November 27, 2012 5:13 am

HK warns Asia over financial reforms

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Asian institutions would be “unbelievably stupid” to ignore the mistakes of western finance in their own regulation, Hong Kong’s lead market regulator warned on Tuesday.

Ashley Alder, chief executive of the Securities and Futures Commission (SFC), said Asian regulators and the finance industry must engage with global regulatory reform to ensure that their own financial systems could develop smoothly and to protect regional interests.

Banks and other market participants in Asia have been concerned about elements of strict financial regulation being drawn up in the west and have questioned its relevance to a set of markets where leverage has remained low and there has been no mortgage meltdown.

Mr Alder told a regulatory conference in Hong Kong that the Asian financial industry needed to understand the mistakes of the west as local markets grew and became more sophisticated.

He said that if Asian regulators and industry did not engage with the reform being driven by the US and Europe, they risked having their own interests trampled upon.

The Asian financial sector will grow to rival that of the west alongside the expansion of regional economies, he said. “It would be unbelievably stupid to try and grow the Asian financial system while ignoring the deep problems revealed by the crisis in the west,” Mr Alder said. “If Asia does not get properly involved in the global regulatory agenda, we will find that the US and the EU rules will be extended to us whether we like it or not,” he added.

He also called on Asian regulators to work more closely together and cited a letter sent this summer jointly by the SFC and regulators from Australia and Singapore to US rulemakers about changes to derivatives regulation.

However, some of Asia’s developing markets are concerned about the relevance of highly complex bank regulations. Krirk Vannikul, deputy governor of the Bank of Thailand, said on a later panel that “one-size-fits-all” does not work. “You don’t regulate a farm like you regulate a skyscraper . . . what we are asking for is greater flexibility to develop our own regulations,” he said.

Mr Alder said that many in the US or elsewhere in the west were still concerned that Asian regulators would shun stricter rules as a competitive effort to attract more firms to the region. “We must recognise upfront that there is no advantage in lowering our standards in order to attract business. That kind of regulatory arbitrage always ends in tears,” he said.

“Investors want to come here to participate in Asian growth not to escape stricter regulation at home,” he said.

Mr Alder said regulators could not take at face value the claims from industry that regulatory reforms would affect liquidity or otherwise hamper activity.

Regulators should be robust in facing down industry threats to individual jurisdictions, he said in response to questions. “We often encounter pressure from some sections of the industry that ‘If you don’t do X . . . then we will go somewhere else and Hong Kong will suffer’,” he said. “We always, always take that with a very heavy pinch of salt.”

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