences emerging over how far each country
can regulate cross-border. The plan is for the
$640 trillion derivatives market, dominated
by 16 big banks, to have trades recorded and
cleared by a third party clearing house that
are backed by a default fund. The September
deadline coincides with a G20 meeting in
Russia.
On 16 May 2013, the CFTC finalised the rules
for SEFs, agreeing to reduce the number of
banks that asset managers need to contact on
prices of derivatives from five to two. However,
in approximately 15 months, the standard will
rise to three banks, subject to the agency’s factbased analysis of the RFQ minimum. This phasein implementation will help market participants
and SEFs in transitioning from the swap
industry’s current bilateral market structure to
the new transparent model. CFTC’s decision of
reduction comes after comments received from
market participants who complained that a
higher number of liquidity providers would raise
transaction costs.
According to the WFE’s latest HFT review
published on 29 May 2013, the trade
organisation found that industry participants
lack rules over the ways HFT is used in dark
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Regulatory Reform Review | OTC Derivatives
pools and in the OTC markets. Despite the lack
of statistics and rules regarding HFT, HFT had
measurable beneficial impacts on a variety of
core market quality metrics, including tighter
spreads, increased liquidity, more efficient
price formation, reduced transaction costs for
market users and lower market volatility in most
circumstances. The ambiguity over how HFT is
used in dark pools and OTC markets had even
pushed regulators to be more vigilant. In the
report, the organisation also said that exchanges
have adapted to the speed and automation of
today’s markets by deploying sophisticated
risk mitigation and surveillance technology,
and are continuing to innovate in these areas
to further enhance the safety, stability and
integrity of the markets. Statistics showed that
HFT levels in the US and Europe are estimated
to be trending even slightly downward in recent
years. While the trend is flat to down among the
earliest markets to adopt HFT, the Tokyo Stock
Exchange, has seen HFT activity grow over the
past three years to levels comparable to the US
and European venues. In developing markets,
HFT still appears to be growing relatively
rapidly.
Singapore
On 11 June 2013, MAS published exemptions for two entities under the
Securities and Futures Act, regarding interdealer brokers. These IDBs
operate as intermediaries between commodity wholesale institutions in
relation to OTC derivative transactions. Following the move by major
international exchanges to convert OTC derivatives that are cleared on
their exchanges into futures contracts, the IDBs are required under the SFA
to hold a CMS licence for trading in futures contracts in order to deal in
these contracts. The exemption was to allow the IDBs to continue serving
their customers in the interim while their applications for the CMS licence
were being reviewed. Under the conditions of the exemption, the IDBs are
only allowed to deal with accredited and institutional investors and are
not allowed to hold customers’ positions, monies or assets. By granting
exemptions, MAS seeks to ensure consistent regulatory treatment of like
activities to minimise incentives for regulatory arbitrage and provide a
level playing field for market participants.
Europe
ECB published on 7 June 2013 a consultation
paper of its regulation on oversight
requirements for systemically important
payment systems that aims to implement the
“Principles for financial market infrastructures”
regulation proposed in April 2012 in the
eurozone. The draft regulation covers both
large-value and retail payment systems
of systemic importance operated by both
Eurosystem national central banks and private
entities. It defines the criteria for qualifying
a payment system as systemically important,
and the requirements are aimed at ensuring
efficient management of legal, credit, liquidity,
operational, general business, custody,
investment and other risks as well as sound
governance arrangements, objective and open
access and the efficiency and effectiveness
of systemically important payment systems.
These requirements are proportionate to the
specific risks to which such systems are exposed
and are fully consistent with the CPSS-IOSCO
principles. In order to ensure that payment
systems operators implement the requirements
effectively, the draft regulation allows oversight
authorities to request corrective measures to
remedy or avoid repetition of non-compliance
with the regulation, and to impose effective,
proportionate and dissuasive sanctions for
infringements. The draft regulation provides
a transitional period of one year and the
consultation will close for comments on 9
August 2013.
OTC Derivatives | Regulatory Reform Review
35
6. Islamic Finance
Update
Singapore hosted the 4th World Islamic Banking Conference:
Asia Summit on 3 – 5 June 2013, bringing together more than
480 Islamic finance players and thought leaders. The three-day
conference, hosted by the Bahrain-based International Islamic
Financial Market and themed “Boosting International Linkages
and Cross-Border Opportunities”, focused on Islamic liquidity
management, Islamic hedging and capital-market instruments.
An exhibition showcasing the next generation of Islamic financial
products, innovative solutions and the latest developments in
the international Islamic banking and finance industry was held
concurrently on the sidelines of the conference.
Malaysia
The IFSB plans to issue a guidance note for Islamic banks in 2014
on the adoption of liquidity standards, warning that lenders lack
high-quality assets to meet the new requirements under the Basel
III accord. A separate guideline on capital adequacy will be issued
at the end of 2013. The Islamic body is concerned that liquidity is
where Islamic banks are likely to be most impacted because of the
lack of liquid sharia-compliant instruments that can be classified as
level 1 assets under Basel criteria. Sukuk issued in countries with
a sovereign rating lower than AA- would be unable to meet the
requirements for level 2 assets.
Turkey
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Regulatory Reform Review | OTC Derivatives
It has been reported that the Turkish government issued banking
licenses to two new Islamic banks in May 2013. The new banks will
join four Islamic banks that comprised more than 5% of the Turkish
banking sector.
7. Money Markets
Update
The SEC on 5 June 2013 released a proposal that includes two principal alternative reforms regarding
money market funds that can be adopted alone or in combination. One alternative requires a floating
NAV for prime institutional MMFs while the other would allow the use of liquidity fees and redemption
gates in times of stress. The proposal also includes diversification and disclosure measures that would
apply under either alternative.
Table 7: Details of each proposed alternative
Alternative 1:
Floating NAV – prime institutional MMFs would be required to transact at a floating NAV, not at a $1.00 stable share price.
Floating the NAV
No longer be able to use amortised cost to value portfolio securities except to the limited extent all mutual
funds are able to do so, and daily share prices will fluctuate alone with changes in the market-based value
of their portfolio securities.
Showing
fluctuations in
price
Required to price their shares using a more precise method so that investors are more likely to see
fluctuations in value. Prime MMFs would be required to “basis point round” their share price to the nearest
1/100th of 1%.
Exempting
government and
retail MMFs
Government and retail MMFs will be allowed to continue using the penny rounding method of pricing and
maintain a stable share price.
Government MMF – MMF that holds at least 80% of its assets in cash, government securities, or
repurchase agreements collateralised with government securities.
Retail MMF – MMF that limits each shareholder’s redemptions to no more than $1 million per business day.
Alternative 2:
Liquidity fees and redemption gates – MMFs would continue to transact at a stable share price, but would be able to use
liquidity fees and redemption gates in times of stress.
Liquidity fees
If an MMF level of “weekly liquid assets” were to fall below 15% of its total, the MMF would have to impose
a 2% liquidity fee on all redemptions unless the fund’s board of directors determines that such a fee is not
in the best interest of the fund.
Redemption
gates
Once an MMF crosses this threshold, its board of directors also would be able to impose a temporary
suspension of redemptions with a gated limit of 30 days.
Prompt Public
Disclosure
MMFs would be required to promptly and publicly disclose the fund crossing of the 15% weekly liquid
asset threshold, the imposition and removal of any liquidity fee or gate, and a discussion of the board’s
analysis in determining whether or not to impose a fee or gate.
Exemption for
government
MMFs
Government money market funds would be exempt from the fees and gates requirement. However, these
funds could voluntarily opt into this new requirement.
EU
It has been reported that MMFs may be granted more time to comply with EU rules regarding hoarding
cash reserves, with the EC possibly considering extending the draft timetable for funds that maintain
a fixed share price to build up a cash buffer equivalent to 3% of their assets. An early draft of the plans,
seen by Bloomberg News, would have required funds to comply with the measure six months after
the final version of the law is published, with the revised version increasing the timeline up to as long
as three years. The proposals, once published, will need to be approved by governments and by the
European Parliament before being passed into law.
Money Markets | Regulatory Reform Review
37
8. Retail Payment Systems
38
Hong Kong
On 22 May 2013, HKMA and the FSTB jointly issued a public
consultation paper on enhancing the regulatory regime for SVF
and RPS in Hong Kong. The paper proposes amendments in the
CSSO comprising of the following major components:
•
A licensing regime for SVF, under which no person shall
issue or facilitate the issue of multi-purpose SVF in Hong
Kong without being licensed by the HKMA;
•
Requirements on SVF float protection;
•
A designation regime for RPS, which empowers the HKMA
to designate important RPS to be subject to the HKMA’s
oversight;
•
Powers of the HKMA to perform on-going supervision of
SVF licensees and oversight of designated RPS (including
on-site examinations, investigations and enforcements);
and
•
Offences, sanction, and appeals under the proposed
regulatory regime.
In the official press release, HKMA noted that the new proposed
regulatory regime will empower encourage innovation in retail
payment products and services, and will enhance protection
for users of such products and services, further promoting the
retail payment industry in Hong Kong. Also, the consultation
seeks to empower HKMA to carry out the licensing, designation,
supervisory and enforcement functions on SVF and RPS in order
to enhance the protection of users’ float and the safety and
soundness of RPS in Hong Kong. The FSTB will work with the
HKMA to introduce an amendment bill after taking into account
comments received on the consultation paper which closes on
22 August 2013.
Regulatory Reform Review | Retail Payment Systems
9. FATCA
Update
On 23 May 2013, the IRS released a draft form “Form
W-8EXP” used for foreign entities to declare their
withholding status under FATCA. According to a news
report by Bloomberg, the form is more complicated than
earlier versions, containing a “new section for disregarded
entities that appears to indicate that some of these entities
may have to do their own reporting and get their own
identification numbers”.
Europe
The EU Tax Commissioner on 13 June 2013
presented the “Proposal for a Council Directive”,
expanding the scope of the AEOI between EU
member states on dividends, capital gains, all
other financial income and account balances.
The directive will be effective from January
2015 related to the taxable period from 1
January 2014 and will result in the EU having
the most comprehensive tax information
exchange system in the world and is intended
to set the global standard for other nations
to adopt in the future. A decision on these
enhancements is expected in the coming
months, no later than the end of 2013.
UK
HMRC on 4 June 2013 published new legislation
to allow businesses to comply with the due
diligence and reporting obligations under
FATCA. This means that UK FIs can now pass
the required information to the US, a task they
were unable to do under the mandate of the
UK’s Data Protection Act 1998. The measures
– contained in the UK-US agreement – replace
direct reporting with a mechanism whereby FIs
register with the IRS but pass information to the
HMRC, which then forwards it to the US.
The changes will reduce the overall costs to
business of complying with FATCA and firms
will also avoid liability under the withholding
clause. The regulations are expected to come
into force in mid August and will have effect for
financial accounts held at 31 December 2013.
Luxembourg
Luxembourg announced on 21 May 2013 that
the country will enter into a Model 2 IGA with
the IRS under FATCA. This follows the country’s
April 2013 declaration that it would introduce
provisions for the automatic EOI within the EU
on 1 January 2015. Luxembourg will also sign
the OECD Multilateral Convention on Mutual
Administrative Assistance in Tax Matters soon.
Russia
In our last issue of Managing Upstream Risk, we
provided an overview of the progress of each
country with respect to developing an IGA with
the IRS. On 17 May 2013, Russia announced
that it would soon finalise the parameters of an
IGA with the US.
Jamaica
Bank of Jamaica on 29 May 2013 announced
that it would enter into a Model 1 IGA with the
IRS under FATCA by the middle of this year. The
Central Authority stated that it will make any
necessary legislative changes that will ensure
that disclosures by FIs do not breach local laws,
and urged FIs to make preparations to facilitate
the implementation of the impending reporting
regime.
FATCA | Regulatory Reform Review
39
10. International Taxation
Update
The OECD is due to deliver its recommendations for tackling problems like double-tax agreements,
transfer pricing and the exchange of information between tax jurisdictions at the upcoming G20 meeting
in July 2013. It is said that one of the proposals would be that DTAs between countries be amended to
avoid the problem whereby neither country taxes the income, in line with what the EC recommended in
December 2012.
India
India’s DTC Bill, which will replace the 50-year-old Income Tax Act, is almost ready and will be taken
up in the Monsoon session of Parliament. Under the DTC Bill introduced in 2010, income tax exemption
limit will rise from Rs 3 lakh from Rs 2 lakh, while corporate tax retained at 30%.
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Regulatory Reform Review | International Taxation
11. Dodd-Frank Act
Update
On 24 May 2013, Germany’s top banking supervisor
advised the US to drop a proposal that requires
big foreign banks to operate in the US with locally
defined levels of capital and liquidity. Sabine
Lautenschlaeger, vice president of Deutsche
Bundesbank, commented that the proposals will
create “fragmented risk, liquidity and capital
management”. The proposals highlight US policy
maker’s efforts in clamping down on risky bank
practices since the financial crisis. Under the
proposed measures, foreign banks will be subject to
US-determined capital and liquidity standards if they
have more than $50 billion on US assets, and will
take effect in mid 2015. This disagreement comes
amid uneven implementation of the Basel III accords,
with the US delaying implementation and the EU
watering down elements of the law as it turned them
into regional focused. The EU’s attention is now
on creation of its banking union, where the whole
Eurozone will share the costs of future bank failures
equally.
Dodd-Frank Act | Regulatory Reform Review
41
12. Internationalisation of the
Renminbi
Update
42
HKMA and the Hong Kong Trade Development
Council jointly organised a seminar “Hong Kong:
The Premier Global Hub for Offshore Renminbi
Business” in New York on 11 June 2013, presenting
on the role of Hong Kong in Sino-US trades and
internationalisation of the RMB. Norman Chan, Chief
Executive of the HKMA noted in his presentation that
Sino-US trade as grown an average of 17% the past
10 years and that the growing trade and investment
links between the two countries offer the opportunity
to use RMB to enhance the efficiency of these services.
Moreover, the rapidly expanding offshore RMB
market and greater access to the onshore RMB market
would allow corporates and investors to tap into the
financing and investment opportunities available in
RMB. He continued, explaining that “the demand
for offshore RMB financial services and products is
set to increase in different parts of the world. In this
context, the comprehensive, one-stop RMB business
platform in Hong Kong could serve to support RMB
business development in other parts of the world.”
The seminar was concluded with a panel discussion by
senior representatives in FIs and corporates.
Regulatory Reform Review | Internationalisation of the Renminbi
13. Insurance
“The insurance industry in Singapore is seeing
unprecedented levels of regulatory activity, ranging
from data/technology risk, through a recalibration
of capital requirements to various conducts of
business initiatives. Many of the diverse other
regulators in Asia are heading down the same path.”
Roy Clark
Singapore Insurance Leader,
PwC Singapore
Updates from the region
China (Mainland)
General Insurance
Key Issues
Life Insurance
Pension
No clear sign of improvement in individual channel, in terms of sales
staff recruitment and retention.
Market is dominated with 5-year
participating endowment assurance and the profit margin is
very low.
New challenges on asset-liability management after new regulations on investment limits for insurance
companies encouraging different usage of investment vehicles to maximise return was issued.
Future Outlook
• The pricing limits on motor
insurance products could be
lifted and the price would be
based on supply and demand in
the market.
• Large providers could benefit
from operational synergies
to achieve further expenses
savings with extra pressure
on small providers to survive.
However, vicious competition
on prices could happen again
lead to market damage.
• Direct sales channels, in
particular telephone sales
in motor insurance have
developed rapidly in the recent
years. Internet sales could be
something to look forward
to as it is used only as means
of prospective customer data
collection.
• Change of management
• Tax incentive implementation
behavior from sales driven to
trial in Shanghai is expected
value driven is expected in the
within this year.
next a few years. However,
• The implementation of tax
expenses overrun will remain
incentive plan will certainly
a big problem for a large
help the development of
number of medium to small
personal pension market.
companies.
• With the nature of structure
• The capital management
of state own, we are expecting
framework will be risk based
little change both in the client
and more in line with the
base and the scheme design.
rest of the world, following
the development of Chinese
Solvency II regime. From
our current observation,
the management team view
this more of a compliance
requirement instead of an
internal management tool.
• The pricing interest rate
of 2.5% could be lifted in
the next couple of years.
This certainly will help the
development of traditional
life products as they will
be cheaper. Similar to GI,
vicious competition could be a
potential problem to damage
the market.
Insurance | Regulatory Reform Review
43
Hong Kong
Key Issues
General Insurance
Life Insurance
• Deterioration of profit margins for motor lines
• For savings-related products, there are plenty of
investment alternatives in the market
• Slowdown of property transactions affect the
outlook of mortgage insurance business
• Underwriting loss for maritime insurance continues
Future Outlook
• The reliance of public transportation means there
will be limited growth for motor lines.
• Nonetheless, the overall penetration of general
insurance will continue to grow, albeit slowly.
Reinsurance business can be key to the penetration
growth.
• Sale of unit-linked products are highly correlated
with the equity market performance
• Lack of growth in insurance penetration in general
over the past few years
• Growth of the industry will be increasingly
dependent on the economic ties between HK and
China.
• Product innovation and continued development
on agency and bancassurance channels are key to
business generation.
• Yuan-dominated products will continue its market
momentum.
India
Key Issues
• IRDA is likely to introduce bancassurance guidelines, which is expected to create more latitude for insurers to
establish distribution arrangements with banks.
• IRDA has asked insurance companies to put in place procedures for fraud detection and its control and to have
a board-approved anti-fraud policy by 30 June 2013
• IRDA is likely to come out with regulations pertaining to micro-insurance sector in the first quarter of 2013
• India’s Cabinet has approved the Insurance Amendment Bill and is likely to present it for discussion and vote
in Parliament
Future Outlook
• The outlook for general insurance is largely positive driven by underlying demand tailwinds e.g. India’s auto
sector is likely to become the world’s third largest while infrastructure spending is expected to be over $1
trillion as per the latest five year plan.
• Specialist insurers are likely to enter the market. Certain players may seek to become specific risk specialists,
developing expertise or focus in a limited set of risks, channels, or geographies.
• Shift to a profitability focus: Having driven the While competing for market share, insurers are expected to
look for ways to focus on improving profitability. Loss making agency models could give way to the more
efficient bancassurance or alternate channels.
• Sustainable developments in the claims function are expected which may make it more efficient and less
prone to error and fraud.
• Sound and stable economic environment framework, one of the few economies to continue growing in the
range of 6+%. This is supported by the growing Indian middle class and rise in income levels: In India, the
emerging middle class will constitute a $1 trillion market (2010 prices), by 2021 , representing about 28% of
India’s GDP and about 16% of the Emerging Middle class global market of around $6 trillion.
• Political stability as India remains the world’s largest democracy.
44
Regulatory Reform Review | Insurance
Japan
Key Issues
• High level concentration into Japanese Government Bond (JGB) may create future unrealised losses when
interest rates increase. The impact of a JGB interest rate change may be larger for life than the general
insurance industry due to the accumulation of long duration insurance contracts and related assets.
• Selling stock investments in order to reduce equity risk exposure may impact profitability of insurers.
• Consumption tax rate increase in the future may squeeze insurance profitability.
• Some Japanese insurers are making investments in overseas insurance businesses which will require new
management skills for the Japanese insurers.
• Pricing competition in the lower investment yield market may squeeze insurance profit.
• Continuous automobile insurance pricing competition will continue to erode margins across the industry.
• Potential increases in frequency of natural disasters may bring larger volatility to the profitability of insurers,
compared to the past experience.
Future Outlook
• Continuously competitive markets.
• Potential recovery in the Japanese economy may provide growth opportunities for the insurance industry.
• Trends in regulation change, particularly around risk based capital, will impact insurers both in terms of how
much capital is required but also the approach to managing the risk sensitivities around capital assessments.
Insurance | Regulatory Reform Review
45
Singapore
General Insurance
Key Issues
Life Insurance
Pension
MAS introduced FAIR in 2012 and
28 recommendations under FAIR
in January 2013
• MAS is reviewing the risk-based capital framework for insurers
in Singapore to improve the risk coverage and risk sensitivity
of the current framework and to specify the MAS’ supervisory
intervention threshold and plans at least two years of parallel run
with the existing framework
• MAS is planning both to increase the scope of the risks to be
included in the TRR calculation and to recalibrate the required risk
charges for existing risks
• Proposed new ERM requirements to be applied to improve industry
standards on ERM practices
• Proposed Public Disclosure Requirements for Insurers
Review of Requirements on Investment Activities of Insurers
Future Outlook
• A strategy for the government
is to develop Singapore as a
key regional hub for complex
insurance and reinsurance
underwriting.
• There is still huge scope for
expansion of the offshore
insurance business.
• The growth of the economies in
South East Asia bodes well for
growth prospects of Singapore
as a regional insurance hub.
• Non-Life penetration as a
percentage of GDP has risen
over the years (from 2.55%
in 2005 to 2.9% in 2011).
This is high for the region,
and growth is expected to
continue.
• Premiums are growing,
however only at single figure
rates in the SIF.
• Demographics indicate long
term growth potential in
health insurance.
• The development of the
non-life segment will be
dependent on consumer
confidence and the continued
trend of global companies
setting up operations in
Singapore, due to the stable
business environment.
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Regulatory Reform Review | Insurance
• Singaporeans continue to see
life insurance as a beneficial
channel for organised savings.
• Life density rose from about
US$1,893 per capita in 2005
to US$3,106 in 2011. Density
is expected to increase further
if there is sufficient investor
confidence. However, volatility
in global and regional financial
markets could cause density to
remain flat.
• Insurers are looking at
developing innovative products
or increasing productivity of
their distribution channels as a
way to increase premiums and
market share.
• Expected further population
growth offers future
opportunities.
Europe – AML for Insurers
Insurance Europe published its position paper
on the EC’s 4th AML Directive released earlier
in February 2013. In the paper, Insurance
Europe shares its view on an effective and
workable AML regime for insurers in Europe
and is supportive of the specific characteristics
of insurance recognised in the proposal. The
paper contains remarks on the technical
considerations affecting the insurance sector
namely the risk-based approach, which will
allow insurers to allocate their resources in the
most effective way to address identified and
prioritised risks in the right order and with the
most appropriate response. Insurance Europe
also provided feedback on the following points:
• Process and substance of customer due
diligence;
• Politically exposed persons;
• Non-face-to-face businesses;
• Beneficiaries of life insurance policies;
• Beneficial ownerships;
• Third-party reliance;
• Tax crimes;
• Sanctions;
• Date protection;
• Terrorist financing; and
• Remarks on Annex II & III.
Insurance | Regulatory Reform Review
47
On 21 May 2013, MAS released a response to the August
2012 consultation paper “Legislative Changes Relating to
Requirements on Key Executive Persons and Directors for
Insurers” which closed for comments on 14 September
2012. A total of 15 industry participants submitted
comment letters to the Authority. The consultation
paper proposed to prescribe the appointment, roles and
responsibilities of all key executives persons in a new
set of regulations, to repeal the Insurance (Actuaries)
Regulations 2004, and to revise MAS Notice 106 to make
it applicable to appointment of directors and all key
executive persons.
Singapore
On 17 May 2013, MAS revised the “Notice
to Insurance Brokers Insurance Act” with
updated mandatory and non-mandatory best
practice standards and continuing professional
development for insurance brokers and their
broking staff. A summary of the standards are as
follows:
Mandatory minimum standards and examination
requirements for broking staff
• All insurance brokers shall ensure that
broking staff employed or appointed by
them are fit and proper persons according
to the criteria set out in the Guidelines
on Fit and Proper Criteria issued by the
Authority;
• Direct insurance brokers and exempt direct
insurance brokers shall further ensure that
broking staff employed or appointed by
them possesses the Certificate of General
Insurance qualification or any other
equivalent qualifications before they are
allowed to provide advice on or sell general
insurance products; and
• All new broking staff employed or
appointed by a direct insurance broker
and exempt direct insurance broker must
pass the Basic Concepts and Principles of
General Insurance module as well as the
relevant modules on Personal General
Insurance or Commercial General Insurance
or both, or possess any other equivalent
qualifications.
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Regulatory Reform Review | Insurance
Submission requirements for appointment of
broking staff
• Registered insurance brokers shall submit
to the Authority on a monthly basis, the
personal particulars of new broking staff
appointed, using the format provided by
MAS. These, together with information
on the names of broking staff who had
resigned including their date of resignation,
shall be submitted by the first week of the
following month. Any person who is guilty
of any breach of a duty imposed by this Act
shall be guilty of an offence. This clause is
effective from 17 May 2013.
Non-mandatory best practice standards on
continuing professional development for broking
staff
• MAS expects insurance brokers to be
responsible for the continuing professional
development of their broking staff. They
should develop and implement training
and competency plans as well as keep
abreast of developments in the industry and
acquire new skills and knowledge relevant
to their activities by undergoing continuing
professional development training.
Broking staff should observe the “Industry
Guidelines on Training and Competency
Requirement and Continuous Professional
Development”.
India
Indian insurance companies in operation for at
least three years will be eligible to open offices
outside the country. The IRDA announced
that life insurance, non-life insurance and
reinsurance should have a net worth of Rs
500 crore, Rs 250 crore, and Rs 750 crore
respectively in order to apply for overseas
expansion. The guidelines also proposed the
following:
• Registered insurance companies should
not suffer from any adverse report of
the authority on its record of regulatory
compliances for three out of the past five
years from the date of application;
• Applicants have booked profits for the three
out of five years;
• Compliance with host country solvency
requirements;
• Compliance with host country KYC and
AML guidelines;
• Reporting of business numbers, claims
performance and expenses incurred by
foreign branch offices on a quarterly basis;
and
• Monitoring and reporting of the functioning
of its foreign operations at regular levels.
Insurance | Regulatory Reform Review
49
“Despite the MAS having
significantly raised the bar in terms
of regulatory obligations, there
is currently a heightened level of
activity in the asset management
industry in Singapore with regard
to new start ups. Investors have
much more confidence than they did
12 months ago although markets
continue to be volatile.”
Robert Grome
Asia Pacific Asset
Management Leader,
PwC Singapore
14. Asset Management
50
On 30 May 2013, ESMA approved co-operation
arrangement between EU securities regulators
and key IFCs, including the Cayman Islands,
BVI, Jersey and even Singapore presenting a
piece of positive news for the offshore funds
industry. These cooperation agreements are a
key element in allowing EU securities regulators
to supervise efficiently the way non-EU AIFMs
comply with the AIFMD, and a pre-condition to
allow non-EU AIFMs access to the EU markets.
The key elements of the cooperation agreements
are as follows:
•
EU and non-EU authorities will be able to
supervise fund managers that operate on a
cross-border basis both within the EU and
outside;
•
The co-operation between authorities
includes the exchange of information,
cross-border on-site visits and assistance in
the enforcement of the respective laws;
•
EU securities regulators will be able to
share relevant information received
Regulatory Reform Review | Asset Management
•
•
from non-EU authorities with other EU
authorities, ESMA and the European
Systemic Risk Board, provided appropriate
safeguards apply;
The existence of co-operation
arrangements between the EU and non-EU
authorities is a precondition of the AIFMD
for allowing managers based outside
the EU to access EU markets or perform
fund management by delegation from EU
managers; and
The co-operation arrangements are
applicable from 22 July 2013 and enable
crossborder management and marketing
to professional investors of alternative
investment funds.
While ESMA negotiated MoUs on the behalf
of all 27 member jurisdictions, bilateral
agreements between each EU security regulator
and non-EU authorities must be signed
separately. The terms of these cooperation
arrangements will come into effect from 22 July
2013, along with the AIFMD implementation
deadline.
Ireland
2.
Transitional arrangements –
a. Existing EU AIFMs must submit
their applications within one year,
during which they must comply
on best efforts with the AIFMD as
implemented by national law.
b. Existing qualifying investor funds can
continue to launch new sub-funds
during the transitional period and
can operate under the existing rules
until the AIFM is authorised.
c. Existing EU AIFM can establish a new
AIF during the transitional period
and the AIF Rulebook will apply to
such AIFS with the exception of the
AIFMD depositary liability regime.
d. AIFMs subject to the transitional
arrangements may delegate portfolio
and risk management to a third
country entity notwithstanding
there are no cooperation agreements
between the Irish regulator and the
country.
3.
Transitional period for registered
AIFMs –
a. AIFMs managing AIFs with assets
under 100 million euros (or 500
million euros in the case of closeended funds that do not employ
leverage) will not be obliged to
register with the Central Bank on
22 July 2013 but by 21 July 2014.
4.
Depositaries –
a. Depositaries of existing AIFs must
comply with the national law from
the date of authorisation.
The Central Bank of Ireland on 16 May 2013
announced that it started accepting applications
for the authorisation of AIFMs. It is the first
European regulator to do so and will enable
Irish-authorised AIFMs to avail of the AIFMD
passport in July 2013. The Irish regulator
published an AIF Rulebook and a Q&A on their
website, providing clarification for the following
key points:
1.
Non-EU managers of Irish AIFs –
a. The Central Bank will authorise AIFs
which have a non-EU AIFM and these
non-EU AIFMs will not be required
to fulfil the obligations imposed on
AIFMs immediately but will benefit
from a transitional period.
b. The Central Bank may extend the
transitional period if the AIFMD
passport is not applied to non-EU
AIFM in 2015 under the provisions of
the AIFMD
c. A retail investor AIF must have an
authorised AIFM and therefore
cannot have a non-EU AIFM until
such non-EU AIFMs are authorised,
which will not be until 2015 at the
earliest.
Asset Management | Regulatory Reform Review
51
Update from PwC Japan
The JFSA’s amended rules on DIM regulations are set to come into effect in 1 July 2013, with some
changes already in effect since 1 April 2013. The amendments address the following aspects:
•
Implementation of a structure that facilitates identification of issues by clients;
•
Increase of independent third-party verification and mandatory audits of underlying funds; and
•
Improvement of financial reporting to investors.
Key amendments
Effective date
Measures related to specified securities included in portfolio under a DIM agreement
1 July 2013
Additional information to be included in pre-contract documents
1 July 2013
Additional information to be included in DIM agreements
1 July 2013
Addition information to be included in the investment reports
1 July 2013
Additional information to be included in the business reports
1 July 2013
Other requirements
1 April 2013
The illustration below exemplifies the amendments in the context of a DIM agreement under the
Japanese law between and investment manager and an employees’ pension fund, with the pension assets
under trust bank custody.
Pre-contract documents, DIM agreements and investment reports:
Ü Additional information to be included in the above documents
Ü Increase in frequency of investment reports distribution
Business report filed to the FSA
Ü Additional information to be provided
Discretionary investment manager
Customer
(employees’ pension fund)
Report on trust assets
Ü Notify the results of
reconciliation as stated in
item (iv)
Current operational workflow
Ü Set up a structure under which an independent
third-party verifictation is effectively functioning
Ü Notify identified breach of investment
diversification duties
Ü Adapt risk explanations considering knowledge
and experience of customers
Ü Other additional requirements
Ü Notify NAVs per
share reported in the
investment report
Trading
instructions
Supervision / inspection
Ü Strengthening
Report values
Trust bank
Ü (i) Obtain NAV per share of underlying funds
directly from the administrator
Ü (ii) Obtain non-altered audit report of the
underlying fund
Ü (iii) Obtain NAV per share reported in the
investment report
Ü (iv) Establish procedures for reconciling (i) to
(iii) above and notify the results to the customers
Ü Amendments
FSA
Calculation agent
Ü Directly
send
values
Ü Directly or indirectly
deliver an audit report
Underlying
investments
Auditors
of specified securities
Specified securities
Ü Audit to become mandatory
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Regulatory Reform Review | Asset Management
of the NAV per share of
underlying fund
(e.g. administrator)
Ü Fund audit
Philippines
On 20 May 2013, the BSP issued a memorandum
instructing banks to wind off IMA parked in the SDA by
November 2013. The measure is part of efforts to fine
tune the SDA, a macro-prudential tool used by BSP since
1998 to siphon off excess domestic liquidity that could
nudge inflation higher. This will also prevent a sudden
influx of funds in the financial system which could cause
inflation and asset bubbles. Under the BSP mandate,
unit investment trust funds and trust accounts, which
are pooled amounts from numerous clients, are still
permitted to park in the SDA.
UK Investment Fund Industry update
The last year has seen a number of positive developments in the
UK fund industry. The UK Government recently launched a new
UK investment management strategy, which proposes a number of
regulatory, marketing and tax changes to reflect the Government’s
long term commitment to the UK’s investment management
industry and increase the attractiveness of the industry to other
market participants, both in the UK, Europe and globally.
UK regulatory reform
The UK’s regulatory structure changed from 1 April 2013. The
Financial Services Authority (“FSA”) was replaced by the Financial
Conduct Authority (“FCA”) and the Prudential Regulation
Authority (“PRA”). The PRA focuses its regulatory and supervisory
activities on prudential issues in banks, insurance firms and the
largest investment firms. The FCA’s regulatory and supervisory
focus is on all other firms for prudential issues, and on all firms in
relation to their conduct and behaviour.
The vast majority of asset managers are solely regulated by the
FCA.
The new regulators take a different approach to regulating and
supervising the UK financial services industry than the FSA took.
For asset managers, the FCA is clear that the customer needs to be
at the heart of everything they do and any new products they wish
to launch to market.
Asset Management | Regulatory Reform Review
53
Thematic reviews of UK asset managers
The FSA (now FCA) carry out a number of topic-specific ‘thematic
reviews’ of asset managers. Over the last year these thematic
reviews have included reviewing:
•
conflicts of interest policies
•
outsourcing arrangements
•
fund charges (for UK-authorised collective investment
schemes)
When carrying out thematic reviews the FCA will analyse a
number of asset managers from across the regulatory spectrum,
including both small and large asset managers with different types
of products. This gives the regulator broad information about the
practices across the asset management industry.
We are seeing the FCA carry out more thematic reviews now and
expect this increased focus on their conduct to continue in future.
In all three recent reviews the main concern of the FCA is around
how asset managers are using and spending customer funds. The
FCA is keen that charges are clear, fair and not misleading and
that investors clearly know what payments are being taken out of
a fund to pay for outsourcing arrangements, corporate access or
administration of a fund.
Authorised contractual schemes
Her Majesty’s Treasury (“HMT”) and the FCA are taking steps
towards making the UK more competitive with popular fund
domiciles such as Dublin and Luxembourg with their proposals
to introduce authorised contractual schemes (“ACS”) into the UK
authorised fund model.
ACS were first consulted on in January 2012 but have still not
yet been finalised and launched. We expect this to happen in the
next few months. ACS will be tax transparent so that the schemes
themselves pay no tax, only the underlying investors.
HMT proposes two types of ACS: a co-ownership fund and a
partnership fund. Investors in the co-ownership fund would have
an undivided share of the scheme property (i.e. no investor has
claim to particular assets). Co-ownership funds would be similar
in structure to authorised unit trusts, with the manager and the
depositary entering into a trust deed. Partnership funds would have
a general partner, a depositary (who will be a limited partner), and
investors as limited partners.
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Regulatory Reform Review | Asset Management
AIFMD – UK implementation
EU Member States must implement the AIFMD by 22 July 2013.
AIFMD impacts alternative investment funds (“AIFs”) and their
managers (“AIFMs”). It imposes new regulatory obligations
on EU AIFMs – such as regulatory and investor reporting and
transparency, internal structures and conduct of business
arrangements, valuations, use of leverage and delegation of
activities to other firms. AIFMD also imposes new obligations on
non-EU AIFMs that market their AIFs into the EU.
The UK is now well advanced with its plans for implementing
AIFMD. Both HMT and the FCA have issued a number of
consultation papers to set out their implementation strategy
and policy. We expect final rules to be made available soon and
implemented before 22 July 2013.
For non-EU AIFMs that wish to market in the UK after 22 July, they
will need to first notify the FCA that they want to market an AIF in
the UK to professional investors. They can then market as they do
now – the UK’s private placement regime is virtually untouched
under AIFMD.
Marketing unregulated collective investment schemes (“UCIS”) to
retail investors
The FCA recently published final rules on how UCIS can be
marketed (not to be confused with “UCITS”). Up until now many
UK distributors have marketed UCIS to retail investors in the UK.
The FCA believes this has led to much consumer detriment because
UCIS can be complex, invest in highly illiquid assets and be too
risky for many retail investors.
Therefore, the FCA’s chosen to ban advisers from distributing
UCIS to ordinary retail investors – high net worth individuals and
sophisticated retail investors are exempt from these new rules.
“UCIS” are defined as being any funds not authorised in the UK. It
even can impact funds authorised in other countries (either inside
or outside the EU) that are sold in the UK.
Other regulatory issues for asset managers
The retail distribution review (“RDR”) was introduced in the UK
on the 31 December 2012. RDR makes a number of changes to
the UK’s distribution model, most notably banning commission
for advisers from fund purchases and enforcing adviser charging
instead, whereby individuals pay their advisers directly. We are
also expecting changes to the UK platform market where many
individuals buy their investments without advice.
Asset Management | Regulatory Reform Review
55
Watch This Space
• PwC Singapore’s exclusive interview with former Head of the
EC’s Insurance and Pensions Unit, Professor Karel van Hulle, on
insurance industry reforms and his views on Solvency II.
• Official publication of EU’s draft law proposing to shift the
supervision of LIBOR from London to Paris. Outcomes of the OECD
Asian Roundtable on corporate governance in Kuala Lumpur.
• The outcome of the opposition faced from RBI and SEBI in the
government’s recommendations to give the FSDC an executive role
that may undermine existing regulator’s powers.
• RBI’s paper on the consolidation of banks and the banking structure
for India in a time when new bank licences are on the anvil.
• China’s new compulsory deposit insurance system which will lay
the foundation for interest rate liberalisation.
• Official publication of EU’s draft law proposing to shift the
supervision of LIBOR from London to Paris.
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Regulatory Reform Review | Watch This Space
Contact Our Experts
Regulatory Reform Review by PwC Singapore
Chris Matten
Radish Singh
Banking & Capital Markets
Advisory Leader
+65 6236 3878
[email protected]
Associate Director
+65 6236 3022
[email protected]
Dominic Nixon
Kwok Wui San
Asia Financial Services Leader
+65 6236 3188
[email protected]
Singapore Regulations
Leader
+65 6236 3087
[email protected]
Mark Jansen
Roy Clark
Asia Pacific FATCA Leader
+65 6236 7388
[email protected]
Singapore Insurance Leader
+65 6236 7368
[email protected]
Justin Ong
Chen Voon Hoe
Singapore Asset Management
Leader
+65 6236 3708
[email protected]
Partner, Financial Services
+65 6236 7488
[email protected]
Julia Leong
Jennifer Pattwell
Partner, Financial Services
Partner, Financial Services
+65 6236 7669
[email protected]
The Experts
+65 6236 7378
[email protected]
Contact Our Experts | Regulatory Reform Review
57
Glossary
ABS
ACGA
AEOI
AI
AIFMD
AML
AML/CTF
ASX
BCBS
BIS
BNM
BSP
CCP
CDD
CET 1
CIS
CMDTF
CPSS
CRDIV
CROs
CVA
DIM
DNC
DNC
EBA
EC
EDP
EIBOR
EMC
EMIR
EOI
ESMA
EU
FA
FAIR
FATCA
FATF
FBOs
FCA
FDI
FDIC
FIIs
FinCen
FINRA
FIs
FMA
FMCB
FMIs
FPC
FSA
58
Regulatory Reform Review | Glossary
Association of Banks in Singapore
Asian Corporate Governance Association
Automatic Exchange of Information
Authorised Institutions
Alternative Investment Fund Manager’s Directive
Anti-Money Laundering
Anti-Money Laundering/ Counter-Terrorism Financing
Australian Stock Exchange
Basel Committee on Banking Supervision
Bank for International Settlements
Bank Negara Malaysia
Bangko Sentral ng Pilipinas
Central Clearing Party
Customer Due Diligence
Common Equity Tier 1
Collective Investment Schemes
Capital Markets Development Taskforce
Committee on Payment and Settlement Systems
Capital Requirements Directive IV
Chief Risk Officers
Credit Valuation Adjustment
Dim Sum Bonds
Do Not Call
Do Not Call
European Banking Authority
European Commission
Excessive Deficit Procedure
Emirates Interbank Offered Rate
Emerging Markets Committee
European Market Infrastructure Regulation
Exchange of Tax Information
European Securities and Markets Authority
European Union
Financial Advisor
Financial Advisory Industry Review
Foreign Account Tax Compliance Act
Financial Action Task Force
Foreign Banking Organizations
Financial Conduct Authority
Foreign Direct Investment
Federal Deposit Insurance Corporation
Foreign Institutional Investors
Financial Crimes Enforcement Network
Financial Industry Regulatory Authority
Financial Institutions
Financial Markets Authority
Financial Markets Conduct Bill
Financial Market Infrastructures
Financial Policy Committee
Financial Services Authority
FSB
Financial Stability Board
FSTB
Financial Services and Treasury Bureau
GSEs
Government-Sponsored Enterprise
HFT
High Frequency Trades
HMRC
HM Revenue & Customs
HQA
High Quality Assests
ICBC
Industrial and Commercial Bank of China
IIF
Institute of International Finance
IDB
Inter-Dealer Broker
IFSB
Islamic Financial Services Board
IGA
Inter-Governmental Agreements
IMF
International Monetary Fund
IOSCO
International Organization of Securities Commissions
IRS
Internal Revenue Service
IRDA
Insurance Regulatory and Development Authority
ISDA
International Swaps and Derivatives Association
JFSA
Japan Financial Services Authority
KRX
Korea Exchange
KYC
Know Your Customer
LCR
Liquidity Coverage Ratio
LIBOR
London Interbank Offered Rate
MAS
Monetary Authority of Singapore
MiFID II/ MiFIR Markets in Financial Instrument Directive
MMF
Money Market Funds
MOU
Memorandum of Understanding
NAV
Net Asset Value
NFC
Non-Financial Company
NFFE
National Federation of Federal Employees
NOFHC
Non-Operative Financial Holding Company
OECD
Organisation for Economic Co-operation and Development
OFT
Office of Fair Trading
OTCOver-the-Counter
PBC
People’s Bank of China
PDPA
Personal Data Protection Act
PDPC
Personal Data Protection Commission
PEPs
Politically Exposed Persons
PRA
Prudential Regulatory Authority
RBI
Reserve Bank of India
RFMC
Regime for Fund Management Companies
RMBRenminbi
SEBI
Securities and Exchange Board of India
SEC
Securities and Exchange Commission
SFC
Securities & Futures Commission of Hong Kong
SGX
Singapore Stock Exchange
TRC
Tax Residency Certificate
UK
United Kingdom
UN
United Nations
US
United States
WFE
World Federation Exchange
Glossary | Regulatory Reform Review
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