AsianInvestor's regulatory round-up, April 30

Luxembourg: Rmb50bn RQFII quota awarded
The People’s Bank of China yesterday announced it had granted a Rmb50 billion quota to Luxembourg under the renminbi qualified foreign institutional investor (RQFII) scheme. This was first revealed by AsianInvestor last month, when Luxembourg’s ambassador to China prematurely announced the quota award to a conference in Hong Kong.

Meanwhile the State Administration of Foreign Exchange (Safe) yesterday said it granted Rmb33.9 billion ($5.5 billion) in new quotas to 11 RQFII holders in April. Vanguard (Australia) received Rmb10 billion on April 28, becoming the largest RQFII holder outside of Hong Kong and the sixth-largest holder under the scheme.

The other 10 firms to receive fresh quotas include Singapore’s GIC (Rmb5 billion), UK-based Genesis Asset Managers (Rmb3 billion), and Seoul-based Samsung Asset Management (Rmb2.5 billion), Heungkuk Asset Management (Rmb3 billion), Shinhan Investment Corporation (Rmb2 billion), and Shinhan BNP Paribas Asset Management Company got its second quota batch of Rmb5 billion.  In all, 121 fund managers hold a total of Rmb363.7 billion RQFII quotas as of the end of April.

China: CSRC takes aim at illegal trading activities
The China Securities Regulatory Commission plans to crack down on illegal activities that have contributed to the Chinese stock market surge.

The targets the Chinese regulator announced last Friday include:

- Financial fraud involved with mergers and acquisitions, especially when it concerns listed companies

- Taking advantage of non-public information to manipulate stock prices

- Multiple illegal activities including insider information involving China’s over-the-counter market, officially known as the third board

- Employees from financial and securities groups trading on non-publicly available information

- Manipulation of the futures market

The CSRC said that the general trend for market manipulation was constantly evolving, which is “seriously disrupting market order”. Likewise, the private market is also facing similar challenges, with new market manipulation tactics and illegal activities appearing in various forms, which risks “harming the innovative development of the market”.

Korea: Fund management key to capital markets policy
The Korean government is looking to revitalise the domestic stock exchange, OTC trading and the derivatives market amidst the low-trading environment.

The five areas the Financial Services Commission (FSC) will look at include how to improve conditions for asset management.

One major policy push will include improving efficiency in financial asset management, with policies to be announced between June and September. The policy details will include a revision of private equity financing regulations; improved management of pension funds; and stimulation of financial investment advisory business.

Another element of the sector’s capital market reforms will include the enhancement of efficiency and trust in transactions - the FSC has identified market infrastructure and investor protection as lagging behind international standards.

Policy announcements regarding the introduction of an electronic securities system, improvement of the public disclosure system and the establishment of a stewardship code, are expected between May and September.

Another element of the reforms will be the strengthening of financial investment business. This will include: strengthening the role securities firms play in raising capital; encouraging securities firms to offer asset management services; and strengthening competition between fund managers. Policy announcements will be made in the second half of the year.

China: National security adds extra bureaucracy for FTZ investors
Foreign investors looking to set up shop in China’s free trade zones (FTZs) will need to face extra vetting for national security threats.

The rules, which will come into effect in Shanghai, Guangdong, Tianjin and Fujian by May 8, will be on top of a negative list that is already in place, requiring foreigners to seek investment approval instead of simply registering with the State Administration for Industry and Commerce.

Nicolas Groffman, partner at law firm DLA Piper, noted that the current “negative list” that runs to a “hundred or so industry sectors” long could still create risks for the government, given that it was still possible for foreign investors to move into sensitive sectors with special permission.

But Goffman noted that “the difficulties with these new rules are the traditional problem encountered by anyone who has ever read an old-school Chinese regulation: vagueness, and broad discretion to authorities.”

Singapore: MAS revises AML rules
The Monetary Authority of Singapore has made revisions to rules relating to anti-money laundering (AML) and countering the financing of terrorism (CFT) as it looks to better align its standards with international partners.

Key changes to the AML/CFT rules include requiring more comprehensive enterprise-wide money laundering and terrorism financing risk assessment to complement risk assessment of individual customers; elaborating on the requisite steps to identify and verify beneficial ownership of companies, limited liability partnerships and trusts; introducing a new category of politically-exposed persons; and additional requirements for cross-border wire transfers exceeding S$1,500 ($1,133).

The new requirements come as Singapore attempts to strengthen the city-state’s financial system before an on-site visit by the intergovernmental Financial Action Task Force expected between November and December.

Hong Kong: Government consults on information sharing
The Hong Kong government is consulting the market on how it should adopt tax information-sharing systems with international partners.

The initiative, spearheaded by the Organisation for Economic Co-operation and Development, comes after the supranational body last year published a set of rules governing how member countries share individuals’ financial information with each other.

The Hong Kong government has drawn up proposals to apply the automatic exchange of financial account information in tax matters (AEOI) requirements to the city.

These proposals relate to the definitions of financial institutions (FIs); the type of information they have to secure from account holders; the due diligence and reporting requirements FIs have to follow; the Inland Revenue’s powers to collect relevant information from FIs and forward such information to designated bilateral AEOI partners; and the sanctions for non-compliance and confidentiality provisions.

The consultation was launched on April 24 and ends on June 30. The aim is to have a proposal tabled to the city’s Legislative Council by early 2016, domestic legislation in place by 2017 and the first information exchanges by the end of 2018.

Middle East: Saudi to open up stock market to foreign investors
Saudi Arabia is to open up its $530 billion stock market to foreign investors by June 15.

On May 4 the Saudi Capital Market Authority will publish finalised rules on foreign investors tapping into the country’s bourse, the Tadawul.

It will be following a regional trend for greater internationalisation, with Qatar and the United Arab Emirates having been upgraded two years ago to emerging market status by index provider MSCI. Saudi Arabia might also be on track to be part of the emerging index, which could see fund managers and ETFs entering the domestic market.

“This long-anticipated announcement comes to the market at a critical time, as investors increasingly look to the kingdom for opportunities across a number of sectors,” said a client note from law firm King & Spalding.

Saudi Arabia currently hosts some of the biggest companies in the region, including Riyadh-based petrochemical group Sabic, which has a market capitalisation of $81 billion.