Financial regulations have become the modern day Frankenstein’s monster

Financial companies in Asia are spent US$50m last year in an effort to keep up with shifting regulations, according to Thomson Reuters

PUBLISHED : Sunday, 06 November, 2016, 4:29pm
UPDATED : Sunday, 06 November, 2016, 10:50pm

New financial regulations, as frequent as every 10 minutes on a worldwide basis, added US$50 million to the compliance costs of financial companies in Asia last year, according to data of Thomson Reuters.

Sanjeev Chatrath, managing director of Asia Pacific and Japan of financial and risk of Thomson Reuters, said in the early days tracking regulatory changes meant 100 regulators worldwide and about 10 changes a day.

“Last year, we were tracking 600 regulator making 50,000 regulatory rule changes annually. This is more than one change every 10 minutes. In Asia, there are 53 regulatory change every day,” he said in an interview with the Post in Central.

The regulatory avalanche has its origins in domestic, international and cross-border policy to address volatile markets. Fintech, which refers to financial firms using technology to do their business in a more efficient way, is another growth areas for new regulation.

Chatrath said compliance costs in Asia increased to US$50 million last year, a 20 per cent rise from 2014.

“The frequent change of regulation has led many financial firms to increase expenditure in their compliance cost to meet these regulation requirements,” he said.

Thomson Reuters will host the 7th Pan Asian Regulatory Summit from Tuesday. .

Comments from Securities and Futures Commission chief executive Ashley Alder, scheduled to speak on Tuesday, will likely be closely scrutinised for insight on the controversial listing reform proposal, and calls from some brokers and listed companies to abandon the plan.

The proposal, released for consultation in June, advocated two committees, a listing regulatory committee to approval new listings, and a new listing policy committee to set policies. Each will be made up of an equal number of representatives from the SFC and Hong Kong Exchanges & Clearing. The reforms will help bring the SFC into a frontline role, instead of its current role of approving or rejecting any decision by HKEX. Supporters believe it would help improve market quality, but opponents worry it may lead to over-regulation. The consultation will end on November 18.

Brokers also want to see ifAlder will respond to Alibaba Group chairman Jack Ma’s call to reform the local listing rules to attract new economy companies.

Chatrath declined to comment on his view about the listing reform proposals or if Hong Kong should change any listing rules to attract technology companies.

Oriental Patron Financial Group’s Jeffrey Chan Lap-tak said he agreed with the SFC’s proposed reform, and also endorsed calls for the establishment of a new market geared towards start ups.

“It is important to have reform of the listing rules to improve market quality. I believe if this reform would also help policy makers to make appropriate rules changes to help attract more new economy companies,” Chan said.

Chan also said regulatory changes in recent years had been excessive. He cited anti-bribery and money laundering legislation in the US and UK, which Hong Kong companies are required to follow, as dramatically adding to the compliance workload. Hong Kong has added to the via new rules designed to help prevent misselling of financial products.

“This has added the compliance cost and make the financial firms very hard to do business,” Chan said.

Christopher Cheung Wah-fung, a lawmaker for the financial services sector, said complex anti-money regulations has seen some local banks reluctant allow new accounts for start-ups or brokerage firms.

“These regulations have made it very difficult for the financial sector to do their business,” Cheung said.

Chatrath said financial firms could use new technology such as big data to cut down compliance costs.

But Chan said only large international firms were likely able to afford these new technologies.

“For many of the more than 500 small brokers in Hong Kong, I do not think technology can,” Chan said.

Alibaba Group is the owner of the South China Morning Post.