Extraterritorial EU legislation likely to be ‘particularly onerous’ on Asia – Asifma

The extraterritorial aspects of various European Union (EU) regulations currently being implemented are likely to have a “particularly onerous effect on entities established in Asian jurisdictions”, says the Asia Securities Industry & Financial Markets Association (Asifma).

Asifma today released an Asia-focused update to material examining the extraterritorial impact of EU and US legislation originally published in April 2012 by parent body, the Global Financial Markets Association.

The industry body refers to the fact that in Europe, authorities frequently try to install equivalence determinations in legislation with an extraterritorial reach. The idea behind this is that when an entity is established in a jurisdiction deemed equivalent or which grants reciprocal access to EU entities, it is not required to comply with EU regulation when dealing with EU firms.

This causes problems for firms established in countries without Group of 20 (G-20) commitments or in countries that may adopt G-20 commitments in a manner different enough from the EU to be judged non-equivalent, according to Asifma.

“Some large Asian markets are not located in G-20 jurisdictions, so they are not required to implement legislation adopting the G-20 commitments. In some cases, these jurisdictions may choose to implement such legislation, but they may also decide to implement only some aspects of that legislation or to tailor the G-20 commitments to suit the particular requirements of their local markets. In this case, it is possible that they may not be found to have equivalent regimes to those in the EU,” states the trade body.

Asifma also highlights the difficulties in meeting equivalence that arise from Asia’s fragmented regulatory landscape.

“In addition, because of the fragmented nature of Asian markets, it is not practical for Asian jurisdictions to adopt the approach taken by the EU and to assess equivalence in each relevant jurisdiction. As a result, Asian jurisdictions are less likely to implement a regime that requires them to provide recognition to foreign entities or jurisdictions.”

Asifma’s Hong Kong-based chief executive, Mark Austen, says the body’s main concerns surround “inappropriate” extraterritoriality of the legislation and lack of co-ordination.

“We are primarily concerned about regulation that is inappropriately extraterritorial in effect and regulation that diverges significantly between major financial centres. This is a danger that is particularly pronounced in an industry that is as global and interconnected in nature as financial services,” he says.

One major extraterritorial concern surrounds application for third-country equivalence under the European Market Infrastructure Regulation, a requirement for non-EU countries in order that their central counterparties can serve EU-established firms.

The International Swaps and Derivatives Association said recently that in China, Korea and India, application or acceptance of equivalence with the EU is unlikely, while earlier this week, sources reported that the Reserve Bank of India is reluctant to apply for third-country equivalence.


This article was first published on Risk


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