AsianInvestor's regulatory roundup, May 29

HK SFC sees expenditure grow; report on regulations' potential impact on ETFs; India's Sebi tackles fund rule breaches, asks for pension reform; and Myanmar's bourse is delayed.
AsianInvestor's regulatory roundup, May 29

Hong Kong: SFC expenditure growth tops US/UK regulators’
Hong Kong’s Securities and Futures Commission (SFC) saw its expenditure grow 120% from 2007 to the end of 2013, a new report reveals.

The figure is proportionally higher than the US and UK regulators’ spending growth in the same period, says financial services consultancy Kinetic Partners.

But despite peer-leading growth, the SFC’s expenditure of $152.50 million in 2013 remains only a fraction of the US Securities and Exchange Commission’s (SEC) $1.4 billion and the UK-based Financial Conduct Authority’s (FCA) $870 million in the same year.

Headcount has not risen in line with spending growth, the report says. The SFC has increased its staff numbers by 51% from 2007 to 2013, compared with the FCA’s 53.2% increase and the SEC’s 21.9% rise.

“This … could be indicative of a focus by the regulators to improve market surveillance by developing innovative technologies and hiring more experienced, specialised staff,” says Kinetic Partners CEO Julian Korek. “For our clients across the banking, asset management and insurance sectors, we are seeing a mirroring of this investment in systems to monitor and report on transactions.”

“For systems to work effectively, a different set of staff skills and training is required than traditional compliance or risk management expertise,” he adds.

Tammy Li, London-based associate director at Kinetic, says there is “still a slight sense that market abuse is a sell-side problem”, and that asset managers have not taken systematic monitoring to the same level as the sell-side.

China, Hong Kong: ETFs industry could get regulatory boost
Asia’s exchange-traded fund industry could see its assets rise to $250 billion by 2016 from the current $165 billion under favourable regulatory reforms, according to BNY Mellon.

The mutual recognition scheme that would allow Hong Kong investors to buy Chinese mutual funds and vice versa will be a major contributor to growth, says the asset management and servicing group in a report.

Expansion of the renminbi-qualified foreign institutional investor (RQFII) programme, increased RQFII quotas, the opening of new asset classes such as interbank debt to foreign investors, and proliferation of free-trade zones would spur ETF growth in Hong Kong and China.

"There's great potential for mutual recognition to make life easier for ETF promoters and drive product design and development as they expand their footprint in the Asia-Pacific region,” says Rex Wong, managing director at BNY Mellon’s asset servicing business for Asia.

“But success in building the ETF market in China and sustaining product development also requires changes in local market infrastructure and, most importantly, regulatory reforms,” he adds.

China and Hong Kong account for 35% of the $165 billion invested in Asia’s ETFs, with Japan contributing 45%.

“Once the right structures are in place, we expect the ETF markets in Hong Kong and China to outpace the growth of the broader Asia-Pacific region,” Wong says.

India: Sebi uncovers fund rule breaches
Capital markets regulator the Securities and Exchange Board of India (Sebi) has found that fund houses have regularly breached rules governing the minimum number of investors a fund must maintain and the number of shares a single investor can hold, reports the Indian Express.

Under the rules, mutual funds must have at least 20 investors, and any single investor cannot own 25% or more of the fund.

But an analysis of quarterly disclosures shows that some investor had owned stakes exceeding that threshold and sold their holdings at the end of a quarter to meet quarterly requirements.

Sebi has asked fund houses to immediately address the issue, a senior official was quoted as saying.

India: Ministry asked to approve pension tax breaks
Sebi has requested the country’s new government to consider implementing tax benefits to boost inflows into the mutual fund industry, according to Indian media reports.

Sebi has written to the Finance Ministry with several proposals for pension reform. They include tax breaks on pension products, such as the proposed mutual fund-linked retirement plan, which is similar to the US’s 401k plan.

Another proposal is to raise the income tax exemption cap from Rs100,000 ($1,700) to Rs200,000, which would increase the number of mutual fund schemes subject to tax benefits.

Myanmar: Stock exchange launch delayed
Plans to open Myanmar’s first stock exchange in October 2015 have been pushed back, reports Japan’s Kyodo News.

The Tokyo Stock Exchange and securities firm Daiwa agreed in 2010 to help the Southeast Asian country, which recently emerged from international isolation, to build a bourse. But they have found recruiting skilled people difficult.

Potential candidates who were trained by Daiwa and may have been suitably qualified were unwilling to take up exchange roles because government jobs are often perceived as better than private-sector posts, the report says.

Concerns were also raised that companies would be put off from listing as they would need to improve corporate transparency.

With assistance from Japan’s Finance Ministry, Myanmar drafted and signed into effect a securities and exchange law in July last year.

Korea’s government helped Laos and Cambodia launch stock markets. Both opened in 2011 and have three listed companies.

Other regulation-related stories published on recently:

China growth elusive for foreign managers: forum

Asean states urged to relax bond, insurance rules

Asian asset managers urged to raise standards

MAS bans ex-Maybank insider trader

ChinaAMC denies report of regulatory probe

Asian alts managers warned of UK 'Fatca'

HK SFC raps Citi unit for algo system failures

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