Europe has made great strides in harmonising its financial markets with initiatives such as the Single Euro Payments Area (SEPA) and the Markets in Financial Instruments Directive. The Association of Southeast Asian Nations (ASEAN) also plans to establish more coordinated financial markets.
Briefing: Integrating ASEAN's Financial Markets
But with no supranational body like the European Commission to drive such initiatives, the primary task is to maintain the necessary political will across the ASEAN countries – Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam – while also leveraging continued support from Asian regional heavyweights China, Japan
and South Korea.
“The fact that there is no single currency, central bank or harmonised regulatory framework for Asia will not be easily overcome,” notes Philippe Metoudi, member of the executive board, head of relationship management, Asia-Pacific/Middle East/Africa, Clearstream. “Building a common infrastructure in Europe has been an ongoing process for more than 50 years.”
The benefits of harmonised infrastructure are clear. The Asian Bond Markets Initiative (ABMI) is expected to provide a level of liquidity that will convince Asia’s corporate issuers to raise more capital from within the region, while a common equity platform – the ASEAN Board – has been devised to increase the competitiveness of ASEAN members’ equity markets with the aim of attracting more international investors.
Although the ASEAN nations face markedly different challenges to Europe, lessons can still be learned from the Western experience.
“ASEAN countries will not have to reinvent the wheel to move forward with their plans,” comments Alec Nacamuli, global payments executive, financial services sector, IBM. “It is entirely possible to adopt the SEPA schemes and standards to conduct payments across the region. Even though there is no single currency in Asia, it is still possible to harmonise in areas such as market rules, practices, schemes and standards.”
Trying to thrash out the rules for ASEAN integration will be where bodies like SWIFT will be crucial, particularly in areas such as standards and best practice.
The difficulties of standardising financial technologies and infrastructures across the region are expected to be a big talking point. Although the ASEAN countries will embark on the route to closer integration from diverse starting points, the drive toward single market initiatives could enable many to comply with international standards.
“A pan-Asia network solution would have to be a technical adaptation of a common market, different than the European common currency, as it is not focused on supporting a common currency, but a common rule book which defines the rules of engagement and exchange of information,” says Linda McLaughlin-Moore, managing director, Asia Pacific product and delivery executive, J.P. Morgan Treasury Services.
“Emerging markets, which make up the majority the ASEAN region, don’t have legacy systems to dismantle so they can enter the technology space quicker. As a result, they will benefit from the latest thinking, technology and the growing talent in the region.”
The ABMI proposal is currently being considered by a Group of Experts (GoE), which comprises representatives from ASEAN countries and seven international and regional experts, including from the private sector.
“The plans are academically sound, but the reality is not so simple,” says Minoru Yoshida, general manager of global transaction coordination division of Mizuho Corporate Bank, and member of the GoE. With the main barriers to cross-border transactions in bond markets in ASEAN and China, Japan and South Korea already identified, the GoE is conducting a feasibility study into the appropriate central securities depository structure.
“When I first joined the initiative, the plan seemed almost unachievable, but since then we have had many productive discussions and seen positive progression,” says Yoshida. “This in turn should lead to a huge increase in transaction volume, which should also be an interest to non-Asian financial institutions.”
This article was first published in the preview edition of Sibos Issues, the official daily newspaper of Sibos (SWIFT International Banking Operations Seminar) 2009 in Hong Kong September 14-18. Sibos Issues is written and produced by Information Partners on behalf of SWIFT.