Asian markets that do not conform with new financial market regulations agreed by the Group of 20 risk being named and shamed, according to Martin Wheatley, chief executive officer of Hong Kong’s Securities and Futures Commission.
“What you saw about nine months ago on tax jurisdictions will happen again. It’ll be a name and shame approach: Here are certain jurisdictions that aren’t conforming to taxation treaties and are therefore bad citizens globally,” he said. “That’s embarrassing for governments and they will feel that they will have to step up to the global standard whatever the area of regulation.”
The heads of government of the Group of 20 leading economies will meet in Pittsburgh, United States, on 24-25 September to discuss reforms to the global financial system, including new capital and liquidity rules for banks, harmonisation of accounting standards and caps on bankers’ compensation.
Speaking at Sibos, an annual financial sector conference hosted this year at Hong Kong’s conference and exhibition centre by financial messaging network SWIFT, Wheatley said that the pace of reform would be slowed if the G20 allowed certain markets to opt out of compliance with new international standards. But he said that this could prevent Asia from breaking its historical tendency to follow western precedents without full regard for local realities.
“Quite often there has been a propensity for Asia to follow international norms and that has not always been the best thing for the region. But if that doesn’t happen in this case, reforms will be withdrawn,” he said. “The net result will be that Asia will follow a lot more of these changes than may make sense given the current evolution of our markets.”
In particular, Wheatley cited European and US plans for credit derivatives to be cleared centrally and for over-the-counter derivatives to be moved on exchange. “If there is another market that those businesses can shift to, competitive pressures might mean they do not push forward with those reforms,” he said.
Wheatley acknowledged that reforms to prevent US and European banks from over-extending their balance sheets in the future “will have to be global if they are to be effective”. But, having recently adapted Hong Kong’s registration process for hedge funds (“We have made the exams more relevant not more easy”), Wheatley said US and European plans to impose further restrictions were unnecessary.
“Hedge funds weren’t the problem in this crisis,” he asserted. “We could follow our own path up to a point, but the G20 will want each jurisdiction to move to whatever they agree the global standard is. It will be harder to hold out.”
Wheatley was speaking in a panel debate entitled ‘Time for Asia to save itself’, in which participants were invited to speak for themselves rather than for their institutions.