Banking: Asia-Pacific’s regulation headache

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Pity the regional Asian bank chiefs dealing with myriad local regulators as well as extra-territorial oversight.

Regulation

The march of regulation in the financial industry in recent times has been well-documented. Firms in all the major financial centres have had to pump vast sums into their compliance departments to cope with the wave of new rules aiming to tame some of the perceived excesses of the past.

But those western banks operating in the Asia-Pacific region seem to have an unenviable task all the same. Not only is there the need to deal with the 'extra-territoriality’ of regulations that creep over from the US and Europe, but there is also the multitude of local regulators to think about too.

The head of a large western bank that has operations spanning across Asia-Pacific is obliged to listen carefully to instructions flowing from other regions, while making sure not to fall foul of any rules in local markets too.

Naturally, this involves employing a lot of staff to cope with the volume of regulations flowing around the region.

Banking heads in the European Union undoubtedly have similar problems, but the fact that Brussels encourages a certain amount of joined-up thinking means their workload is less pronounced.

For the Asia-Pacific head, thinking about markets as diverse as Japan, Thailand, Australia and India presents a much more varied and complex problem. And despite the heavy regulatory burden investment banks in the US have had to deal with, one bit of comfort they can take is that at least it has mostly come from one original source – the Dodd-Frank Act – and the agencies implementing the rules tend to co-operate as far as possible.

There has been plenty of pushback around the world over what is seen as the overreach of some of the US agencies and their regulations, and that is understandable when banks already have to deal with such a variety of regulation in the countries in which they operate. And it is not just the banks. Some countries also do not appreciate financial regulation that comes from a foreign source having such a profound impact on their financial sector.

These problems do not look set to alleviate anytime soon, so Asia-Pacific bank heads are going to have deal with the issues for the time being, attempting to encourage as much co-ordination among regional regulators as possible, while at the same time keeping those in their home jurisdictions happy. The one thing that they can rely on, however, is that their compliance departments are not going to shrink anytime soon.