By Selwyn Parker
giant economy rolls down the modern Silk Road into Asia and beyond, smaller
nations in the region are hurriedly developing common standards of financial
regulation that are helping feed a boom in cross-border trade.
The latest country to exploit synergies with China is Singapore whose
financial watchdog (MAS) has opened a regulatory dialogue that is set to pave
the way for nothing less than a “new Asian financial landscape”, as the
authority’s deputy managing director Jacqueline Loh described it recently.
Appropriately, Ms Loh made the remark in China’s financial
capital of Shanghai where the inaugural financial forum between the two cities
was launched in 2015. Like countries in the region, Singapore is anxious to
develop regulatory regimes that smooth the path for the coming tidal wave of
trade carried on floods of renminbi, official name for China’s currency.
Indeed the wave has already started. To take just Singapore
as an example, in 2015 the total value of trade between China and the city state
reached about US$90bn, according to the latest available figures. For the third
consecutive year China was Singapore’s largest trading partner.
Simultaneously, the rate of financial investments is going through the
roof. In 2015 Singapore pumped US$7bn into China, up by 18.5 per cent over 2014
while Singapore’s investments into the banking hub of Shanghai totalled
US$2.2bn, up by 160 per cent year on year.
All this helps explain why
Singaporean authorities are pioneering regulatory integration with China’s
financial markets. In early 2016 MAS signed up to participate in China’s
inter-bank foreign exchange market and, in another boost for the growing power
of the renminbi, the authority started buying yuan-based assets for Singapore’s
official foreign reserves.
These developments follow
considerable preparatory work. Last April, MAS and the China Securities
Regulatory Commission sat around the table to discuss supervision of capital
markets and took another important step in July when the two organisations
began talks on insurance regulation.
But what exactly is the Silk Road? Named for the
ancient trading routes that connected China to the Mediterranean, the modern
version was launched by President Xi Jinping just over three years ago.
Unprecedented in scope, it’s the land-based element of the One Belt One Road,
popularly known as “belt and road”, vision designed to massively increase the
country’s investment and trade across the globe. The second element of belt and
road is a maritime route linking China with Europe. Since the launch of this
vast project, countries in the region have rushed to sign bilateral deals with
China, among them India, Pakistan and Singapore.
aspect of the project is an Asia-wide financial integration that in time may
turn out to rival the influence of western-style regulation. After all, China’s
financial sector exercises immense power that is spilling over into the wider
region. As we’ve pointed out before, China’s fintech sector is developing at a
furious pace. For example, financial services giant Ping An has 109 million core
finance customers and boasts a total online user base of nearly 300m people.
Similarly, the potential for firms such as Tencent, today a
gaming and social networking site with 800m active users, to expand into finance
and grow beyond its home base is enormous. As an indication of things to come,
last year a Tencent subsidiary named WeChat started providing instant
non-collateralised loans of up to US$30,000.
With Singapore in the vanguard, it’s
inevitable that other Asia Pacific countries will also work towards compliance
with China’s financial sector, incidentally triggering a scramble for
compliance specialists [see below]. With the encouragement of central bank
Negara Malaysia under its ten-year plan, Malaysian banks have been learning how
to deal with multiple regulators over the last few years. As early as 2011 the
BNM started prodding the financial sector to integrate with other standards as
part of a more outward-looking strategy.
influence in financial integration is the Asean Capital Markets Forum, a body of
regulators from ten countries that has been working to harmonise rules since
2004. Currently, the forum is developing indexes that will help investors value
various classes of assets across the Asean region.
Enforcement authorities are deepening ties
too. Late last year the China Securities Regulatory Commission (CSRC) combined
resources with their counterparts in Hong Kong to crack a nearly 300m renminbi
[US$43.6m] stock-manipulation fraud in a coup for the kind of cross-border
cooperation that will become increasingly common in the near future. The two
watchdogs now routinely swap alerts, documents, information and anything else
that can help preserve the integrity of the markets.
CSRC put it: “Preventing and cracking down on cross-border market manipulation,
insider trading, misrepresentation and other misconduct in the securities and
futures market is a long-term task for regulators in the Mainland and Hong Kong,
both of whom put enforcement cooperation top on their agenda.”
It’s an indication of how recently
financial integration with China began that the enforcement protocols that
identified the manipulation were only signed in 2014. And, as we’ve seen,
Singapore’s links are hardly more than a year old.
inevitable that these initiatives will be reflected by similar arrangements
across the region as the Silk Road finds its way deeper into Asia.
regulation is fuelling demand for compliance specialists in Asia and in
particular in Singapore, according to financial recruitment consultants who say
that competition for experienced professionals has gone through the
The main specialties required are anti-money
laundering, financial crime and systems security, all of which are attracting
the close interest of regulators. According to speakers at a conference in
Singapore in January, the financial sector in the region is casting its net for
compliance-savvy staff in London and other centres where post-2008 regulation is
much more evolved.
Demand is such that experts are being
hired without even the benefit of an interview.
shortage in compliance skills is reportedly reflected right across Southeast
Asia including in fast-developing nations such as Indonesia, Vietnam and the
author: Selwyn Parker is an author of books on
finance and business topics, a specialist in financial history, and regular
contributor to newspapers and magazines. Based in Spain, France and the UK, he
focuses mainly on European developments. His latest book, The Great Crash, is a
new history of the Great Depression that among other things explains the rise of
regulation in the form of the SEC and related authorities. Selwyn is a regular
contributor to Wolters Kluwer Financial Services.