The opportunities for financial services in the Asian Century are significant, but so are the challenges, especially in terms of regulation.
CEO & Partner John W.H. Denton was a panel participant at a luncheon hosted by the Financial Services Institute of Australia (FINSIA).
Together with other panellists; the International Monetary Fund's (IMF) Deputy Director Asia Pacific Region, Dr Takeda Masahiko, the Division Chief – Monetary and Capital Markets, Dr Cheng Hoon Lim and former IMF First Deputy Managing Director, Professor Anne Krueger, John discussed the opportunities for financial services in the Asian century.
- The Asian Century is a big opportunity for the financial services industry. Financial services make up a large and growing percentage of our trade with Asia.
- Financial services is Australia's biggest industry. Asia is potentially its biggest market, with 60 per cent of the world's population, but only 13 per cent of funds under management. Add the aging population and growing wealth in Asia to the region's continuing population growth and the opportunity looms even larger.
- We have an advantage over the northern hemisphere in that we have a proximity advantage and we work in largely the same time zone. We have a lot of shared relationships through trade and other business, but also because many Asian business people are educated in Australia. There is a familiarity, which builds trust and opens doors.
- But there are also examples of others in financial services who are well ahead of us. One of these is the European banks. For example, HSBC has been in Indonesia since colonial times through the Dutch. Swiss banks have a strong presence in Singapore. The Asian century is a real opportunity for Australian banks and financial services to become big players in the region.
- Australia has a decision to make. Are we going to embrace the Asian Century, or observe it and fade into the background while we miss the boat.
- Asia is one region, but many countries. To be successful, Australian firms need to understand the environments of the countries in and with which they want to do business. This means financial regulations, systems and appropriate legislation. It also means culture and ways of doing business.
- As with all businesses who want to succeed in and with Asia – Asia capabilities are important. Perhaps even more so with financial services as trust is an important issue.
- Australian businesses need to work on understanding the Asian market, how it is served best, developing trusted relationships.
- This will take effort and investment.
ASIA-PACIFIC FINANCIAL FORUM
- Growth in the region combined with increasing economic integration means we need sound and integrated financial markets:
- The Asian financial market infrastructure is inadequate to support the region's population growth, especially in terms of urban infrastructure
- The advanced financial markets of North America and Western Europe account for roughly three quarters of Asia's equity securities and 90 per cent of debt securities. This reflects the underdevelopment of the region's financial markets.
- The key to developing the region's financial markets is market infrastructure and regulatory frameworks – including credit ratings, pension funds, insurance industries etc. Regulations and standards-setting.
- This goes hand in hand with sound financial systems to protect the market. We must not make an agreement around the lowest common denominator systems just for the sake of convergence. We need systems that will work for the region, not those copied from the northern hemisphere because they're readily available.
- This will require close collaboration to achieve global financial reforms - between public and private sectors and with the G20, IFIs, and key organisations like the Basel Committee and the Financial Stability Board.
- ABAC recommends a collaborative framework to help make this happen, the Asia-Pacific Financial Forum (APFF), which would be open to relevant bodies such finance ministries, central banks and financial regulators from APEC countries.
- Its purpose would be to provide a framework for enhanced regional public-private collaboration to help the region develop its financial markets.
- ABAC has proposed a symposium on the subject be held early in 2013.
ASIA REGION FUNDS TRANSFER PASSPORT
- Asia comprises 48 countries with differing local regulatory and taxation requirements as well as stages of economic development and evolution. Greater progress has been made with free trade, than with the transfer of funds.
- To draw an analogy with commodities trading, you wouldn't export steel products to go to Singapore via an office somewhere in Europe, but that's what we have to do with investment products.
- Australian funds managers can't distribute their funds products in most Asian countries without a lengthy, complex process to satisfy all local requirements in relation to licensing of the manager, registration of the fund, disclosure and custody. But this is not the case for European funds managers because Europe has enjoyed regulatory recognition under the Undertakings for Collective Investments in Transferable Securities (UCITS) framework since 2001.
- As a result, as much as 40 per cent of European fund sales are sourced from Asia.
- The solution currently being considered by APEC is a multilaterally agreed framework that would allow the cross border marketing of funds across participating Asian economies – an Asia Region Funds Passport.
- The benefits of an ARFP are evident, the task of gaining agreement of the many governments and regulators involved is lengthy and complex.
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