Financial Regulation in AsiaCharles Taylor, Chief Operating Officer

Asia House, London19 September 2012

www.icffr.org

Crisis management and stabilisation

• Rescue packages• Fiscal and monetary policy• Direct intervention

• G20 international cooperation• Financial Stability Board• Turner / De Larosiere reports• Economies begin to steady

• Economies start to recover• Tension between international ideals

and domestic imperatives • Industry pushback becomes more

manifest

• Industry pushback grows• Political commitment wanes• G20 falters / reassesses• Long implementation phase begins• Regulatory capture

• Regulatory capture? • Forbearance? • What kind of financial system? • Fairness, behaviour - punish again• Shadow intermediation – new risks

The regulatory cycle

Detailed legislative proposals

Growth and credit vs.

stability

Testing legislative proposals

Grand plan

Global regulatory architectureG20

BCBSBasel Committee on Banking Supervision

IAISInternational Association of

Insurance Supervisors

IOSCOInternational

Organisation of Securities

Commissions

IOPSInternational

Organisation of Pension Supervisors

FINANCIAL STABILITY INSTITUTE

FINANCIAL STABILITY FORUM

FATFFinancial Action

Task Force on Money Laundering

JOINT FORUM

Joint Forum on Financial

Conglomerates

IMFInternational

Monetary Fund

BISBank for

International Settlements

ECBEuropean

Central Bank

IASBInternational Accounting Standards

Board

IBRDInternational

Bank for Reconstruction

and Development

OECDOrganisation for Economic Cooperation

and Development

Global reform timeline2010 2011 2012 2013 2014 2015 2016 2017 2018

Various Global, EU and FSA discussions, consultation, amendments and revised legislation

Basel III

Systemic oversight

OTC derivatives

Volker rule

Rule making Phasing in In effect

Rule making Phasing in In effect

Rule making Phasing in In effect

Rule making Phasing in In effect

Solvency II Rule making Phasing in In effect

A deluge of financial regulation

Alternative Investment Fund Managers Directive (AIFMD)

Solvency II

Market in Financial Instruments Directive (MiFID I / II)

Prospectus and Transparency Directive

Basel III

Credit Rating Agencies(CRA3)

EU Corporate Governance Regulations

Extraterritoriality

A deluge of financial regulation (2)

Market Abuse Directive(MAD)

Undertakings for Collective Investment in Transferable Securities (UCITS IV)

Regulation of OTC Derivatives (MiFID)

Capital Requirements Directive (CRD IV)

Bank Structural Reform(Vickers)

Financial Transaction / Activities Tax(FTT / FAT) Extraterritoriality

Extraterritoriality

A deluge of financial regulation (3)

Foreign Account Tax Compliance Act(FATCA)

Bank Structural Reform (The Volcker Rule)

Dodd-Frank Wall Street Reform Act

Investment Advisers Act

Rating Agency Confirmations

Swaps and Derivatives Regulation(OTC)

Extraterritoriality

Extraterritoriality

Extraterritoriality

Source: IMF

Banks – changes to business strategy

Annual % GDP growth

2007 2008 2009 2010 2011

-4

-2

0

2

4

6

8

10

12

14

16

Hong KongTaiwanSingaporeChinaIndia

Regional approaches to regulation – Banking and Insurance - India

• Banks– Capital adequacy requirements by Jan 2013– Fully implemented March 2018– Average equity capital ratio 9%– Overall capital adequacy ratio 14%– Well positioned to meet leverage and liquidity ratios

• Insurance– “We are keen to migrate to Solvency II” (MoF)– “Our country does not have the statistical database to adopt

Solvency II. I don’t think we have taken a position whether we will be using Solvency II or not” (RK Nair, IRDA)

Regional approaches to regulation – Banking and Insurance - China

• Banks– Basel III generally supported as better positioned than EU

and US banks to meet requirements– Capital adequacy requirements start Jan 2013– Fully implemented Jan 2019– Common equity ratio will be 5% (BIII = 4.5%)– Leverage ratio will be 4% (BIII = 3%)

• Insurance– “Second generation of solvency regulation” (not Solvency II)– EU to grant “third country equivalence” to China reforms– 3 to 5 year timescale for implementation

Regional approaches to regulation – Banking and Insurance - Singapore

• Banks– Adopting higher standards than Basel III– Competitive advantage– Tier 1 Capital 8% (BIII = 6%)

• Insurance– Strong risk-based capital framework– Review may result in adoption of what MAS

considers Solvency II’s strongest ideas

Regional approaches to regulation – Banking and Insurance – Hong Kong

• Banks– Broadly supportive of Basel III– Required liquidity constraints may hinder

development of corporate debt market– Reforms will phase in from Jan 2013

• Insurance– Will not adopt Solvency II– Attempt to attract other insurers to the jurisdiction– New independent insurance regulator planned

Regional approaches to regulation – Banking and Insurance - Taiwan

• Banks– Will adopt Basel III rules “as is”– Deadline – Jan 2019

• Insurance– Weak insurance market– Will enhance regulation but not adopt Solvency II

Financial Regulation in AsiaCharles Taylor, Chief Operating Officer

Asia House, London19 September 2012

www.icffr.org