HK regulator warns Asia against standing on the sidelines

HONG KONG Mon Nov 26, 2012 9:31pm EST

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HONG KONG Nov 27 (Reuters) - The head of Hong Kong's market watchdog urged Asian regulators on Tuesday to maintain high standards and come together to stop U.S. and European regulators imposing their rules on the region's financial markets.

Ashley Alder, chief executive of the Securities and Futures Commission (SFC), said there was a danger a "one-size fits all" set of financial rules will be foisted on Asian banks and brokers by Western regulators unless the region's watchdogs speak up.

"If Asia does not get properly involved in the global regulatory agenda, we will find that the U.S. and European rules will be extended to us whether we like it or not" said Alder.

"The result could be an isolation of Asian markets from international finance," he added, speaking at the third annual Thomson Reuters Pan-Asian Regulatory Summit.

Banks in Asia have become increasingly concerned by the overseas reach of new U.S financial regulations.

One big area of contention is the new rules on derivatives trading under the Dodd-Frank Act. U.S. regulators want to ensure that the rules apply to cross-border trades between, say, a Wall Street and an Asian bank.

Asian regulators are concerned that would mean banks in their countries would have to follow U.S. and domestic regulation, which may in some cases clash and drain liquidity from their markets.

In a rare unified move, regulators from Australia, Hong Kong and Singapore wrote a joint letter to the U.S.'s Commodities and Futures Trading Commission (CFTC) in August asking them to review the overseas reach of these new rules.

"The fact that this letter came from multiple regulators had a real impact and it undoubtedly changed the debate," said Alder.

Alder, who took up his post a year ago, said that it was vital that cross-border rules be internationally agreed, and that Asia had no interest in having laxer rules than the West.

"There is no advantage of lowering our standards to attract business. This kind of regulatory arbitrage always ends badly," he said.

But he added that if Asian regulators did not push Western regulators to agree on a workable set of international rules, big banks could be forced out of the region's markets.

"The threat is that if we or Asian firms don't play ball, international firms will find it hard to operate here, seriously harming liquidity in these markets. It could be a case of my way or the highway." (Reporting by Rachel Armstrong and Michael Flaherty; Editing by Alex Richardson)

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