Arbitraging rules is risky
Asia is deregulating asset management, which is good news. Many regulatory authorities are keen to support and grow their industries, and to help investors. But piecemeal reforms can throw curveballs. Asset managers and service providers need to check if an opportunity is actually a trap - if the reform is not sufficiently harmonised across other regulators.
There are plenty of examples of governments proactivly supporting investors or the funds industry. Singapore, Malaysia and Thailand have unveiled an Asean funds passport scheme (see page 60). Malaysia has just permitted full foreign ownership of onshore unit-trust firms (see page 8). Taiwan has relaxed rules to expand the scope of financial products and services via offshore banking units (OBUs), which is meant to attract overseas money and build a wealth management hub (see page 28).
The biggest deregulator of them all has been, of course, China. It is promulgating an alphabet soup of acronymed pilot programmes, many of which are linked to internationalising the renminbi. The Shanghai-Hong Kong Stock Connect scheme – due by October – is another welcome addition (see page 64), and may be seen as a precursor to mutual funds recognition wth Hong Kong.
But in many markets, including China and India, regulation of the investments business is fragmented, and regulators sometimes get too far ahead of their peers, which can land the industry in hot water. We saw this a few years ago when India’s securities regulator changed commission rules without consulting with the insurance regulator, a move that did great damage to the funds business.
The latest example is in China, however - which is not surprising given the overall level of financial deregulation taking place there. It has separate regulators for securities, banking and insurance, which sometimes appear to use policy to fight their own turf wars, rather than to benefit their consumers. A more charitable view is that they are simply bad at coordinating. The result can be the same, though, for unwary financial service providers: trouble.
Subsidiaries of Value Partners Goldstate, Wanjia and Huachen Asset Mirae have had to disclose potential product defaults (see page 62) over businesses engaged in segregated accounts. These subsidiaries of long-only mutual fund businesses bolted on new activities allowed by the securities regulator in 2012 that was never coordinated with the banking regulator. The relaxation was intended to let fund houses compete with trust firms, which fall under the banking regulator, by allowing them to operate with less supervision and less capital. Now the banking regulator is applying its more stringent rules to these businesses, catching them short.
The lesson for fund managers operating in China (and, indeed, anywhere) is that piecemeal reforms outside of a national agenda need to be scrutinised. Regulatory arbitrage can reap dividends – and it can also backfire.
04 On the move
Private bank hires reflect rising trend; Aviva Investors overhaul; Pimco names regional heads
08 Regulatory Analysis
Fund managers study merits of Malaysia
10 Regulatory Roundup
China, Europe in fund passport talks; India set for Reits; Sydney poised for RQFII status
12 Data Centre
Changing cash positions in equity strategies
14 Here comes the Euro cash
European family offices are opening in Asia in growing numbers to diversify portfolio exposure, among other things.
18 Q&A: Park Min-Ho, chief investment officer of Teachers’ Pension in Korea
20 Roundtable: Investors discuss positioning for bond market risks
26 CIC warns on deal sourcing, pledges to improve; NSSF boosts use of fund managers
28 Taiwan rolls out red carpet
It has widened the scope of products via oversesas banking units. But it must be bold.
30 Q&A: Colin Tipping, investment proposition director at Friends Life
32 Roundtable: Product gatekeepers discuss ways of boosting fund penetration
38 Nomura on Asia wealth buildout; BSI head on BTG deal implications
40 Is Europe losing its lustre?
With earnings growth yet to arrive, is it time for a technical turn to emerging markets?
45 ETFs and indices special report – see ‘In this issue’
60 Asean passport scheme unveiled; Jokowi faces challenges; HK funds industry posts record AUM
62 Prime time in Hong Kong
Prime brokers are investing in systems to trade China stocks in Hong Kong, but face certain issues.
66 Q&A: Kim Soomin, partner at Unison Capital
68 Ex-GSAM exec joins Soros spinout; GoldenTree opens in Singapore; Newedge building in prime broking
70 Call for clarity on new OTC rules
Uncertainty remains over compliance obligations for mandatory reporting.
72 Operations manager: Cory Chan, E Fund Management
74 Tahnoon Pasha building family office; Stock Connect risks flagged
74 Trader talk: Scott Treloar, Vulpes Investment
The Rise of the New East:Business strategies for success in a world of increasing complexity, by Ben Simpfendorfer
Also in this issue
ETFs and indices
AsianInvestor’s special report looks at issues around smart beta, active managers moving into
passive strategies, and India’s ETF industry.