Capital, liquidity and FATCA compliance are top issues for banks in Asia, finds a recent KPMG report on banking regulations. It highlights the lack of a level playing field on regulatory reform in Asia Pacific and possible negative effects longer-term on the economy.
The report titled ‘Evolving Banking Regulation – Asia Pacific’ highlights the regulatory burden on Asia Pacific banks resulting from global efforts to enhance the stability and resilience of the global banking system.
While regulators in Asia are committed to implementing global reforms, there are important differences compared with Europe and the US, particularly in terms of priority being given to the various aspects of regulatory reform - and indeed jurisdiction-by-jurisdiction differences. There are some areas where there is a clear commonality of approach – for example, on capital - and others where there is more diversity - such as liquidity reforms, the report notes.
"These differences make it quite difficult for banks to work out what they need to do country-by-country,” says Simon Topping, Head of Financial Services Regulation, Asia Pacific, for KPMG. “Different timescales and differences in detail are a particular concern to the global banks, as they face the prospect of their home country requirements differing substantially from the requirements they need to meet in Asia.”
The report also notes that the three “hottest” regulatory issues in Asia are currently capital, liquidity and compliance with the new US tax law FATCA. However, while the regulatory pressure in Asia remains strong, it remains considerably below the levels - as one would expect, given the greater recent problems requiring regulator reform - in Europe and the US.
“Regulators in Asia are focusing on a narrower range of issues than in Europe and the US,” says Topping. “However this still constitutes a significant regulatory burden on the banks. To many, this seems disproportionate, given that the banks in Asia have not experienced anything like the problems of the banks in Europe and the US in recent times,” he adds.
While banks in Asia can generally meet the new requirements at this particular point in time, the report cautions that this might be more of a challenge in a few years’ time, when bank balance sheets have grown significantly, on the back of strong economic growth.
“The question is whether enough analysis has been done of the longer-term effects of what are being called “unintended consequences,” explains Topping. “The big fear is that the new tougher capital and liquidity requirements could impair banks’ lending capacity, which could be bad for the economy.”
The report additionally notes that, while the new global regulatory standards set a new recognised minimum standard, it does not necessarily equate to a “level playing field”, as some regulators may “gold-plate” the requirements by setting local requirements higher than the global standards.
“This is a concern mentioned by many banks,” says Topping. “Most banks accept the need to comply with global standards, but question whether it is necessary for regulators to “gold-plate” the standards, as there are indications some regulators such as the HKMA intend on doing in areas such as capital and liquidity.”