AsianInvestor's regulatory roundup, Apr 30

Fund houses slam FSB proposals; Singapore, Taiwan bourses set for cross listing; Australia signs up for Fatca; IPO process thawing in China; mainland authorities tighten shadow banking rules.
AsianInvestor's regulatory roundup, Apr 30

International: Global fund houses slam FSB proposals
Some of the world’s largest fund houses have criticised a consultation on whether big asset managers should be labelled as 'global systemically important financial institutions' (G-Sifis) and therefore more heavily regulated.

BlackRock takes issue with the proposals from supranational body the Financial Stability Board, arguing that fund firms undertake transactions on behalf of clients rather than managing assets on their own balance sheet.

“As a result, asset managers are neither the owner of the assets that they manage nor the counterparty to trades or derivative transactions,” the world’s largest asset manager wrote, adding that the move would make them less susceptible to risk than banks. 

Bond fund specialist Pimco was more forthright, calling the consultation “fundamentally flawed”.

“We do not believe the consultation accurately characterises the risk profile of investment funds,” the firm said.

The consultation paper will examine whether fund managers and investment funds with $100 billion or more in assets should be better regulated – a proposal Pimco objects to, arguing that the threshold was set without reference to empirical evidence.

The firm says that excessively leveraged managers, or those failing to collateralise counterparty risk, are more likely to cause systematic risk.

Taiwan/Singapore: Bourses eye cross listing
The Singapore and Taiwanese stock exchanges are reportedly set to allow the cross listing of select names on their respective bourses by the end of the year.

It is expected that at least 30 companies from each market could be made available for cross listing. Members from the two exchanges are expected to form working groups for stock selection, trading, settlement, IT systems and marketing, reports Taiwan’s United Daily News.

The China Times reports that Singapore will make 30 blue-chip stocks available for cross listing, including DBS, Singapore Airlines and United Overseas Bank, while Taiwan is expected to make 50 stocks available, notably Apple components supplier Foxconn.

Taiwan Stock Exchange chairman Lee Sush-der has said the bourse is looking to sign a memorandum of understanding with the Shanghai Stock Exchange on cross listing and the creation of an index based on the Greater China region.

The announcements come on the heels of the recently agreed cross-listing scheme between Hong Kong and Shanghai, which is expected to go live by the end of this year. There is a similar setup operating in Southeast Asia, the Asean Trading Link.

Australia: Fatca pact with US inked
The Australian government has become the latest intergovernmental agreement (IGA) signatory to the US’s Foreign Account Tax Compliance Act (Fatca), which will take effect in July.

The extraterritorial rules require non-US financial institutions, including those in Australia, to report details on their US national account holders to the Inland Revenue Service (IRS). Foreign financial institutions that do not comply by July 1 are set to face several consequences, including a 30% withholding tax.

The IGA, signed on April 28, will help Australian institutions minimise compliance costs and potential legal issues, as they will be required to report directly to the Australian Tax Office instead of the IRS.

On March 25, the US and Hong Kong inked a tax information exchange agreement, which some commentators view as a prelude to a more comprehensive Fatca agreement.

China: IPO process emerges from the deep freeze
The China Securities Regulatory Commission (CSRC) has published a list of companies that wish to apply for listing on the mainland’s bourses.

Twenty-eight companies have submitted pre-IPO applications, of which 16 are for the Shanghai Stock Exchange’s main board, eight for ChiNext and four for the Shenzhen Stock Exchange.

Inclusion on the CSRC list does not indicate that permission by the financial regulator has been granted.

The development may prove to be a boon for venture capital investors in China. A bottleneck in mainland listings had effectively closed the most widely used exit strategy for many VC investors and private equity firms.

China: Regulator tightens shadow banking rules
Market regulator the China Banking Regulatory Commission (CBRC) has issued new guidelines for the country’s shadow banking sector, including trust companies, in a bid to reduce systematic risk, Xinhua reports.

The commission moved to reduce liquidity risk by banning so-called fund pools, vehicles through which shadow banking participants pay investors holding maturing products with cash from new investors.

Trust companies are now required to improve risk control, product design, risk supervision and information disclosure.

Xinhua also reports that trust companies are encouraged to focus more on traditional services, such as equity investments, merger and acquisition services and asset management.

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