AsianInvestor's regulatory round-up, Feb 25

Hong Kong: Stamp duty wavier for ETFs
The Hong Kong government waived a 0.1% stamp duty on exchange-traded fund transactions to fall into line with other major financial centres.

Effective from February 13, its removal comes at a time of increasing competition from financial markets in the region. Australia, Japan, Korea and mainland China all do not impose stamp duty.

The move is an extension of a 2010 rule that waived the levy for ETFs whose AUM was more than 40% comprised of Hong Kong stocks. The idea was first proposed last year in the government’s 2014-15 budget, as reported.

Singapore: MAS sets out crowdfunding proposals
Increasing interest in crowdfunding from small and medium-sized enterprises (SMEs) has prompted Singaporean regulator MAS to publish a consultation paper setting out proposals to facilitate access by corporates using the online fundraising technique.

Specifically, the Monetary Authority of Singapore (MAS) will only look into the financial return model, which includes lending-based and equity-based crowdfunding. This is because they involve the offer of securities, which would, under the proposed rules, make the firms subject to securities regulation.

One significant risk associated with equity investments is the high probability of capital loss and illiquidity compared with traditional investment instruments.

The MAS' proposals include easing the current financial requirements for intermediaries that deal in securities provided they do not handle or hold customer money, assets or positions and do not act as principal in transactions with customers. This will allow potential crowdfunding platform operators with lower financial resources to apply for a licence.

Comments are required to be submitted to MAS by March 13.

Australia: Regulator launches collective action consultation
The Australian Securities and Investments Commission (Asic) is aiming to clarify its guidance for investors using collective action under the guise of improving the corporate governance of listed entities.

While the country’s financial watchdog encourages engagement to improve corporate governance, it worries that collective action can lead to behaviour in which an entity can be acquired inappropriately through an agreement to hold a group vote. This raises compliance issues under legal provisions governing takeovers and substantial holdings.

For instance, an agreement to vote together on a matter could result in an investor contravening the 20% takeover threshold. When a shareholder or organised group of shareholders hold 20% or more of a company’s shares, they become subject to certain disclosure and procedural requirements.

Proposals include updated guidance on how takeovers and substantial holding notice provisions apply to collective actions and an outline of Asic’s proposal on how to approach enforcement when it comes to conduct that is control-seeking rather than simply promoting corporate governance.

“In our update we aim to provide guidance that facilitates investor engagement, yet honours the spirit of takeover laws,” said John Price, a full-time member (commissioner) of Asic.

Comments are required to be submitted to Asic by April 20.

Hong Kong: SFC ban for ex-Ping An Securities chief
The Securities and Futures Commission has banned the former CEO of Ping An of China Securities (Hong Kong) for 12 months for having insufficient internal controls while at the helm of the firm.

It stated that “serious internal control deficiencies” occurred between August 2010 and April 2011 while He Zhi Hua was in charge of the firm, including complicity in a number of suspicious transactions that were not reported to the SFC and the police’s joint financial intelligence unit, as reported.

The SFC also found that He failed to ensure that Ping An had sufficient anti-money laundering control procedures in place or training for its staff; appropriate and effective procedures to protect client assets in effecting payments; and proper communication and enforcement of internal policies on employee dealings and account opening procedures.

Moreover, He, who was the most senior person at the firm, tried to abdicate responsibility and offload blame to subordinates when these deficiencies were uncovered, the SFC said.

China: Foreign IT suppliers squeezed out from financial industry
Law firm DLA Piper has highlighted China’s “active move to squeeze out foreign investment” in IT suppliers, which are heavily used within foreign financial institutions in the country.

The China Banking Regulatory Commission (CBRC) issued guidelines last month that seek to ensure all financial institutions operating in China, including asset managers, undergo in-depth audits of their IT infrastructure.

The new rules mean financial companies will need to meet four basic requirements: source codes must be filed with the CBRC; software attached to an IT product and certain hardware should have independent intellectual property rights registered in China; firms must have a localised supply chain, meaning all IT products should be manufactured in China; and IT product components containing encryption must obtain a certificate.

DLA Piper notes such certificates are only issued to domestic companies on encryption products produced and sold in China.

Scott Thiel, a partner at the firm, said the impact could be two-fold: IT suppliers would be faced with a choice of staying in China and disclosing tech secrets or exiting the market; and foreign banks, will face challenges in finding a local IT system that meets their standards and is compatible with their global set-up.

“These measures have been put in place in the name of cyber security and data privacy, but go far beyond the normal levels of regulation required in most countries,” said Thiel. “While the aim would appear to be to try and make business safer, it won't make doing business in China any easier. It will be interesting to see how banks react to these guidelines over the coming months."

US: FSOC aims for too-big-to-fail transparency
The United States’ Financial Stability Oversight Council (FSOC) has voted to change the way it designates whether a non-bank financial company is systematically important.

It comes after MetLife launched a lawsuit to challenge its status as a systemically important financial institution (Sifi) last month. Institutions fear that being branded a Sifi will have negative consequences for their competitiveness as they become subject to more scrutiny from regulators.

Non-bank financial companies that are designated by the FSOC are subject to consolidated supervision by the Federal Reserve and enhanced prudential standards.

The FSOC has been criticised by US lawmakers for not being transparent, a point the council has acknowledged and amended with this vote.

Among the changes to be adopted will be greater engagement with companies under consideration by the FSOC, such as informing firms earlier when they come under review, and providing additional opportunities for companies and their regulators to engage with the council.

The council also pledged to increase transparency to the broader public regarding the Sifi designation process by making available more information about its designations work, while continuing to protect sensitive, non-public information.

Finally, there will be further engagement during the council’s annual re-evaluations of Sifi designations. These discussions will be held between designated companies, the council and staff, with opportunities for firms to present information and to understand the council’s analysis.

“The changes adopted today represent an important step for the council that will increase the transparency of our designations process and strengthen the council overall,” said Treasury Secretary and FSOC chairman Jacob Lew. 

Separately, the council has voted to extend until March 25 the deadline for its consultation on Sifi designation of fund houses.