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ASIFMA Asia Regulatory Review

15 - 22 December 2015 | Issue 281


ASIFMA wishes all subscribers a warm Season's Greetings and a Happy New Year!
The newsletter will take a break for the holidays and will return in January 2016.

Job opening at ASIFMA - Manager, Office of the CEO

ASIFMA now seeks a Manager to provide coordination, research and analytical support for the office of the CEO. This person will play a central role in coordinating daily work and projects across ASIFMA and will support the CEO directly in his external role, including providing high quality briefing and speaking notes. This person will also contribute to our corporate governance by supporting our senior management and board processes. Application process ends on January 22, 2016.



Chinese lawmakers to consider registration-based stock listing reform
Chinese lawmakers will deliberate on a registration-based stock listing, proposed by the State Council, China's Cabinet, during the legislative session which began Monday in Beijing. If approved, the State Council will be able to change the listing system on the Shanghai and Shenzhen bourses from approval-based to registration-based any time within the next two years, easing funding difficulties for companies. "The new system is more market-oriented than the old one," China Securities Regulatory Commission (CSRC) chairman Xiao Gang told lawmakers. (China Daily)

China to conduct stress tests on securities and futures institutions
China's stocks regulator said it will conduct stress tests on brokerages, mutual funds and commodity futures institutions to obtain a comprehensive understanding of the capital markets. The China Securities Regulatory Commission (CSRC) will use the test results to prevent systemic risk and create a framework of contingency plans in the event of extreme market conditions, Zhang Xiaojun, a spokesman for the CSRC, told a weekly news conference in Beijing. "Risk stress-testing is an important way to enhance the effectiveness of supervision and improve management of the industry," the CSRC said in an official statement released after the conference. (Reuters)

Seven Mainland and Hong Kong funds granted MRF status
Three Hong Kong domiciled funds and four China funds received regulatory approval under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) scheme on Friday (December 18). The three northbound funds approved for Mainland distribution are the Hang Seng China H-Share Index Fund, the ZEAL Voyage China Fund, and the JP Morgan Asian Total Return Bond Fund. The four southbound vehicles are the ChinaAMC Return Securities Investment Fund, the ICBCCS China Core Value Mixed Fund, the HSBC Jintrust Large Cap Equity Securities Investment Fund, and the GF Industry Leaders Mixed Assets Fund. (Asia Asset Management)


HKMA Quarterly Bulletin (December 2015 Issue)
This issue of Quarterly Bulletin carries a feature article, "Establishing an effective resolution regime for financial institutions in Hong Kong". This issue also carries the regular articles on the global and local economy, and the banking environment.

HKMA - Enhanced Competency Framework for Banking Practitioners
The HKMA has been actively supporting initiatives to raise the professional competence of financial services practitioners in Hong Kong in recent years. A notable example is the launch of an enhanced competency framework (ECF) for private wealth management practitioners in June 2014. The HKMA has mentioned on previous occasions that it will explore similar efforts in other areas of banking operations. This circular provides an update on a current initiative to develop professional standards and qualifications in banking as part of the continuing efforts to maintain Hong Kong's status as an international financial centre.

IMF acknowledges Hong Kong's strong buffers for meeting challenges ahead
An International Monetary Fund (IMF) Staff Mission to the Hong Kong Special Administrative Region (SAR) has lauded the Government's prudent fiscal management and robust regulatory regime for the financial system. The IMF Mission also remarked that, together with the Linked Exchange Rate System, those strengths would provide Hong Kong with strong buffers to deal with near-term challenges, while laying the foundations for steady growth and healthy job creation in the medium term.

SFC authorizes first batch of funds under Mainland-Hong Kong Mutual Recognition of Funds initiative
The Securities and Futures Commission (SFC) granted authorization for the first batch of four Mainland funds under the Mainland-Hong Kong Mutual Recognition of Funds (MRF) initiative for public offering in Hong Kong. The SFC also welcomes the approval by the China Securities Regulatory Commission (CSRC) of the first batch of three Hong Kong funds for public offering on the Mainland market.

HKEx - New Circuit Breaker to Apply to Stock Connect's Northbound Trading
Investors and other market participants should note the new circuit breaker that was announced by the Shanghai Stock Exchange (SSE) on 4 December 2015. It will become effective on 1 January 2016 and will be applicable to Northbound Trading through Shanghai-Hong Kong Stock Connect (Stock Connect). According to the new circuit breaker, when the CSI 300 Index rises or falls 5 percent or more from its previous close for the first time in each direction during a trading day, the trading of A shares on SSE will be suspended for a period of 15 minutes. Trading will resume with a call auction after the 15-minute suspension. Unfilled orders placed before the circuit breaker was triggered will be carried forward, and market participants will be able to place and cancel new orders during the suspension.

HKEx Markets Set Several New Records in 2015
HKEx securities and derivatives markets set several new records this year according to market statistics for 1 January 2015 to 15 December 2015 published by HKEx in response to media requests. Turnover in HKEx's securities and derivatives markets have reached new single-year highs of $25,532 billion and 183,221,506 contracts respectively (the previous records were $21,666 billion in 2007 and 142,439,039 contracts in 2014 respectively), and the market capitalisation of HKEx's securities market exceeded $31 trillion for the first time, reaching its high for the year of $31.6 trillion on 26 May 2015.

Exchange to Strengthen ESG Guide in its Listing Rules
HKEx decided to strengthen the Environmental, Social and Governance Reporting Guide (the ESG Guide or Guide) in its Listing Rules (Rules) after its consultation on proposed changes to upgrade the disclosure obligation of the ESG Guide met with strong support from a broad range of respondents. "We are encouraged by the overwhelming support for our proposals to strengthen issuers' environmental, social and governance disclosure obligations," said David Graham, HKEx's Chief Regulatory Officer and Head of Listing.


MAS Notice 1015 Minimum Liquid Assets and Liquidity Coverage Ratio
Notice to merchant banks. A merchant bank which has been notified by the Authority that it is a domestic systemically important bank1 ("D-SIB") need only comply with Part II - LCR of this Notice.

MAS Notice 651 Liquidity Coverage Ratio Disclosure
This Notice sets out requirements for a D-SIB to disclose quantitative and qualitative information about its Liquidity Coverage Ratio ("LCR")

SGX starts listing regulatory actions against rule violations
Singapore Exchange announced a new listing compliance bulletin, a service that details sanctions imposed by SGX on companies breaching its listing rules. The new service could help to build confidence in the bourse's dual role as a regulator and market operator in a high scrutiny market environment. However, the list of regulatory decisions does not state which companies are in breach. (The Edge Markets)

SGX launches independent research paper on Digital sector
As part of its investor education efforts, Singapore Exchange (SGX) launched an independent research paper titled "Investing in Financial Technology and Consumer Digital Technology Companies". Conducted by independent research firm Frost and Sullivan, the paper commissioned by SGX aims to provide insights to enhance investors' understanding of the fast evolving digital sector.


The Bank of Japan - Working Paper - Is macroprudential policy instrument blunt?
By Katsurako Sonoda and Nao Sudo.

The Bank of Japan - Flow of Funds - Overview of Japan, US, and the Euro area - (3rd Quarter 2015)
In this paper, major sectors are compared either among Japan, the United States, and the Euro area or between Japan and the United States.


RBI Working Paper Series No. 6: Capital Structure, Ownership and Crisis: How Different Are Banks?
With the introduction of capital standards by the Basel Committee in the late 1980s, such norms have, by and large, been adopted universally with suitable country-specific refinements. According to one view, regulatory standards determine the capital ratios of banks with some cushion above the prescribed minimum level. Alternatively, following from the theory of the banking firm, banks may be guided by a similar set of incentives as non-financial firms in their capital structure decisions. In this context, this paper contributes to the literature by analysing the determinants of capital structure for Indian banks for the period 1992-2012.

SEBI - Annual Report 2014-15
The SEBI report provides an outline of SEBI's policies and programmes, a review of working and operations of the SEBI, and the functions of SEBI.


Implementation monitoring of the PFMI: Level 2 assessment report for Australia
This report presents the findings of the CPMI-IOSCO Level 2 assessment of whether, and to what degree, the legal, regulatory and oversight frameworks for systemically important payment systems (PSs), central securities depositories (CSDs), securities settlement systems (SSSs), central counterparties (CCPs) and trade repositories (TRs) in Australia, are complete and consistent with the Principles for financial market infrastructures (PFMI).

RBA - Some Effects of the New Liquidity Regime
Speech by Guy Debelle - Assistant Governor (Financial Markets)

Australian Government - The Treasury - Resilience and collateral protection and client money reforms
The Financial System Legislation Amendment (Resilience and Collateral Protection) Bill 2016 will amend the PSN Act and certain other Acts to: a) enable Australian entities to enforce rights in respect of margin provided by way of security in connection with certain derivatives in the manner required by international standards; b) clarify domestic legislation to support globally coordinated policy efforts and provide certainty on the operation of Australian law in relation to the exercise of termination rights (also known as close-out rights) under derivatives arrangements; and c) enhance financial system stability by protecting the operation of approved financial market infrastructure.


FSC - Amendments to the Regulation on Supervision of Banking Business and the Supervisory Regulation on Financial Holding Companies
The FSC approved on December 16, 2015 amendments to the Regulation on Supervision of Banking Business and the Supervisory Regulation on Financial Holding Companies to implement the Basel recommendations such as domestic systematically important banks(D-SIBs) and countercyclical capital buffer and ease capital rules for Internet-only banks in their early years.

FSC-FSS Meeting for Monitoring Financial Market Conditions
The FSC and FSS held a meeting to make sure that Korea's financial markets are prepared for the impact of the Fed's possible rate hike.

KRX revises Fee schedule
The Korea Exchange releases a new fee schedule, which is effective from December 18, 2015.

Top 10 News of 2015 in the Korean Stock Market
The Korea Exchange (KRX) has surveyed reporters and executives on news that have affected domestic stock market and announced the top 10 news for 2015.


OJK to stop using state funds next year
The House of Representatives has approved the 2016 budget proposed by the Financial Services Authority (OJK), including stipulations that it will no longer use state funds as fees collected from financial companies will be enough to support the agency's activities. (Jakarta Post)


PSE gets more time to fix merger issues
The Securities and Exchange (SEC) has extended the Philippine Stock Exchange's (PSE) deadline to respond to the regulator's concerns about the planned merger with the Philippine Dealing Systems Holdings Corp. (PDS). The SEC granted PSE's request on December 14 to extend the deadline to answer the questions raised by the regulator regarding the dynamics of the PSE-PDS merger, SEC spokesperson Armand Pan said. "SEC granted PSE's request for an additional period of 45 days or until January 26 to submit comprehensive and complete response to fully address the concerns raised earlier by SEC," Pan said in a text message. The SEC wrote on November 27 a letter indicating all their concerns about the merger. The PSE was given 15 days from November 27 to respond to all the questions. (Manila Times)


Harmonisation of the Unique Product Identifier (UPI) Consultative report issued by CPMI-IOSCO
The consultative report makes proposals for the harmonised global UPI, whose purpose is to uniquely identify over-the-counter (OTC) derivatives products that authorities require to be reported to trade repositories (TRs). The UPI would consist of a product classification system and associated code. The focus of this report is the product classification system.

IOSCO Publishes report on Liquidity Management Tools in CIS
The International Organisation of Securities Commissions published a report on Liquidity Management Tools in Collective Investment Schemes (CIS) that maps existing liquidity management frameworks in 26 member jurisdictions with a particular focus on tools to help deal with exceptional situations (e.g., significant redemption pressure). The report is based on a survey sent to members of IOSCO's Committee 5 on Collective Investment Schemes.

IOSCO Publishes results of the third annual Risk Outlook Survey
The survey is an annual exercise formulated to collect the views of financial market regulators and experts globally on those risk areas that are of concern. This edition of the survey was conducted in March/April 2015. The main purpose of the survey is to gather views on risks to and within securities markets and to help identify or highlight pockets of risk that may not be captured by normal statistical analysis or desk research.

IOSCO publishes 2015 Survey Responses Report on Crowdfunding
The Crowdfunding Report presents a summary of responses to a fact-finding survey of twenty three IOSCO members. The Study had two goals - first, to enhance IOSCO's understanding of developments in members' current or proposed regulatory regimes for investment-based crowdfunding and second, to highlight emerging trends and issues in this area.

Paul P. Andrews of FINRA Named IOSCO Secretary General
The Board of the International Organization of Securities Commissions (IOSCO) announced it has appointed Paul P. Andrews as its new Secretary General. Mr. Andrews is currently the Vice President and Managing Director of International at the Financial Industry Regulatory Authority (FINRA). He will take up his position at IOSCO for a three-year renewable term in March 2016.

BIS - Guidance on the application of the Core principles for effective banking supervision to the regulation and supervision of institutions relevant to financial inclusion
This consultative document builds on past work by the Committee to elaborate additional guidance in the application of the Committee's Core principles for effective banking supervision to the supervision of financial institutions engaged in serving the financially unserved and underserved. This includes a report of the Range of practice in the regulation and supervision of institutions relevant to financial inclusion, and expands on Microfinance activities and the Core Principles for Effective Banking Supervision.

BIS - Guidance on credit risk and accounting for expected credit losses
This guidance, which should be viewed as complementary to the accounting standards, presents the Committee's view of the appropriate application of ECL accounting standards. It provides banks with supervisory guidance on how the ECL accounting model should interact with a bank's overall credit risk practices and regulatory framework, but does not set out regulatory capital requirements on expected loss provisioning under the Basel capital framework.

IMF Managing Director Christine Lagarde Welcomes U.S. Congressional Approval of the 2010 Quota and Governance Reforms
"The United States Congress approval of these reforms is a welcome and crucial step forward that will strengthen the IMF in its role of supporting global financial stability. The reforms significantly increase the IMF's core resources, enabling us to respond to crises more effectively, and also improve the IMF's governance by better reflecting the increasing role of dynamic emerging and developing countries in the global economy. "A more representative, modern IMF will be even better equipped to meet the needs of all its 188 member countries in the 21st century."


CFTC Approves Final Rule on Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants
The U.S. Commodity Futures Trading Commission (CFTC) approved the Final Rule on Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants. The Commission voted 2 in favor and 1 opposed. The new regulation addresses margin requirements for uncleared swaps entered into by swap dealers (SDs) or major swap participants (MSPs) that are not subject to regulation by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Farm Credit Administration or the Federal Housing Finance Agency (CSEs).

CFTC Unanimously Approves Proposed Enhanced Rules on Cybersecurity for Derivatives Clearing Organizations, Trading Platforms, and Swap Data Repositories
The U.S. Commodity Futures Trading Commission (Commission) voted unanimously to approve two proposals for amendments to existing regulations addressing cybersecurity testing and safeguards for the automated systems used by critical infrastructures the Commission regulates. The proposals will be open for public comment during a 60-day comment period after their publication in the Federal Register. The proposals, to be published in separate Federal Register Notices, identify five types of cybersecurity testing as essential to a sound system safeguards program: (1) vulnerability testing, (2) penetration testing, (3) controls testing, (4) security incident response plan testing, and (5) enterprise technology risk assessments.

CFTC Approves Final Rule on Records of Commodity Interest and Related Cash or Forward Transactions
These amendments to Regulation 1.35(a) decrease regulatory burdens on affected market participants by excluding certain types of those participants from aspects of the rule's written and oral recordkeeping requirements. The final rule also clarifies the requirements governing the form and manner in which records must be kept. Lastly, the final rule reorganizes the rule text to provide affected market participants with greater clarity regarding their recordkeeping obligations under the rule.

CFTC Staff Issues Advisory Reminding Swap Dealers and Major Swap Participants of their Reporting Obligations as Required by Commission Regulations
These regulations require swap dealers and major swap participants to report all information and data in the time and manner specified in Parts 43 and 45 of the Commission's regulations. The staff advisory also discusses common examples of issues and failures DSIO has observed with respect to swap data reporting, and provides guidance to assist in addressing these issues and failures.


EBA updates on risks and vulnerabilities in the EU banking sector
The European Banking Authority (EBA) published its eighth semi-annual report on risks and vulnerabilities in the EU banking sector. The report shows that EU banks have continued to strengthen their capital position and to improve asset quality. However, the level of non-performing exposures remains high and profitability is still weak. The report also analyses the exposures towards emerging market (EM) countries and non-bank financial intermediaries.

EBA updates on the status of its final Implementing Technical Standards on benchmarking portfolios
The European Banking Authority (EBA), following requests from stakeholders, published an update on the application date of its final draft Implementing Technical Standards (ITS) on benchmarking portfolios.

EBA publishes final Guidelines on sound remuneration policies and its Opinion on the application of proportionality
The European Banking Authority (EBA) published its final Guidelines on sound remuneration policies together with its Opinion on proportionality, recommending exemptions from the remuneration principles in the Capital Requirements Directive (CRD IV). The guidelines ensure that institutions calculate correctly and consistently the so called 'bonus cap' by setting out specific criteria for mapping all remuneration components into either fixed or variable pay and detailing how specific remuneration elements such as allowances, sign-on bonuses, retention bonuses and severance pay are to be recognised over time.

EBA issues final Guidelines on institutions exposures to shadow banking entities and recommends approach to limiting risks
The European Banking Authority (EBA) published its final Guidelines regarding limits on institutions' exposures to 'shadow banking entities' that carry out bank-like activities outside a regulated framework. In particular, these Guidelines introduce an approach that will allow EU institutions to set internal limits for their exposures to 'shadow banking entities', hence addressing in a proportionate way the risks that these exposures pose to the EU banking sector. The Guidelines were informed by a Report, also published, on the exposures of a sample of EU institutions to 'shadow banking entities' and the impact of setting limits.

EBA identifies areas of improvement in the cooperation between EU and third countries
The European Banking Authority (EBA) published a Report and an Opinion on the application of legal provisions on cooperation and information sharing between EU and non-EU supervisory authorities. The objective of this report is to identify any issues and areas of improvement and to propose legislative changes, where needed, to better facilitate prudential supervision of institutions on a cross-border basis.

EBA defines the minimum set of information on financial contracts for detailed records
The European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) on detailed records of financial contracts. These RTS have been developed within the framework established by the EU bank Recovery and Resolution Directive (BRRD) and further specify the minimum set of the information on financial contracts that should be contained in detailed records and the circumstances under which the requirement to maintain such detailed records should be imposed. These standards are part of the EBA's work to implement the BRRD and address the problem of too-big-to-fail banks.

EBA delivers guidance for business reorganisation plans under the BRRD
The European Banking Authority (EBA) published its final draft Regulatory Technical Standards (RTS) on the content of business reorganisation plans and progress reports, as well as guidelines defining how to assess plans. The work has been developed within the framework established by the Bank Recovery and Resolution Directive (BRRD), which sets procedures for the recovery and resolution of credit institutions, investment firms and related entities across the EU.

EBA issues methodology for valuation of liabilities arising from derivatives
The European Banking Authority (EBA) published the final draft Regulatory Technical Standards (RTS) on the methodology for the valuation of derivative liabilities for the purpose of bail-in in resolution. These standards, which have been developed within the framework of the Bank Recovery and Resolution Directive (BRRD) setting procedures for the orderly management of bank failures, provide EU resolution authorities with a methodology for the valuation of derivative liabilities of credit institutions placed under resolution and ensure that the discipline brought in by the new bail-in tool can effectively be extended to these liabilities too.

EBA recommends introducing the NSFR in the EU
The European Banking Authority (EBA) published its report on the impact assessment and calibration of the Net Stable funding Ratio (NSFR), recommending the introduction of the NSFR in the EU to ensure stable funding structures. The analysis did not find strong statistical evidence of significant negative impacts of the NSFR on bank lending, financial assets markets or trading book positions. The EBA also explained that certain EU specificities should be taken into account. The report will inform the work of the European Commission on potential legislative proposals on NSFR.

EBA defines harmonised prudential requirements for Central Securities Depositories (CSDs)
The European Banking Authority (EBA) published its draft Regulatory Technical Standards (RTS) on prudential requirements for Central Securities Depositories (CSDs). These RTS will define a prudential framework for CSDs and harmonise calculations for their capital requirements which currently vary across Member States. These RTS have been developed within the framework of the Central Securities Depositories Regulation (CSDR) to increase the safety and efficiency of securities settlement and settlement infrastructures.

European Parliament confirms the extension of Andrea Enria as Chairperson of the EBA
The European Parliament (EP) confirmed the extension of the mandate of Andrea Enria as Chairperson of the European Banking Authority (EBA) until February 2021. The confirmation follows a public hearing held at the Economic and Monetary Affairs Committee (ECON) of the European Parliament.

ESMA publishes final report on MiFID II guidelines on assessment and knowledge of competence
These guidelines are intended to enhance investor protection by increasing the knowledge and competence of natural persons giving investment advice or providing information about financial instruments, investment services or ancillary services to clients on behalf of investment firms.

ESMA extends consultation on the European Single Electronic Format (ESEF)
The European Securities and Markets Authority is extending its public consultation on its regulatory technical standards on the European Single Electronic Format (ESEF) to 18 January 2016.

ESMA sees continued high levels of risk in financial markets
The report found that risk levels remained high compared to the last quarter - including elevated risks for investors, infrastructures and services, and the financial system at large. Market risks indicators continued to remain at "very high", following a continuous build-up in the preceding quarters. Key risk drivers were the low-interest-rate environment, high asset valuations, potential spill-overs from emerging markets and fiscal and political developments within the EU. ESMA's market risk outlook remains unchanged at "very high".

ESMA publishes updated CRA Q&A
The revised Q&A clarifies the definition of unsolicited credit ratings, specifically whether a credit rating issued upon the request of a person different from the rated entity/issuer and a related third party constitutes a solicited credit rating.

ESMA updates its Q&A document on prospectus related issues
The purpose of the Q&A document is to promote common supervisory approaches and practices in the application of the Prospectus Directive and its implementing measures. In this 23rd version of the Q&A, a new question 96 has been added regarding the level of disclosure which should be included in a prospectus related to securities which may be subject to write-down or conversion powers under the Bank Recovery and Resolution Directive (BRRD).

FCA - Strengthening accountability in banking: UK branches of foreign banks (final rules)
In this policy statement, the FCA will follow up on the feedback the FCA provided earlier this year in Feedback Statement FS15/3 (Strengthening accountability in banking: UK branches of foreign banks - Feedback on ***FCA CP15/10 / PRA CP9/15) and publish final rules.

FCA consults on aspects of the Markets in Financial Instruments Directive II implementation
The Financial Conduct Authority (FCA) has published its first consultation paper on the implementation of the new European Markets in Financial Instruments Directive II (MiFID II) in the UK. MiFID was originally introduced in 2007 and the revised regime aims to strengthen investor protection, increase market resilience, reduce systemic risks and increase the overall efficiency and transparency of financial markets.


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