AsianInvestor's regulatory roundup, June 3

Global: Fund managers launch attack over Sifi label
US fund managers Fidelity and BlackRock have attacked global regulators over a potential plan to label large fund managers as too big to fail.

Being labelled as a systematically important financial institution, if applied, could mean that some of the world’s largest fund managers may be faced with greater regulatory scrutiny, which would damage their profitability.

In a letter seen by the Financial Times and published on May 31, Fidelity said that the approach currently considered by the Financial Stability Board would be “irredeemably flawed” and that regulating a fund manager as such “would be counterproductive and destructive”.

BlackRock meanwhile suggested that there may be a case for “enhancing the regulation of some individual investment products and practices,” according to the newspaper.

Fund managers say that they do not pose a risk to financial stability as they do not take deposits, guarantee returns or face the risks of sudden failures as a bank does.

Japan: Top corporates make progress on governance code
The Tokyo Stock Exchange has put in place a corporate governance code for its listed companies in a bid to promote a better investment environment.

The code, which came into effect on June 1, will see the 3,500 Tokyo-listed companies made to comply with rules such as the requirement to appoint at least two independent external directors to boards. Listed firms will also need to evaluate their board of directors and report annually to stakeholders.

Analysis on the Nikkei Asian Review found that nearly 90% of the top 100 Japanese companies have named multiple independent outside directors or plan to do so.

A total of 13 of the top 100 companies are expected to have no external directors or only one, or have an unknown number, down by half from 26 last fiscal year, the Nikkei report found.

Hong Kong: SFC confirms Hanergy probe
The city’s Securities and Futures Commission confirmed on May 28 that it is investigating the controversial listed company Hanergy Thin Film Power Group following a public outcry over its volatile share price movements.

“The SFC wishes to clarify that a formal investigation into the affairs of Hanergy Thin Film Power Group Limited has been active and is continuing,” the SFC said.

“This statement is issued in accordance with the SFC’s Disclosure Policy given the public interest following reports denying such measures have been taken …  The SFC will make no further comment about the investigation,” the Hong Kong regulator said in a statement.

The SFC’s comments come after a public outcry when Hong Kong-listed Hanergy tumbled nearly 50% on May 20 before it was suspended. This was preceded by a spectacular, but unexplained, rise of 550% over the past year.

Hong Kong: SFC fines BNP for unreported cross trades
The Securities and Futures Commission has fined BNP Paribas Securities (Asia)  $11 million for failing to report cross trades to the Hong Kong Stock Exchange between 2002 and 2013. The SFC announced the fine and reprimand on June 1.

Cross trading, which involves moving a security from one client to another without reporting the transactions to the stock exchange, can benefit clients by avoiding execution costs, but could also create conflict of interest in obtaining best execution for both the buying and the selling client.

BNP Paribas only told the SFC in 2013 that it had failed to report 4,443 trades during the 11-year period.

“The SFC found that the dealers were not able to completely and timely report the late cross trades because there was a conflict between their trade execution and reporting duties,” the SFC said.

“Not only were the dealers responsible for reporting the late cross trades, they also had to handle and execute orders at the same time … BNP’s dealing function was not being provided with sufficient resources to enable the dealers to properly discharge their reporting duties.”

Australia: Government looks to simplify foreign investment framework
The Australian government is looking to simplify the foreign investment framework to encourage more investors to tap into the domestic market.

Under the modernisation options paper, a consultation which began on February 25 and ended on May 29, the government is looking to incorporate the current foreign investment policy of notification and prior approval requirements into legislation.

Law firm Ashurst noted that under the current foreign investment screening framework, foreigners have faced a great deal of uncertainty in deciding whether or not they are required to notify or seek approval from the government since current policy-based requirements do not have the force of legislation.

Other proposals include updating the legislation to reflect current administrative practices and regulatory concepts, as well as modern business and corporate finance practices.

Korea: Regulator aims for electronic securities system by 2019
Korea’s Financial Services Commission said that it is looking to introduce an electronics securities system by 2019 as it attempts to modernise its financial sector.

According to a report by Korean newswire Yonhap on May 21, which quoted the FSC, the issuance, registration and circulation of securities will be performed electronically without physical certificates, with the exception of commercial paper and investment contract securities.

Such a system could mean that the financial system could make savings on the 50 billion won ($45 million) it currently spends on issuing paper securities, the FSC said.

"The electronic securities system is expected to beef up efficiency in the local equity market," Kim Hak-soo, director general of the capital market bureau at the FSC, told Yonhap. "It is also part of the FSC efforts to boost financial technology, or fintech."