Policies and Innovations in Asian Capital Markets

1
Policies and Innovations in Asian Capital Markets

• Douglas Arner
• Asian Institute of International
• Financial Law
• University of Hong Kong

2
Overview

• Key elements of legal and regulatory structures
  for financial development
• Regional context
• Competition, cooperation and integration
• Policy implications

3
Legal and Regulatory Infrastructure

• Key elements of legal and regulatory structures
  that facilitate financial development and
  innovation
• Framework Arner (2007)
• Post-crisis progress in Asia mixed

4
Institutional Underpinnings

• Governance and public order
• Property rights and their protection
• Contract enforcement and commercial dispute
  resolution
• Human capital development

5
Foundations of Finance

• Use of property rights for finance
• Secured transactions (real, moveable, intangible)
• Leasing
• Company law Graduated framework for small, other
  private, public and listed companies
• Sustainable fiscal and taxation system
• Macroeconomic and monetary policy and supporting
  institutional framework

6

1.When enacted, a forthcoming secured
transactions law is expected to allow a score of
4 in this category. 2.When implemented, new
provisions are expected to allow a score of 4
in this category. Source Arner, Booth, Lejot
Hsu (2007 forthcoming)
7
Financial Infrastructure

• Insolvency
• Financial information
• Accounting
• Auditing
• Credit information bureau, ratings
• Corporate governance graduated approach
• Payment and settlement systems
• Market integrity and corruption
• Money laundering
• Financial crime
• Corruption
• Government securities markets

8

1.In regards to the recently enacted bankruptcy
law that came into operation on 1 June
2007.4 Source Arner, Booth, Lejot Hsu (2007
forthcoming)
9
Financial Regulation

• Banking
• Directed / relationship / collateral / cashflow
• Basel I / Basel II
• Microfinance
• Securities and Derivatives Highly dependent on
  legal and regulatory infrastructure
• Insurance
• Pensions

10
Basel II Implementation in Asia

• Hong Kong, China Australia virtually complete
• India, Japan, Singapore hedging
• South Korea and elsewhere undecided, muted,
  waiting
• Concerns over complexity, costs
• Weak or non-existent data may make compliance
  impossible
• Take advantage of US hiatus

11
Securitization Enabling Legislation and
Regulations
Source Innovations in Securitisation Yearbook
2006 (Kluwer, 2006).
12
Provisions for Securitization Effectiveness
Source Arner, Lejot et al. (World Bank, 2006).
13
General Cross-Sectoral Considerations

• Liberalization and competition domestic,
  regional, global
• Financial innovation
• Legal origin?
• Restrictive v. permissive
• Financial regulatory structure effectiveness,
  independence and accountability
• Financial structure and development planning

14
(No Transcript)
15
Regional Financial Integration and Development
Initiatives

• Trade in financial services
• AFTA / ASEAN / ASEAN3 / EAS?
• APEC
• WTO 2002 AFTA financial services linkage
• Monetary affairs
• Finance (banking and capital markets)
• Tax
• Institutional arrangements ADB (REI) / BIS /
  ASEAN

16
Policy Implications

• Competition
• Cooperation
• Integration

17
Competition

• Economic competition need for competitive
  financial system
• Financial centers evolutionary process
  sophisticated legal and regulatory
  infrastructure, with strategic support
• Domestic v. regional false dichotomy mutually
  reinforcing

18
CooperationBuilding Consultative Structures

• Regulatory groups working well but can be
  expanded parallel to international organizations
• Market groups developing APLMA, ISDA, ASIFMA
  etc
• Support development of common standards
  supporting (1) financial stability and (2)
  financial development
• Most significant regulation, infrastructure,
  foundations

19
Integration

• Common minimum standards developed through
  cooperative mechanisms and implemented
  voluntarily
• TA and peer review mechanisms
• Liberalization products, investors,
  intermediaries
• Mutual recognition Basel II model?