KPMG’s Simon Topping offers his views on how regulatory considerations can affect the attractiveness and competitiveness of Asia Pacific banking markets.
One thing I’m acutely aware of from my long time as a banking regulator is that there is a high degree of competitiveness between regulators in the region (and I don’t mean just Hong Kong and Singapore!). In the past this manifested itself in a race to be the first regulator to implement new international standards (such as those developed by the Basel Committee on Banking Supervision) and to win plaudits for the speed of implementation and degree of compliance.
These days, however, the competition is more nuanced. There is no longer anything to be gained by rushing to implement international standards (such as the forthcoming Basel III), as your competitors may wait to see what national discretions and deviations you introduce, and then “trump you” by themselves introducing something just a little more favourable to international banks, thereby serving as an inducement to do more of their business in your competitor’s jurisdiction.
International standards are not the only battlefield. Regulators are keen to differentiate themselves by highlighting what they are doing to promote technology and innovation, financial inclusion, and economic development. If regulators “compete” on these areas, rather than over-focusing only on financial stability, that can only be a good thing as far as I am concerned.
There are a few other areas that occur to me, however, which a regulator seeking to make its market more competitive/attractive might usefully consider:
- Liquidity requirements – Ringfencing, and limiting intra-group sharing of liquidity are a real impediment to banks doing business in your jurisdiction.
- Outsourcing/onshoring – Likewise, tight restrictions on outsourcing, or even worse requiring data/systems to be onshored, really reduce a jurisdiction’s attractiveness.
- Individual accountability/fining/naming and shaming – These are reasonable issues to consider, but too tough/punitive an approach can be really offputting.
Of course I’m not suggesting that regulators should determine their stance on issues such as this entirely on the basis of what would make their jurisdiction more attractive to business. What I am saying, however, that this is a factor they need to consider carefully. Regulation is not made in a vacuum. It is not about promoting financial stability at all costs, it is about getting an appropriate balance between providing stability and facilitating business and growth.
So issues such as the three I mention above should be considered in this light. I would encourage regulators not to go “over the top” on liquidity, outsourcing and accountability, but to think about how they affect business – and, thereby, how they affect the attractiveness/competitiveness of their banking market. If regulators could compete on how reasonable they can be in these areas (without sacrificing financial stability/prudence), I’d be all for it!
Simon Topping is a former banking supervisor and a partner with KPMG in Hong Kong, where he provides regulatory, compliance and risk management advice and solutions to both global and Asian clients. Follow Simon’s regular commentary on Linkedin, available here.