AsianInvestor's regulatory round-up, Jan 29

Japan: Regulator mulls governance code 
Japan’s Financial Services Agency (FSA) is seeking public comments on its proposed corporate governance code for listed companies. 

The code is designed as a guide to make listed firms more accountable to shareholders and stakeholders by providing greater transparency on decision-making. This is a principles-based rather than a rules-based approach. The consultation period ended on January 31. 

The code is part of a series of measures adopted by the government to improve corporate governance in the country. 

The stewardship code signed last November saw 175 institutional investors pledge to take a more active role in the running of portfolio companies they invest in.  
  
US: Regulators target transparency 
US regulators have pledged to explore ways to clarify their criteria for classifying financial institutions as too important to fail. 

The Financial Stability Oversight Council is formed of US regulators including the Treasury, Federal Reserve and the Securities and Exchange Commission. 

The council’s move comes after US life insurance firm MetLife launched a lawsuit to challenge its status as a systemically important financial institution (Sifi). 

Institutions fear that being branded a Sifi has negative consequences for their competitiveness, in the belief they will be regulated differently. 

The council has also launched a consultation to explore potential risks to US financial stability from asset management products and activities. The consultation process is due to end on February 23. 

Meanwhile, Hong Kong has issued a second round of consultations on the issue of financial institutions deemed too big to fail, looking at bailing-in powers, methodology for calculating creditor compensation and how to fund resolution cost. The consultation process is due to end in April. 
  
China: Beijing looks to ease tech rules 
Beijing is proposing to introduce new laws to recognise foreign investors in sensitive industries such as telecommunications and the internet. 

Groups operating in restricted industries that seek to list their companies offshore often resort to using variable interest entities (VIEs), which oblige the company to share a cut of revenue with foreign partners.

But the draft foreign investment law, under consultation until February 17, will stipulate the VIE structure as a foreign investment – a concept that Chinese law did not previously recognise.

The draft law also clarifies the extent to which foreigners can invest in sensitive industries.
 
Europe: FTT rules could hit Asia
Four financial associations are lobbying finance ministers in the European Union to reconsider implementation of the financial transaction tax (FTT).

They have cited studies saying FTT could harm Europe’s financial market and distort competition, increasing funding costs at a time when the bloc is seeking to restore growth. 

Firms in Asia would be charged under FTT if they have an economic link with 11 European member states. The proposed tax is 0.1% for European bond and equity transactions and 0.01% for derivatives. So a Hong Kong-domiciled fund buying Singaporean stocks through a broker based in France could be hit.

If the 11 finance ministers reach a conclusion, the tax could come in by the start of 2016.
 
China: CSRC clarifies margin selling rules
China’s securities regulator has called for market participants not to “over-interpret” its actions to curb margin trading, which has driven a rally in domestic stocks.

The comments came shortly after the Shanghai Composite Index sank 7.7% on January 19 following news that the China Securities Regulatory Commission had banned three big brokers from opening new margin trading accounts for three months. An inspection revealed they had illegally extended contracts for margin traders, local media reported. 

The following day the index rebound 1.8% after a statement was published on the CSRC website, noting that brokers did not have to close existing margin-trading positions for clients with less than Rmb500,000 ($80 million). 
  
Hong Kong: Tax exemption for PE firms ‘soon’
Hong Kong is set to introduce a bill “soon” to extend exemption of offshore profits tax to include private equity funds.

The announcement was delivered by the city’s financial secretary, John Tsang, at the Asia Private Equity Forum on January 21.

One of the most contentious issues has surrounded whether private equity companies meet the qualifying criteria.

John Levack, vice-chairman of the Hong Kong Venture Capital and Private Equity Association, said draft legislation was expected to be drawn up between March and April.

“The process of including private equity into the existing legislation is an example of how receptive and flexible the HK government has been in responding to valid industry requests,” Levack noted. 
  
Taiwan: Listed firms given e-voting deadline 
Companies listed on Taiwan’s main bourse will be required to adopt electronic voting for shareholder meetings to improve corporate governance.

Companies listed on the Taiwan Stock Exchange (TWSE) and GreTai Securities Market will be required to comply with the new rule from January 1, 2016.

“With more companies adopting the e-voting mechanism, we believe that both domestic and foreign investors will benefit in exercising their shareholders’ rights and prompt companies to safeguard their interests,” said Lee Sush-der, chairman of TWSE.