Asia no light touch

InvestorsLaunchesOperational RiskPeople MovesRegulation
25 Jun, 2012

Asia no light touch regulatory regime, KPMG warns managers
Managers have been warned against viewing Asia as a light touch regulatory regime in a new report by KPMG.

Evolving Investment Management Regulation: A Clear Path Ahead highlighted the regulatory framework for asset managers in many parts of Asia was just as rigorous as rules in the European Union (EU) and US.

“Asia, along with Latin America, is unquestionably the hotspot for growth. However, asset managers would be unwise to expect lighter touch regulation in the region. The fast pace of change in product distribution, disclosure and investor protection that we have witnessed in Europe and the US has transferred across to Asia with enhancements to investor protection and product disclosure,” said Tom Brown, head of investment management at KPMG.

This chimes with comments made earlier in the year by Matt Kiraly, HSBC’s head of sales and marketing for prime services in APAC, who said the Hong Kong Securities and Futures Commission (SFC) was a robust regulatory regime and not too dissimilar from the UK Financial Services Authority (FSA).

Hong Kong regulators are also particularly sensitive about product mis-selling in light of the Lehman mini-bond fiasco whereby thousands of retail investors lost their savings investing into what they thought were rock solid bonds but were in fact complex structured products.

Even Singapore, widely viewed as having a light regulatory regime, is clamping down on its $53 billion hedge fund industry. The Monetary Authority of Singapore (MAS) recently proposed fund management companies with more than $250 million AuM acquire a license while smaller firms must register prior to launch.

Extraterritoriality is also impacting Asia. Decamping to Hong Kong or Singapore does not exempt managers from US and EU regulation. FATCA, for example, requires managers irrespective of jurisdiction to supply the Internal Revenue Service (IRS) or their own national regulators with details about all of their investors regardless of nationality as part of the US government's clampdown on tax avoidance among wealthy Americans. Moving to Asia too will not exempt hedge fund managers from filling out their Form PF or registering with the Securities and Exchange Commission (SEC) unless of course they dump their US investors altogether.

The EU’s AIFMD looks likely to include provisions on inter-governmental cooperation, which could require non-EU regulators to enforce AIFMD standards in their jurisdictions if their hedge funds are to be allowed to market to EU investors. However, this is expected to be based more on mutual cooperation as opposed to being a legally binding requirement.

The KPMG report also advised managers against viewing Asia as a single homogenous market. “(Asia) is made up of a number of very different nations, all at different stages of market maturity, customer expectations and regulatory sophistication,” commented Bonn Liu, APAC head of investment management at KPMG.

The multitude of regulations around marketing and the physical and synthetic short selling of stock can make life for hedge funds in particular incredibly difficult. However, most commentators doubt the region will adopt uniform regulatory standards anytime soon.