Europe has come under attack from Asian market regulators who are warning that the one-size-fits-all tests for clearing houses will hamper business and liquidity in their region.

The criticism shows divisions over the implementation of landmark G20 reforms of the financial system that have created friction between the US and Europe are now spreading to Asia.

In a letter to Michel Barnier, the European Commissioner for internal markets, 23 Asian regulators warn of “severe problems” if Europe attempts to impose “conditions and standards that are not relevant, appropriate of even feasible” for Asian clearers.

A clearing house, or central counterparty (CCP), stands between two parties to a trade, stepping in to ensure the deal is completed if one side defaults.

“EU established financial institutions and subsidiaries would not be able or would find it prohibitively expensive to use the services provided by these non-EU CCPs,” said the letter, signed by Ashley Alder, chief executive of the Securities and Futures Commission, Hong Kong’s market regulator.

“This will further lead to market fragmentation, contraction of market liquidity and will directly impact on EU established financial institutions and subsidiaries carrying on business in the Asia-Pacific region.”

Mr Alder was writing in his capacity as chairman of the Asia-Pacific regional committee of the International Organisation of Securities Commissions (Iosco), the Madrid-based umbrella body for global market regulators.

Asian ire threatens to complicate efforts by global regulators to harmonise implementation of new rules for the vast over-the-counter (OTC) derivatives markets, parts of which were blamed for exacerbating the 2008 crisis.

Under new European rules for policing OTC derivatives – known as the European Market Infrastructure Regulation (Emir) – clearing houses in Asia have had to register in Europe to qualify to offer clearing services to EU financial institutions.

Europe’s umbrella markets regulator, the European Securities and Markets Authority (Esma) as part of that process is now assessing whether Asian clearing houses operate on standards that are “equivalent” to clearers in Europe.

While Asia accounts for only about 8 per cent of global OTC derivatives volume, it is expected to grow in coming years as its capital markets mature and more companies opt to use OTC derivatives, such as interest rate swaps, for hedging.

Lawyers say Asian regulators are worried that Brussels and Esma are failing to recognise that, unlike in the relatively homogenous EU market, clearing houses in Asia are mostly focused on their own domestic market, with their own currencies and bankruptcy laws.

Such concerns were echoed this week by a leading trade association in Asia for banks and brokers operating in the OTC derivatives markets.

Mark Austen, chief executive of the Hong Kong-based Asia Securities Industry & Financial Markets Association (Asifma), warned that Emir had “enormous potential to shut out European banks from key Asian markets”.

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