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1、2023 Asia Pacific Financial Services Regulatory Outlook Strengthening Resilience in Times of Uncertainty01 01011 101 011 101 0110101 0100 01 0Global Foreword 3Asia Pacific Foreword 8Macroeconomic Environment and Regulatory Agendas for 2023 10Operational Resilience 16Digital Assets 24Sustainability a

2、nd Climate 33Future of FS Regulation in the AP Region 382023 Asia Pacific Financial Services Regulatory Outlook|Global Foreword3Resilience,vigilance,and positioning for changeFinancial services firms(FS firms)face challenging operating conditions worldwide:high inflation,interest rate volatility,dis

3、ruptions to global supply chains,and slowing economies.The International Monetary Funds(IMF)sobering assessment is that“the worst is yet to come.”1These disruptive factors will understandably command attention in the near term.However,firms also face medium-term strategic challenges.The shift toward

4、s a multipolar geopolitical order creates new frictions and risks.Technology continues to transform the sector,creating new opportunities but also many challenges.The twin sustainability crises of climate change and ecological degradation demand enormous reallocations of capital,not to mention vigil

5、ance for the risks they entail.As we enter 2023,boards and executive teams therefore face two major sets of questions.First,what steps are they taking to remain resilient and support customers through near-term economic pressures?Second,are their strategic plans aligned with the medium-term structur

6、al changes in the operating environment?A strong grasp of the regulatory and supervisory environment must be central to how firms answer these questions.In this global foreword,we set out our view of the major regulatory strategy issues facing the financial services industry worldwide,first in terms

7、 of the immediate pressures created by the gloomy economic situation,and then in terms of the major structural changes highlighted above:geopolitical,technology,and sustainability.The economic outlookGlobal growth is slowing and,although a global recession is not the central case,the IMF says 2023 w

8、ill nevertheless“feel”recessionary to many,with perhaps a third of the global economy set for contraction.2 Households and businesses in many parts of the world are feeling the squeeze of persistently high inflation Figure 1,particularly from commodity and energy prices,while sharply rising interest

9、 rates Figure 2 are increasing debt service ratios.Credit risks are consequently elevated,and market confidence is fragile.Monetary and fiscal policies will need to be carefully balanced,and policymakers will be wary of what the IMF refers to as policy“miscalibration.”3 To weather the storm,firms sh

10、ould be vigilant on multiple fronts.First,firms must manage their own financial resilience in the face of declining credit quality.The work of the last 10 years to build capital buffers means that,globally,the banking sector enters 2023 in a generally resilient position,although emerging market bank

11、s appear more vulnerable to a downturn than their advanced economy counterparts.4 Many non-banks will also need to be on alert given the volumes of credit risk that have migrated outside the banking system in the last 10 years,including most recently to providers of buy-now-pay-later finance.Supervi

12、sors will focus on credit risk management(especially in relation to real estate and leveraged lending)across all regulated firms and will also scrutinise exposures to and connections with unregulated lenders.5 Second,firms will need to continue to support their customers through a period of economic

13、 hardship.Conduct supervisory expectations are now substantially higher than in previous downturns.In some countries,how lenders treat customers facing financial hardship will be a supervisory(and in some cases a political)priority,and industry will need to proactively identify vulnerable customers

14、and take measures to support them.Insurers are likely to see rising numbers of customers struggling to cover their premiums,creating the possibility of protection gaps that will also draw supervisory attention.Third,firms should be vigilant for sudden bouts of market volatility.Even the archetypical

15、ly stable US Treasury market will need to be watched closely given recent observations of low liquidity and volatility,combined with the uncertain impact of the Securities and Exchange Commissions(SEC)new dealer rule.6 Firms should be ready for regulatory and supervisory measures to address“unfinish

16、ed business”around non-bank financial stability issues,with several recent episodes of market turbulence(such as the dislocation of the UK government bond market in autumn 2022)thrusting these issues back up the agenda 7.Open-ended funds are a particular focus,where market volatility has the potenti

17、al to clash with market illiquidity to trigger asset fire sales.Although the Financial Stability Boards(FSB)latest progress report on addressing the risks from non-bank financial intermediation indicates an ongoing programme of work,it remains unclear how far and how fast national authorities will i

18、mplement any resulting regulatory changes.8 We nevertheless expect central banks and regulators to be working hard to understand these vulnerabilities and other possible sources of market disturbance.This will likely manifest in a continued emphasis on stress testing for individual regulated firms a

19、nd the system as a whole,revisions to fund liquidity rules,and a focus on Global Foreword2023 Asia Pacific Financial Services Regulatory Outlook|Global Foreword 4firms and counterparties margining practices and ability to meet margin calls,including through data requests where gaps have been identif

20、ied by supervisors.9These are regulators near-term preoccupations.They demand strong board engagement supported by robust management information,clarity around risk appetites,clear processes for escalation,and continuous internal communication between and across business lines and support functions

21、to ensure consistency in messaging and decision-making.But they are by no means the only challenges facing industry or its regulators,and we now turn to three major sources of structural change with which firms must grapple:geopolitics,technological change,and sustainability.Structural change Geopol

22、itics Rising geopolitical tensions are contributing to the fragmentation of markets,with nations and business leaders looking at how to build supply chain resilience and security through greater localisation of production and supply.Firms operating across what are in some cases tense political borde

23、rs will be directly affected by these tensions.The Russia-Ukraine conflict provides a stark reminder that firms should be vigilant and cautious of geopolitical risks that can manifest very rapidly through numerous channels,whether in terms of operational resilience,financial crime,cybersecurity,or r

24、eputational risks.Many of these issues are not amenable to statistics-based risk modelling and require the use of more qualitative information to develop sophisticated scenario analyses.Supervisors will expect firms to have carried out“lessons learned”exercises from their experiences this year for i

25、nstance around sanctions and geographic footprints and to have reviewed and,in some cases strengthened,their“severe but plausible”scenarios for evaluating their ability to withstand and recover from operational shocks.They will also have to“think the unthinkable”through reverse stress testing and em

26、erging risk assessments.Supervisors will also expect firms to examine their own supply chains,which may in turn lead to more requests for“localisation,”for example of data,IT infrastructure or people.This is not only about weathering short-term shocks:it is also an issue of medium-term strategy,part

27、icularly around firms geographic footprints and shifting patterns of international trade.At a minimum,this means boards reviewing risk appetites for operating in specific countries and with particular clients,as well as the reputational risks that will inevitably surround decisions to operate in or

28、exit certain markets.Technology The financial system continues to undergo major technological transformations.New technologies enable both old and new firms to provide new and better products and services,develop better insights,and to do so ever-more efficiently.But they have also complicated suppl

29、y chains and service delivery models while creating new sources of competition.In some areas,the regulatory regime has struggled to maintain pace with technological innovation,but so too have firms risk management and control frameworks.This has been clearest in relation to the complex relationships

30、 between regulated FS firms and third-,fourth-,and even fifth-party technology service providers,including Big Techs.The regulatory framework around operational resilience is pushing firms to address the resulting risks,although different countries and regions are adopting different approaches.Regul

31、ated firms will need to get their houses in order by untangling(and where possible simplifying)networks of technological service suppliers and ensuring their operational resilience.And where firms are pursuing shared delivery models,boards need to have strong assurance around their reliance on third

32、 parties.Big Techs are also increasingly active in financial services in their own right as competitors to and partners of incumbent firms.In the near term,technology firms should accept the reality of“extra-territorial”financial services regulation which will either bring them within the supervisor

33、y perimeter,subject them to other direct forms of oversight,or see regulated firms being used as conduits through which such oversight can be gained.Over time,we expect financial services authorities will feel the need to develop a more integrated approach to the regulation of Big Techs,recognising

34、their multiple roles in financial services.This will require them to work with data protection regulators and competition authorities.In the meantime,individual regulators are pursuing their own national approaches.In turn,regulated firms should factor in these different national requirements as the

35、y develop their global strategies for their overall relationships with Big Techs and other critical service providers,complicating the contracting process.The regulatory framework also continues to evolve in attempts to keep pace with innovation around digital(particularly crypto)assets.While issues

36、 have persisted concerning unregulated players seeking to organise themselves around developing regulatory regimes,regulated firms have increasingly been engaging with a developing ecosystem of digital asset technology providers to develop more credible and mature client offerings.10 However,recent

37、turmoil has changed the outlook,creating a potential crisis of legitimacy and trust around the fledgling industry.A further regulatory 2023 Asia Pacific Financial Services Regulatory Outlook|Global Foreword5response seems inevitable,although we see little prospect of international convergence where

38、rules are being put in place,with jurisdictions differing along all manner of issues,from regulatory classifications(as securities,currencies,and so on),through to the intersection with financial crime frameworks,further complicating industry efforts to grow the sector.Cyber risks are ever-present f

39、or FS firms,but the increasing digitisation and use of third party providers for services and support functions,combined with the geopolitical tensions referred to above,means that the threat perimeter is becoming more complex.These risks cut across all sectors of financial services,and regulators a

40、re pushing firms to continue to invest in their capabilities.Insurers are doubly exposed,as potential targets of cyberattacks but also as providers of cyber risk insurance,in relation to which regulators continue to probe around the ambiguity of policy coverage and the risk of so-called“silent cyber

41、.”11 Reporting of cyber incidents remains a key pillar of the regulatory framework,with some regulators moving to tighten reporting windows,and the FSB currently looking at the possibility of delivering more consistency in reporting.12Climate and nature The politics of sustainability have become mor

42、e difficult with the ongoing debate,especially in Europe,about how to reconcile environmental goals with renewed energy security concerns,along with the emergence of an“anti-ESG”faction,and the spilling over of disagreements over the binding nature of some climate targets within the Glasgow Financia

43、l Alliance for Net Zero.13,14 But 2022 also provided ample evidence of how disruptive sudden swings in food and energy prices can be,as well as the impacts of increasingly frequent and intense natural disasters.These risks will only become more pronounced as the climate transition unfolds,and they w

44、ill increasingly shape the financial services operating environment.Insurers face particular challenges given the twin task of managing the solvency implications of exposures to physical risks while continuing to protect policyholders,many of whom may face escalating costs for coverage,creating the

45、risk that protection gaps emerge or widen.Regulation and supervision will be key determinants of how firms must respond to these risks.In some areas,there appears to be a degree of supervisory convergence,most notably around prudential risk management and risk governance.Climate-related stress tests

46、 and/or scenario analysis exercises are becoming features of supervisory frameworks in many major jurisdictions,being well established in the EU and UK,Japan and Hong Kong Special Administrative Region(SAR),and emerging onto the agenda in the US.Elsewhere,however,despite shared ambitions to address

47、issues such as greenwashing(with investment funds in particular in the crosshairs around fund names,labelling,disclosure practices,and the green credentials of their underlying assets),firms are finding themselves contending with differing national requirements,particularly in terms of sustainabilit

48、y taxonomies.Even where supra-national attempts have been made,such as with the Association of Southeast Asian Nations(ASEAN)taxonomy,national variants will persist.There have been more ambitious attempts to develop international standards around disclosure,most notably the ongoing work of the Inter

49、national Sustainability Standards Board(ISSB),which is driving toward the development of a global baseline with the support of international regulators such as the FSB.Some countries are continuing to develop their own frameworks,and while such frameworks may converge over time,in the near term firm

50、s will need to be able to store and manipulate data flexibly in order that it can be moulded to meet the needs of different jurisdictions.Indeed,sustainability data quality and coverage remain significant challenges for firms and with the use of proxy data still widespread,regulators are expected to

51、 push industry to address this in 2023.There is divergence in the technical detail of regulatory frameworks to address sustainability,for instance in terms of how risks are captured in prudential rules,how funds are labelled,how insurance products are underwritten or offered,and what firms must disc

52、lose to the market.But the issue is fundamentally one of risk management,and to fulfill their risk management obligations,boards need confidence that they understand their business footprints and risk exposures.This confidence will not be delivered through mere compliance with regulation,but through

53、 the development of better data,sophisticated modelling capabilities,plausible scenario analyses,and engagement with scientific expertise and judgment.The absence of harmonised rules should not be a barrier to action,and the onus will very much remain with firms to be able to meet multiple sets of e

54、xpectations and reconcile them across their operations where necessary.The need for risk management has its complement in the development of new opportunities for innovation and market development.The reallocations of capital required for the climate and nature transition are enormous,with trillions

55、 of dollars needing to be intermediated,invested,insured,and risk managed worldwide across virtually all areas of economic 2023 Asia Pacific Financial Services Regulatory Outlook|Global Foreword 6activity.And,put simply,the better grasp firms have of the risk environment,the better placed they will

56、be to identify and exploit the corresponding opportunities in the years ahead.Taking the long viewFirms face many headwinds as we enter the new year.Our view for the last several years has been that global firms face increasing difficulties in maintaining common systems or controls across their geog

57、raphic footprints as regulatory frameworks diverge.Last year confirmed our view further and,as we have suggested above,the deteriorating geopolitical situation compounds the problem.The obligation will be squarely on firms to accommodate local factors when designing and implementing processes,contro

58、ls,reporting,and all manner of other requirements,with limited prospects for regulatory harmonisation.The major challenge for the industry in the year ahead is to navigate the choppy near-term economic waters including by engaging with supervisors in their efforts to monitor and address financial st

59、ability risks without losing sight of the importance of the longer-term processes of change we have highlighted here,all of which demand ongoing investment.Regulation continues to be a major force that influences these trends,and a strategic view of the regulatory environment,as well as an ability t

60、o connect such a view with the review and challenge of business strategy decisions,remains an imperative for firms looking to stay at the forefront of the industry.As ever,this global assessment provides a broad setting for our more detailed regional Regulatory Outlooks.In what follows,you will find

61、 our analysis for the Asia Pacific region,but readers with an interest in understanding the landscape in the Americas,UK and Europe,the Middle East and Africa(EMEA)can find them in the corresponding reports from our teams in those regions.David StrachanCentre for Regulatory StrategyEurope,Middle Eas

62、t and AfricaIrena Gecas-McCarthyCenter for Regulatory StrategyAmericasSeiji KamiyaCentre for Regulatory StrategyAsia Pacific 2023 Asia Pacific Financial Services Regulatory Outlook|Global Foreword7-2024681012141601.01.201901.07.201901.01.202001.07.202001.01.202101.07.202101.01.202201.07.2022BrazilSw

63、itzerlandChinaUnited KingdomIndiaJapanUnited StatesEuro areaFigure 2 Interest rates160%5%10%15%20%25%Annual inflation rateInflation TargetChinaSwitzerlandJapanIndiaBrazilAustraliaCanadaNew ZealandUSAEurozoneSwedenUKRussiaPolandEstoniaLatviaFigure 1 Inflation at end-2022152023 Asia Pacific Financial

64、Services Regulatory Outlook|Asia Pacific Foreword 8Asia Pacific ForewordAs we begin 2023,it is instructive to reflect on our outlook at the start of 2022.Our perspective then was largely positive as we contemplated the end of the COVID-19 pandemic,with a level of confidence that Asia Pacific(AP)econ

65、omies and firms were better prepared than their global counterparts to both withstand and respond to the scenarios that may emerge,and that the worst was behind us with the exception of concerns around inflation,increasing credit risk exposures and the ongoing war for talent.The Russia-Ukraine confl

66、ict,the continued significant shut-down to address COVID-19 in Chinese Mainland,as well as a host of other global challenges,led to a more muted outcome through 2022 than earlier anticipated.So,how then do we pivot to 2023 and the challenges and opportunities to be faced ahead?The IMF has started th

67、e year with a somewhat downbeat caution.Within our region,we see concerns around the level of economic growth due to a range of factors from property prices in Chinese Mainland through to the cost of energy in Japan,rising inflation,and elevated credit risk,balanced somewhat by green shoots with the

68、 reduction of COVID-19 restrictions in Chinese Mainland,and steadier growth in some jurisdictions including India and Indonesia.Operational resilience and the management of external disruptions remain a strong theme for all firms and regulators in the region.Arguably,the AP region slightly lags the

69、progress made in Europe in particular,however we see the pace picking up,and regulatory pressure leading to a greater focus on the topic in the region.In the face of COVID-19 and the Russia-Ukraine conflict,there is a broader recognition that supply chains extend well beyond immediate vendors,and th

70、at unless these are understood and controlled to a greater degree,security of supply would be difficult to achieve.The downstream systemic and customer impacts mean this issue continues to demand significant regulator and management time.Another key development has been the rapid growth of digital a

71、sset markets,followed by the implosion of crypto,known as the 2022 Crypto Winter.A wave of high profile failures in recent months has triggered more intense regulatory scrutiny of the burgeoning digital asset market,with a particular focus on financial stability,financial crime and consumer protecti

72、on.At the same time,AP regulators continue to explore digital asset technologies and business models,recognising their potential to transform financial services fundamentally.This interplay of developmental and regulatory considerations will be a key dynamic for the digital asset ecosystem.The devel

73、opment of the sustainability agenda in 2022 was significantly impacted by energy security concerns,leading to a re-examination of the transition paths and scenarios,as the risk of a disorderly transition remains significant.For regulators,a developing area of focus includes the role of capital requi

74、rements in the management of climate-related risks.Initial indications from the Bank of England have prompted other regulators to consider whether existing prudential frameworks can address environmental risk appropriately.This topic has also been explored in the US Federal Reserve with a staff pape

75、r indicating that a capital approach to climate risk requires careful assessment.17 No doubt the historic experience of operational risk capital modelling remains fresh in most regulators minds.Further developments in sustainability relate to disclosure,with the Taskforce on Nature-related Financial

76、 Disclosures(TNFD)publishing an updated version of its framework for disclosure requirements.With further beta editions to be published on a quarterly basis,the framework is rapidly evolving towards a final state in September 2023.The hope from the FSB is that once these standards are finalised regu

77、lators will quickly adopt and implement them.Notwithstanding of the above developments,bridging data gaps remains the biggest challenge to producing Task Force on Climate-Related Disclosures(TCFD)and TNFD-aligned disclosure reports and managing climate risk.AP regulators are stepping up to help brid

78、ge the gap.This includes the development of data source repositories and a data catalogue,along with engaging technology providers to incubate and help scale climate tech solutions in the region.In consideration of the above,we believe there are a number of key implications for FS firms operating in

79、 AP(and indeed globally):Uncertainty remains a constant into 2023.Continued geopolitical tensions,and the associated impact on energy and other markets will continue to impact global supply chains.This,along with the potential for new COVID-19 variants,and inconsistent approaches from jurisdictions

80、mean FS firms in the AP region will continue to operate in an environment of high uncertainty.2023 Asia Pacific Financial Services Regulatory Outlook|Asia Pacific Foreword9 Mixed regional economic outcomes will have implications for those firms whose business model is built on consistent growth.Vary

81、ing market conditions around property,credit and other factors,such as geopolitical tensions,all combine to challenge growth aspirations and market confidence.Resilience is the new black.From operational resilience,to climate resilience and cyber resilience the imperative of transparency and underst

82、anding through the entire organisational value chain,along with the ability to control and influence input and output supply outcomes will be a major focus for regulators and FS firms in the region.For insurers,a combination of climate risk,resilience and solvency will dominate the focus for 2023.In

83、surers are clearly at the front end of climate exposures,and with similar dependencies to banks through extended value chains,they will be expected to have a sophisticated consideration of their ability to continue to operate and support all stakeholders in times of stress.FS firms in AP have genera

84、lly responded well to the pandemic,and the additional global stresses that came during 2022.The role of regulators will continue to be complex and challenging.As the Russia-Ukraine conflict continues,the impact of sustainability and climate change,increasing operational resilience and the impact of

85、inflation and interest rate rises remain areas of focus and compete for priority with AP regulators and FS firms alike.For FS firms,particularly those with a focus on growth,navigating 2023 and beyond will need a clearer focus and vision,including balancing growth objectives with consideration of so

86、cial and economic inclusion.It is clear that we cant yet say we have emerged from the COVID crisis and its related impacts,in 2023,there are many moving parts that both regulators and FS firms alike will need to navigate and there remains much work to be done.It is with this context in mind that we

87、have set out the upcoming sections of this years Regulatory Outlook as follows:Macroeconomic Environment and Regulatory Agendas Operational Resilience Digital Assets Sustainability and Climate Future of FS Regulation in the AP RegionThese are and will continue to be high priority issues for both reg

88、ulators and FS firms in AP.We urge firms to think through what these issues mean for their business models,and what strategic decisions they will have to make as a result.Mike RitchieAustralia Co-lead Centre for Regulatory Strategy Asia PacificJaramie NejalOperations Lead Centre for Regulatory Strat

89、egy Asia PacificNai Seng WongSouth East Asia Co-lead Centre for Regulatory Strategy Asia PacificShinya KobayashiJapan Co-leadCentre for Regulatory Strategy Asia Pacific2023 Asia Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 2023102022 saw some of

90、the biggest economic challenges since the 2007/2008 financial crisis,such as high inflation,energy price volatility,and persistent supply chain disruptions.2023 will continue to be a challenging year,with a complex mix of economic uncertainties across the AP region.In the face of a challenging year

91、ahead,AP regulators will be focusing on the overall resilience of the financial system,while steaming ahead on agendas including sustainable finance and digitalisation.Pivoting from 2022 After the reopening of a number of AP jurisdictions in 2021,a strong recovery of 6.5%GDP growth was achieved in 2

92、021 according to the IMF World Economic Outlook.18 By the end of 2022,GDP growth is expected to have dropped to 4.0%19 due to several reasons:The increase in COVID-19 cases in various parts of Chinese Mainland triggered a tightening of restrictive measures under the jurisdictions zero-COVID policy,s

93、lowing down the domestic economic recovery and prolonging regional supply chain disruptions;The steep rate hikes of the US Federal Reserve and the European Central Bank in an effort to contain high inflation have dampened economic prospects.In 2022,the accumulated interest rate increases by the US F

94、ederal Reserve totalled 425 basis points.These rate hikes have contributed to capital outflows from some AP jurisdictions,and have contributed to some central banks in AP raising interest rates;The Russia-Ukraine conflict has caused turmoil in the energy markets,which together with the strong US dol

95、lar,has put further pressure on the economic recovery of AP countries that rely on energy imports.Looking ahead at 2023In 2023,the AP region will continue to recover,with headwinds from global economic challenges.In the face of these uncertainties,we expect the most important factors impacting the A

96、P region in 2023 to be the following:Economic recovery from the COVID-19 pandemic.In the AP region,some jurisdictions such as Thailand and Singapore reopened to visitors in 2021.Others reopened in the second half of 2022,such as Japan and the Hong Kong SAR.As shown in Figure 3,we expect that jurisdi

97、ctions which reopened in the second half of 2022 will see a stronger recovery in 2023,compared with those which reopened earlier.Late November 2022 saw the relaxation of COVID-19 restrictions in Chinese Mainland,such as the removal of domestic testing requirements,and the relaxing of quarantine requ

98、irements for positive cases and close contacts.On 8 January 2023,Chinese Mainland abolished all quarantine measures for international arrivals,marking a major step to reopening the nation to the rest of the world.The reopening of Chinese Mainland took place sooner and faster than previously expected

99、,which has resulted in upward adjustments for the 2023 economic outlook of the jurisdiction.Further,there is an expectation that the relaxation of COVID-19 measures by the Chinese central government will also help to alleviate global supply chain pressures and boost growth for geographies that rely

100、heavily on economic ties with Chinese Mainland,such as the Hong Kong SAR.However,uncertainties remain regarding the economic impact of any surge in COVID-19 cases post reopening.Global economic uncertainties.The projected global economic slowdown in 2023 will impact the AP region through channels su

101、ch as weakened external demand and potential capital market volatility.The negative economic outlook has triggered risk aversion and will challenge the resilience of funding markets.The downturn will also impact the credit ratings of companies and credit quality for FS firms in the AP region.While i

102、nflation in the AP region is mild compared to the rest of the world and is expected to come down further in 2023(Figure 4),it is still pushing up the cost of doing business.The higher cost of operations,together with the increased expectations on operational resilience(discussed in a later section),

103、will pose challenges to FS firms in the AP region.Macroeconomic Environment and Regulatory Agendas for 2023 2023 Asia Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 2023112020ActualsForecastAUSTRALIACHINESE MAINLANDHONG KONG SARINDIA-0.704.102.602.

104、002.70202020212022202320243.406.603.302.802.1020202021202220232024-4.107.603.002.302.6020202021202220232024-2.104.903.801.901.80202020212022202320242.208.103.204.404.5020202021202220232024-6.506.30-0.803.903.0020202021202220232024-6.608.706.806.106.8020202021202220232024-4.601.701.701.601.3020202021

105、202220232024-2.103.705.305.005.4020202021202220232024-5.503.105.404.404.9020202021202220232024-9.505.706.505.006.0020202021202220232024-2.105.602.301.902.0020202021202220232024-1.106.504.004.304.602021202220232024-6.201.502.803.703.60202020212022202320242.902.607.006.206.6020202021202220232024INDONE

106、SIAJAPANMALAYSIANEW ZEALANDPHILIPPINESSINGAPORESOUTH KOREATAIWAN(CHINA)THAILANDVIETNAMASIA PACIFICFigure 3 GDP growth movements of select AP jurisdictions202023 Asia Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 202312 Regional economic challenges

107、.According to the Deloitte China Economic Outlook published in December 2022,although supportive policy measures have been taken,a weak property market in Chinese Mainland is likely to persist beyond the short term,21 dampening Chinas economic recovery.In Japan,while consumer spending is expected to

108、 increase in 2023,elevated inflation and high energy prices will make consumer spending difficult to sustain.22 On the other hand,some jurisdictions will see a steadier growth,such as India and Indonesia,with predicted 2023 GDP growth at 6.8%and 5.3%.23-1.00.01.02.03.04.05.06.07.08.0AustraliaChinese

109、MainlandHong KongSARIndiaIndonesiaJapanMalaysiaNewZealandPhilippinesSingaporeSouthKoreaTaiwan(China)ThailandVietnam202120222023Figure 4 Consumer Price Index projections for select AP jurisdictions 24 The longer-term viewFrom a longer-term perspective,continued geopolitical tensions and the shift fro

110、m free trade to secured trade will impact the AP region in a number of ways.Geopolitical tensions have made governments prioritise national security over optimal economic outcomes in international trade.The US CHIPS and Science Act that came into effect in August 2022 is an example of this focus on

111、national security.The global supply chain disruptions caused by COVID-19 have urged companies to rethink their supply chain strategies.For example,Vietnams 7%projected growth in 2022/23 reflects the shift of some supply chains from Chinese Mainland to Vietnam.25 The supply chain disruption caused by

112、 the pandemic has also pushed national governments to start bringing supply chains back home to build better resilience in response to future disruptive events.With the change in trade and economic drivers in the AP region,FS firms will need to closely monitor the trends and adjust their operations

113、and decision-making process to accommodate the evolving financing demands in the AP region.2023 Asia Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 202313Priorities of regulators in 2023The 2022 Annual Report of the FSB emphasised the importance of

114、 the resilience of FS firms and the stability of the financial sector.The FSB warned against the materialisation of existing vulnerabilities in a challenging environment in 2023,as regulators and central banks run out of policy space to intervene.26 Resilience and stability will be a key theme for b

115、anks,insurers and asset managers in 2023.At the time of writing,a number of central banks,regulators and standard setters have published regulatory priorities for 2023,and we highlight some of the key themes from these in the section below:The key focus of banking regulation and supervision centres

116、around the resilience of banks.In 2022,the banking sector in the AP region remained well-capitalised,with good liquidity positions.While many AP jurisdictions are still at the final stages of Basel III implementation,much of the focus is now switched to the overall resilience of banks.We will discus

117、s developments in operational resilience in a later section.In addition to firm-level resilience,assessing and managing systemic risk in the banking sector will be another key focus for regulators in 2023,including strengthening policy measures on domestic systemically important banks,ensuring their

118、 stable operation,and ensuring that contingency plans,as well as recovery and resolution plans,are in place to guard against any deterioration of the external environment.For example,the Australian Prudential Regulation Authoritys(APRA)Corporate Plan for 2022-2023 announced key prudential reforms in

119、cluding adopting unquestionably strong capital ratios in January 2023,implementing Basel III requirements,and upgrading banks operational risk,business continuity and contingency planning practices through the introduction of a number of new prudential standards.27 Banks will need to be climate resi

120、lient.In the FSB Roadmap for Addressing Financial Risks from Climate Change Progress Report,it is indicated that the FSB will develop a data-driven methodology for monitoring climate-related financial risk,their transmission mechanisms,and feedback loops across financial sectors globally.28 The Base

121、l Committee on Banking Supervision(BCBS)will start monitoring the implementation of the Principles for the Effective Management and Supervision of Climate-Related Financial Risks in 2023.A number of AP regulators have adopted or indicated in their 2023 priorities that they will adopt the BCBS princi

122、ples and ensure the banking sector is resilient to climate-related risks.We will discuss this in more in detail in a later section.Banks will need to be cyber resilient.The increased number of cyberattack incidents since the start of the COVID-19 pandemic has been urging policymakers to focus on the

123、 cyber resilience of the banking sector.At the global level,the FSB issued a consultation paper on cyber incident reporting in October 2022.As an important component of the BCBS Principles for Operational Resilience and a critical step to achieve digital transformation in the FS sector,cyber resilie

124、nce can be found in the 2023 priorities of many AP regulators.For example,in the Bank Negara Malaysias(Malaysia BNM)Financial Sector Blueprint 2022-2026,strengthening cyber security readiness and responsiveness for banks and their third parties,and enhancing cyber intelligence is an important part o

125、f the strategy to advance digitalisation of the FS sector.29 New solvency regimes underway.While the International Association of Insurance Supervisors(IAIS)is on track to finalise the development of the Insurance Capital Standard(ICS)as a Prescriptive Capital Requirement in 2024,AP regulators have

126、been making progress on their local insurance solvency regimes.For example,Korea will implement the Korean Insurance Capital Standard(K-ICS)starting in January 2023.The K-ICS is based on the IAIS ICS and four rounds of domestic quantitative impact study.Malaysia BNM is also aiming to finalise their

127、new risk-based capital framework in 2023.Japan Financial Services Agency(JFSA)is working on their economic value-based solvency regulation,30 which has been designed broadly in line with the ICS,with the aim of implementation in 2025.01In 2023,banking regulation will continue to focus on the followi

128、ng themes:Banking02In 2023,insurance regulation will continue to focus on the following themes:Insurance 2023 Asia Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 202314 Focus on insurance resilience.In October 2022,the IAIS published a draft of the

129、 issues paper on operational resilience in the insurance sector with the aim of identifying issues that impact operational resilience in the insurance sector particularly in terms of cyber resilience,third party outsourcing,and business continuity management.31 Global regulators consider that furthe

130、r work needs to be done to make resolution plans for insurers fully operational.32 At the AP level,APRAs draft CPS 230 Operational Risk Management proposes an operational resilience framework across financial sectors including insurance,covering key elements such as critical operations and oversight

131、 of third parties.33 The FSB has taken a slightly different approach,with its announcement on 9 December 2022 of the discontinuation of the annual identification of the Global Systemically Important Insurers(G-SIIs)and the utilisation of information available through the IAIS Holistic Framework to m

132、onitor systemic risk in the insurance sector.On the other hand,the FSB has made it explicit that it will,starting from 2023,publish a separate annual list of insurers that are subject to resolution planning and resolvability assessments consistent with the FSBs Key Attributes.34 At a jurisdiction le

133、vel,the Monetary Authority of Singapore(MAS)published a consultation paper in October 2022 to seek public feedback on a proposed domestic systemically important insurers(D-SII)framework that is expected to be implemented in 2024.Addressing climate risk in the insurance sector.The IAIS will consider

134、incorporating disclosure issues in the consultation on ICP supporting materials starting in Q3 of 2023.It is also undertaking a capacity building initiative to assist supervisors in their efforts to develop climate scenario analysis.In the AP region,some regulators,such as MAS,have published climate

135、 risk management guidelines for insurers,whilst others,such as APRA and JFSA have put it on their priority list,with a view to strengthen the sustainability of insurance products and enhance climate resilience of the insurance sector.New developments in sustainable finance.By the end of Q1 2023,the

136、International Organisation of Securities Commissions(IOSCO)will develop guidance to assist regulators implement the ISSB standards in the local legal and regulatory regimes.It will also focus on promoting good industry and supervisory practices on the basis of the IOSCO 2021 recommendations on asset

137、 managers and ESG ratings and data providers.Additionally,IOSCO will undertake capacity building in this area by enhancing supervision of asset managers and the oversight of environment,social and governance(ESG)ratings and data product providers.At the regional level,AP regulators have started prep

138、aring for adopting ISSB standards,and providing guidelines for ESG data providers.We will discuss in more detail in a later section.Addressing risks in crypto and other digital assets.The IOSCO issued its Crypto-Asset Roadmap for 2022-2023 in July 2022.The board-level fintech taskforce,chaired by th

139、e MAS,will lead two work streams:crypto and digital assets led by the UK Financial Conduct Authority,and decentralised finance led by the US SEC.Reports from these two work streams will be published in Q4 2023.The FSB proposed a framework for the international regulation of crypto-asset activities i

140、n October 2022 and the BCBS published a second consultation document on a prudential treatment of crypto-asset exposures in June 2022.In the AP region,although it is still being debated how crypto assets should be regulated,regulators are taking steps to maintain market discipline and protect invest

141、ors.For instance,Japan updated the Payment Services Act to strengthen regulation of stablecoins.In Australia,regulation on crypto asset secondary service providers will be a key strategic focus of the Australian Securities and Investment Commission(ASIC).More details will be discussed in a later sec

142、tion.Improving outcomes of pension,superannuation and other retirement products.In some AP jurisdictions,consumer protection will be strengthened by requiring product providers to fully access the consumer risk profile and their long-term planning in the retirement product decision-making process.Fo

143、r example,the Retirement Income Covenant of Australia which came into force on 1 July 2022,aims at improving outcomes of retirement products.3503In 2023,regulations concerning asset and wealth managers will focus on the following themes:Asset and wealth management Key takeaways for FS firms:2023 Asi

144、a Pacific Financial Services Regulatory Outlook|Macroeconomic Environment and Regulatory Agendas for 2023Overall,2023 will be challenging some post-pandemic scars remain,whilst new headwinds emerge,such as tightening monetary policy and geopolitical tensions.Regional economic forecasts are divergent

145、 and based on moving targets such as the reopening schedule of Chinese Mainland.As the economic environment becomes more challenging in 2023,financial stability and operational resilience will be the key focus of financial regulators.Policy measures such as operational resilience frameworks,continge

146、ncy planning,recovery and resolution planning will continue to be important areas of focus and uplift for FS firms and for service providers to the FS industry(such as technology companies).Climate resilience and cyber resilience will become increasingly critical to overall business operations of a

147、FS firm,with firms required to incorporate climate resilience and cyber resilience more comprehensively in their governance,strategy,risk management,and products.152023 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience16Operational resilience will continue to be a key theme i

148、n financial regulation for the AP region in 2023 and beyond.There are three key factors driving this trend:1)accelerated digitalisation and increasing partnerships between FS firms and third-party vendors which may in turn have dependencies on their subcontractors and/or suppliers(i.e.fourth and fif

149、th parties);2)heightened and prolonged supply chain disruptions during the COVID-19 pandemic and the increasingly complex geopolitical environment;and 3)the potential economic downturn and systemic risk considerations.While some of the driving factors have had short-term implications on FS firms ope

150、rations,such as workplace disruptions during lockdowns,many of the impacts could manifest over a much longer timeframe.For example,the FS business model is transitioning from traditional value chains to ecosystems through partnerships with third parties,outsourcing vendors,and their subcontractors.T

151、his requires FS firms to determine where parts of the critical business function are being carried out by a third parties,and what actions the FS firm needs to take to ensure successful delivery of that part of the critical business function,even during times of disruption.In the situation where a t

152、hird party is providing services to multiple FS firms,concentration risk,and based on the level of criticality of the business function or services provided,its potential systemic implications for the FS sector should be assessed.Another example is how the recent episode of supply chain disruption i

153、s prompting firms(including FS firms)to rethink their priorities between efficiency and resilience.Strengthening resilience to ensure fulfillment of obligations,especially during operational risk events,has become imperative for FS firms in order to meet customer expectations.Given the above driving

154、 factors,regulators in the AP region are taking action to enhance the operational resilience of FS firms.The ACRS 2022 Asia Pacific Regulatory Outlook noted that,in 2023,AP regulators would commence implementation of the BCBS revised Principles on Operational Resilience and Revisions to the Principl

155、es for the Sound Management of Operational Risk,which was Operational ResilienceMarketingSalesProducts and servicesdevelopmentTransactionsMarketing PlatformsFinancial Institution APayment Platform APayment Platform BFinancial Institution BFinancial Institution CBrokersNon-finance Consumer-focused En

156、titiesFinancial InstitutionMarketing and salesProducts and servicesdevelopmentTransactionsFinancial services value chainFinancial services ecosystemFigure 5 Stylised illustration of the FS value chain evolution2023 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience17released b

157、ack in March 2021.Since the publication of the revised principles,as expected,several regulators in the AP region have released official or consultative versions of supervisory materials implementing the BCBS principles.The Hong Kong Monetary Authority(HKMA)released one new supervisory policy manual

158、(SPM)and two revised SPMs in 2022 to implement the BCBS Principles for Operational Resilience.36 APRA has also published the consultative version of the Prudential Standard CPS 230 on Operational Risk Management to reflect the operational resilience requirements.In Japan,operational resilience,stren

159、gthening IT risk management,and managing the risks associated with outsourcing and third party risk management is a priority for JFSA.The JFSA published a draft of the Discussion Paper on operational resilience in December 2022.37In addition to operational resilience initiatives in the banking secto

160、r,insurance regulators are also moving in the same direction.The IAIS published a draft Issues Paper on Insurance Sector Operational Resilience on 13 October 2022,inviting public comments until 6 January 2023.The draft issues paper focused on cyber resilience,third party outsourcing,and business con

161、tinuity management.38 While the issues paper is limited by only providing background information and examples of supervisory practices without setting requirements or supervisory expectations,it indicates a potential regulatory focus of the insurance sector.As shown in Figure 6,the current timeframe

162、 for FS firms to build up their operational resilience and comply with new regulatory standards lies between 2023 and 2026.Given the significance and scope of the undertaking,2023 will be a crucial year for FS firms to assess their existing operational risk management and control frameworks,identify

163、 the gap between the status quo and new regulatory requirements on operational resilience,and implement strategic transformation where needed.From traditional operational risk management to operational resilienceThe BCBS Principles for Operational Resilience defines operational resilience as the abi

164、lity of a bank to deliver critical operations through disruption.39 The objectives and measures of operational resilience differ from that of traditional operational risk management.Traditional operational risk management focuses on reducing the likelihood of operational incidents occurring,limiting

165、 losses in the event of severe business disruption,and ensuring sufficient capital is held to mitigate the financial impact of risks that materialise.On the other hand,operational resilience assumes that severe disruptions will happen,and that failure will occur.Under this assumption,FS firms should

166、 ensure that they have thoroughly considered the impact of a wide range of severe but plausible events on the firms ability to provide critical operations that deliver services to customers,develop contingency plans to ensure that in the event of a severe disruption the firm can continue to operate

167、through the disruption and provide critical operations and key services with minimum interruption,as well as develop recovery and resolution plans to respond to the severe crisis.From the experience of the post crisis reform after the 07/08 financial crisis,scenario planning and stress testing also

168、play key roles in building a firms resilience.As part of uplifting their approach to operational resilience,FS firms should look beyond immediate threats and consider how they will become suitably agile,adaptive and robust to withstand the(as yet)unknown risks of the future.This will involve continu

169、ous assessment and improvement to identify and defeat new threats and develop new solutions.Resilient organisations differ from their peers in the following areas:Better readiness(preventive control):they can avoid or prevent unforeseen incidents and disruptions better than their peers;More responsi

170、veness(mindful action):they are flexible and better able to adapt their response,so the impact of disruption on their performance can be lower than their peers;Faster recovery(performance organisation):the speed of recovery of essential outcomes(not just assets)can be faster than their peers;Greater

171、 regeneration(adaptive innovation):the extent of recovery can be greater than their peers(transformational,not incremental change).Operational resilience is as equally important as financial resilience,and should be a key aspect of a firms overall resilience.Failure to quickly and adequately address

172、 operational risk incidents can also have financial consequences by undermining market and consumer confidence,which may lead to a loss of business,or even trigger a liquidity risk event.An operationally resilient firm can minimise the impact of financial loss and market and consumer confidence.2023

173、 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience18MAS published Technology Risk Management Guidelines18 January 2021MAS published the Risk Management and Operational Resilience in a Remote Working Environment2 March 2021The BCBS published the Principles for Operational Resi

174、lience31 March 2021JFSA and BOJ jointly published explanatory notes on BCBS principles26 May 2021Hong Kong SAR SFC published Operational resilience standards and required implementation measures 4 October 2021IOSCO published the updated outsourcing principles27 October 2021HKMA issued consultation o

175、n OR-2,revision to SPM OR-1 and TM-G-222 December 2021HKMA issued new SPM OR-2 and revised TM-G-231 May 2022MAS issued revised Guidelines on Business Continuity Management6 June 2022HKMA issued revised OR-1 on Operational Risk Management25 July 2022APRA published consultation paper on CPS 230 Operat

176、ional Risk Management28 July 2022MAS published Information paper on Operational Risk Management&Management of Third Party Arrangements5 August 2022In JFSAs Strategic Priorities July 2022-June 2023,the JFSA plans to draft a working paper on operational resilience31 August 2022End of CPS 230 consultat

177、ion21 October 2022APRA expects to finalise CPS 230 by early 2023,and consult and finalise prudential guidelines on CPS 230Early 2023HKMA OR-2:AIs are expected to have developed its operational resilience framework and determined the timeline which it will have implemented the operational resilience

178、framework and become operationally resilient 31 May 2023End of CPS 231,CPS 23231 December 2023HKMA:Implement the revised OR-1 module,except areas relate to operational resilience25 January 2024APRA CPS 230 in force1 January 2024HKMA OR-2:Latest Date to become operationally resilient31 May 2026Figure

179、 6 Timeline of key operational resilience regulation in the AP region2023 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience19Examples of Operational Resilience Regulation from AP regulators:AustraliaIn July 2022,APRA released the new draft prudential standard,CPS 230 Operatio

180、nal Risk Management for consultation.The proposed standard will replace and supersede five of the regulators industry specific standards CPS/SPS/HPS 231 Outsourcing and CPS/SPS 232 Business Continuity Management.Alongside the existing prudential standard CPS 234 Information Security,it is proposed t

181、hat CPS 230 and 234 will form APRAs new operational resilience framework.The overall aim of CPS 230 is to ensure resilience to operational risks.To help facilitate this,the draft standard will introduce both new and enhanced existing requirements including:40 The role of the Board and senior managem

182、ent:Under CPS 230,the role of the Board will be elevated,including ultimate accountability for the entitys operational risk management.The role of the Board in effectively overseeing an organisations risks has consistently been highlighted,particularly with respect to a capacity to appropriately dis

183、charge responsibilities,challenge,and inform decisions.Critical operations and tolerance levels:Board-approved tolerance levels must be established for all critical operations to APRA regulated-entities.Regulated entities are expected to view this from a value-chain perspective,and place a focus on

184、customers and outcomes when considering their critical operations and tolerance levels.As services provided by the financial services industry are increasingly critical to the day-to-day needs of businesses and customers,there is an expectation of consistent availability to meet these demands.Greate

185、r oversight of third parties and beyond:Regulated entities will be required to identify and maintain a register of material service providers(which may include fourth-and fifth-parties);which must be submitted to APRA on an annual basis.CPS 230 will also require regulated entities to engage service

186、providers to review,renegotiate and update service provider agreements to meet new and enhanced requirements.APRA has recognised the potential for concentration risks due an increasing reliance on outsourced service providers.New and enhanced requirements for the oversight of material service provid

187、ers will support how regulated entities and APRA are able to oversee and manage these risks,particularly those with potential systemic implications for the industry.The new operational resilience framework is one of the many steps the regulator has taken in recent years to strengthen the overall res

188、ilience of the financial services industry.Hong Kong SARThe HKMA released the new SPM OR-2 on operational resilience,the revised SPM TM-G-2 on business continuity planning in May 2022,and the revised SPM OR-1 on operational risk management in July 2022 to implement the BCBS revised Principles on Ope

189、rational Resilience and Revisions to the Principles for the Sound Management of Operational Risk.For SPM OR-2,HKMA expects all Authorised Institutions(AIs)to develop their operational resilience framework by 31 May 2023,and become operationally resilient by no later than 31 May 2026.Key components o

190、f the requirements are:41 1.Operational Resilience ParametersA mechanism for determining operational resilience parameters,namely identifying critical operations,setting tolerance for disruption for critical operations,and identifying severe but plausible scenarios.2.Mapping interconnections and int

191、erdependencies Identify and document:(i)the people,processes,technology,information,and facilities;and(ii)the interconnections and interdependencies among these factors that are necessary for the AI to deliver its critical operations.2023 Asia Pacific Financial Services Regulatory Outlook|Operationa

192、l Resilience203.Risk Management Policies and FrameworksLeverage different risk management frameworks as appropriate,to offer holistic and comprehensive support to critical operations,and be prepared to manage all risks with the potential to affect delivery of critical operations.4.Scenario TestingRe

193、gular testing of the operational resilience framework to ensure the AI has the ability to continue delivering critical operations through disruptions,including under severe but plausible scenarios5.Incident ManagementEstablish an effective incident management programme to manage all incidents,especi

194、ally those that may impact critical operations.SPM TM-G-2(Business Continuity Planning)has been updated to reflect the changes made to the operational resilience-related requirements.The updates are based on the key parameters laid out in the SPM OR-2 framework:critical operations,severe but plausib

195、le scenarios,and tolerance for disruptions.The scope of business continuity planning(BCP)has been extended to cover the three parameters.For example,AIs are now required to take into account the tolerance for disruption in the business impact analysis.When testing the BCP,AIs are required to use a r

196、ange of severe but plausible scenarios.42 For the revised SPM OR-1,the HKMA expects AIs to implement the areas not covered by SPM OR-2 by January 2024,and follow the timeline of SPM OR-2 for the operational resilience-related requirements.Key revisions made in SPM OR-1 focus on the following areas:4

197、3 1.Risk governance:The board should regularly review the risk appetite and tolerance statement,and consider the continued appropriateness of the operational risk limits.2.Three lines of defense:a newly added section that requires AIs to adopt the three lines of defense model.3.Operational risk mana

198、gement(ORM)strategy,policies and procedures:the matrix outlined in the BCBS Consolidated Framework OPE 25.17 is used as a benchmark.If the internal classification system is different from the BCBS matrix,AIs should map and document their own criteria.4.ORM process:AIs should be able to produce risk

199、reports in both normal and stressed market conditions.5.Specific aspects of ORM:AIs should have an integrated approach to information and communication technology(ICT)risk management under its ORM framework.The board should regularly oversee the effectiveness of its ICT risk management.6.Disclosure:

200、AIs should ensure full disclosure of new components listed under the operational risk governance.The three SPMs together reflect the HKMAs approach to helping FS firms build their operational resilience.The identification of operational parameters serves as the building blocks of the framework.As sh

201、own in Figure 6,FS firms are required to follow the step-by-step process to integrate the three parameters into the four pillars,i.e.operational risk management,business continuity planning,third party dependency management and ICT and cybersecurity management,supporting operational resilience.2023

202、Asia Pacific Financial Services Regulatory Outlook|Operational Resilience21Key operational resilience parameters:Operational risk management(revised SPM OR-1)Determineoperational resilience parametersMappinginterconnections and interdependenciesPrepare for and manage risks to critical operations del

203、iveryTest ability to deliver critical operations under severe but plausible scenariosEstablish an effective incident management programme Business continuity planning and testing(revised SPM TM G-2)Third-party dependency management ICT including cybersecurity Respond to and recover from incidents1.C

204、ritical operations2.Tolerance for disruption3.Severe but plausible scenariosFigure 7 HKMA operational resilience framework 44 SingaporeOn 5 August 2022,MAS published an information paper on Operational Risk Management Management of Third Party Arrangements.45 The paper highlights observations from M

205、AS thematic inspections on the operational risk management standards and practices of selected banks,with a focus on third party risk management.While the focus is on banks,the good practices highlighted should be referenced by all FS firms that are exposed to the same set of risks.Non-bank FS firms

206、 are also encouraged to adopt the recommended practices where relevant and appropriate to the materiality of the risks posed by their third party arrangements.Outsourcing per MAS Guidelines on Outsourcing is an arrangement in which a service provider provides the company with a service:46 a.that may

207、 currently or potentially be performed by the company itself;b.is dependent on the service on an ongoing basis;c.the service is integral to the core business of the company;or the service is provided to the market by the service provider in the name of the company.Revisions and expectations regardin

208、g outsourcing arrangements are:No change to the existing requirements under MAS Guidelines on Outsourcing;New expectations and improvements required for outsourcing arrangements as per the MAS information paper on ORM Management of Third-Party Arrangements.Non-outsourcing arrangements(NOAs)are all o

209、ther third party arrangements which are not classified as outsourcing under MAS Guidelines on Outsourcing.Revised MAS Technology Risk Management Guidelines expects FS firms to have strong oversight of third party arrangements to ensure system resilience and maintain data confidentiality integrity.47

210、 MAS Guidelines on Business Continuity Management expects FS firms to take into account third party dependencies to support the delivery of critical business services.48 MAS information paper on ORM Management of Third-Party Arrangements expects third party arrangements that are not defined as outso

211、urcing to be subjected to adequate risk management and sound internal controls as the risks introduced by NOAs may not be any less material than outsourcing arrangements.49 2023 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience22ORM FunctionDedicated ORM function to ensure so

212、und ORM policies and standards for appropriate strate-gies and risk appetite Operational Risk IssuesRoom for improvement in terms of analysis and management reporting of operational risk issuesORM Governance and Control FrameworkThree Lines of Defence(LoD)ModelThree LoD model must be adoptedTPRM Out

213、sourcing TPRM Non-OutsourcingFirst LoD Business UnitSecond LoD Operational Risk ManagementThird LoD Independent Assurance/AuditOperational Risk EventKey Risk IndicatorsRisk&Control Self AssessmentTechnologyRecommended to use central core system for effective ops risk data capture,monitoring and repo

214、rtingImprovement required in Out-sourcing Framework and Process-Adequate management oversight and risk reporting of outsourcing activities by the Outsourcing Committee-Robust due diligence and ongoing monitoring processes by involving relevant SMEs-Intragroup arrangements must be subjected to same o

215、utsourcing frameworkConcentration AnalysisConduct regular concentration analysis to ensure there is no over reliance of any outsourc-ing service provider NOA FrameworkEstablish framework to govern non-outsourcing arrangementsDue Diligence and Periodic Monitoring&Control for NOANOAs must be subjected

216、 to structured due diligence processes and ongoing monitoring controls,which includes but not limited to onboarding due diligence,periodic monitoring&controls,service performance reviews,contract establishment,etc.Dedicated CommitteeAppropriate committee to ensure oversight and monitoring of NOAs co

217、mmensurate with the risks posedNOA InventoryMaintain a complete list/inventory of all NOAsTechnologyRecommended to use Third-Party Risk Management(TPRM)system/platform to reduce manual workaroundsFigure 8 MAS regulation updates to enhance operational resilience51 Additional requirements arising from

218、 the information paper on Operational Risk Management-Management of Third-Party Arrangements.50The updated requirements and supervisory expectations will impact FS firms in several ways.For outsourcing arrangements:Introduction and integration of a robust three lines of defense model and centralised

219、 operational risk management will help to prevent potential conflicts of interest and help FS firms respond to or pre-empt emerging risk trends and concerns in a timely manner.Development and implementation of a proper outsourcing framework,including adequate oversight of the outsourcing committee a

220、nd effective due diligence assessments will be needed to ensure effective monitoring and control of the firm itself and the service providers.An exercise to identify concentration risk relating to critical functions and operations will be needed to avoid over-reliance on certain service providers.Fo

221、r non-outsourcing arrangements:Maintaining a complete list of inventory will be critical this includes the inclusion of arrangements with third party service providers who are not considered outsourcing arrangements,as they may still be involved in critical functions or the delivery of critical oper

222、ations.Timely and comprehensive reporting to the dedicated committee will help senior management to have a current and comprehensive view of third party risk trends and concerns.Conducting NOA due diligence and periodic monitoring of controls can enable the bank to gain assurance of the adequacy of

223、controls by the third party.Leveraging technology to manage third party risk may help avoid reliance on large scale manual processes that are inaccurate and ineffective.2023 Asia Pacific Financial Services Regulatory Outlook|Operational Resilience232023 Asia Pacific Financial Services Regulatory Out

224、look|Operational ResilienceKey takeaways for FS firms:FS firms should elevate the importance of operational resilience to the Board and senior management,which should take responsibility and accountability for operational resilience of the firm.Senior leadership needs to instil a common approach to

225、operational resilience and operating model design throughout the group by creating a common set of objectives,a clear accountability structure for designing operating models that deliver important business services and a unified set of outcomes that the operating model design choices should support.

226、FS firms need to prioritise consideration of operating model design on critical business functions,operations and services.Teams across the FS firm need to understand how the applicable impact tolerance will affect the expected resilience of the service over time and be able to articulate how operat

227、ing model changes made in that timeframe will support that impact tolerance.FS firms should have the ambition not only to test service resilience periodically,but to deploy this testing and to evaluate how proposed changes to the operating model could affect the firms ability to remain within its im

228、pact tolerance.This could pinpoint where additional investment,such as building substitutability,back-ups and redundancies,will be needed in order to proceed with operating model changes.FS firms need to consider the critical operations of their ecosystem and they need to know and understand the ope

229、rating model within the ecosystem.To implement better scenario analyses FS firms should think beyond the usual to identify severe but plausible scenarios(e.g.the impact of pandemics).Consider the full spectrum of resilience i.e.not just preventing,but operating through,recovering from the incident,a

230、nd resolution.Recovery and resolution planning is just as important as prevention.FS firms should implement insights-based monitoring,to help management better anticipate and respond to incidents.2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets24Digital AssetsIn the last decade

231、,the financial services sector has undergone rapid digitalisation.This industry trend has been accompanied by the emergence of digital assets that involve combining the technologies of distributed computing and cryptography.52 Market participants have been actively exploring different use cases for

232、digital assets.Concepts like decentralised finance(DeFi)and Web 3.0 are now part of the industry vernacular.These developments have in turn generated significant investor interest in digital assets.Apart from institutional investors participating in multiple funding rounds for fintech ventures spear

233、heading digital asset experiments,many others(including retail investors)have bought into cryptocurrencies(crypto)like Bitcoin and Ether as a proxy for gaining exposure to the potential that digital assets present.As a result,the market capitalisation of cryptocurrencies has ballooned from less than

234、 US$2 billion in 2013 to more than US$800 billion in the last decade.53 The AP region has been at the centre of this fervor for cryptocurrencies.The World Economic Forum reported that Vietnam,Philippines,China and Japan were amongst the top ten countries in the world in terms of cryptocurrency adopt

235、ion.54 In 2021,SG$1.5 billion of funding in Singapore was invested in crypto and blockchain ventures,which is almost half of the funds raised by fintechs that year.55 However,recent events have rocked the crypto world.The 2022 Crypto Winter has wiped out more than 70%of the market capitalisation of

236、crypto assets from its peak.56 More importantly,it exposed the vulnerabilities of business models that relied on leverage and ever rising valuations of crypto assets,leading to a number of high-profile collapses.57 The expanding reach of the market for digital assets and the recent spate of failures

237、 have triggered increased regulatory scrutiny.Global standard setters such as the FSB,BCBS,the Committee for Payments and Market Infrastructures(CPMI)and the Financial Action Task Force(FATF)have either introduced,or proposed guidance to address the risks that digital assets could pose to the financ

238、ial system.58 Regulatory approaches in Australia,Hong Kong SAR,Japan and SingaporeAP regulators are also reviewing their regulatory approaches in light of these developments.The regulatory stance on digital assets adopted in Australia,Hong Kong SAR,Japan and Singapore can be characterised as one of

239、balancing the potential benefits of the technologies underpinning digital assets against possible financial stability risks that these products can pose.All four jurisdictions have acknowledged that digital assets have the potential to transform financial services,but are also taking steps to addres

240、s the associated risks.2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets25Examples of the regulatory approach to digital assetsAustraliaThe Australian Senate Select Committee on Australia as a Technology and Financial Centre noted“the tremendous potential of blockchain technolog

241、y and decentralised finance is becoming recognised by mainstream institutions and investors.”59 The Committee has made recommendations to promote innovation and attract investment while providing appropriate safeguards for investors and consumers in the digital asset ecosystem.Hong Kong SARHong Kong

242、 SAR is also supportive of developing a robust digital asset ecosystem.60 The HKMA Fintech 2025 Strategy includes nurturing the digital assets ecosystem with funding and supportive policies.61 HKMA advocates an agile,risk based and proportionate approach that tackles key risks,while allowing room fo

243、r financial innovation.62 This includes enhanced disclosure and liquidity management by stablecoin issuers.63 JapanIn Japan,the government has established a Web 3.0 Policy Office to promote the business environment for Web 3.0 firms,including the digital asset industry.64 The jurisdiction already ho

244、sts a number of crypto exchanges.In the face of these developments,the JFSA has been at the forefront of pioneering regulatory requirements for sustained development of the digital asset ecosystem.65 SingaporeSingapore likewise aspires to create a Smart Financial Centre.Its regulatory stance can be

245、summarised as“Yes to Digital Asset Innovation,No to Cryptocurrency Speculation”,the title of a recent speech by MAS Managing Director,Ravi Menon.66 Even as the central bank collaborates with industry and other authorities on sandbox experiments to test various use cases for digital assets,it has pro

246、posed new safeguards for digital payment token services and stablecoins.67 The four jurisdictions have generally adopted a risk-based supervisory approach guided by the principle of same activity,same risk,same regulatory outcome.The objective is to apply regulatory measures that are proportionate t

247、o the activities being undertaken and the risks that they pose.This in turn needs to take into account the type of digital assets under consideration.Regulators in Australia,Hong Kong SAR,Japan and Singapore use broadly similar schemes to classify digital assets distinguishing between security token

248、s and payment tokens.In general,digital assets that meet the definition of an investment product(i.e.security tokens)are regulated as such under existing securities laws.In contrast,the regulatory treatment for other types of digital assets,including those that may be used for payments(i.e.payment t

249、okens)varies considerably.Some of these jurisdictions apply specific requirements for payment tokens,while others do not.Some of these regulators are also considering whether to apply differentiated requirements to a subset of payment tokens that are pegged to fiat currencies or pools of assets(i.e.

250、stablecoins).Regardless of whether they deal with security or payment tokens,digital asset service providers across all four markets are subject to anti-money laundering and counter-terrorist financing(AML/CFT)obligations.Apart from privately issued digital assets,all four jurisdictions are studying

251、 whether and how to issue central bank digital currencies(CBDC)(i.e.publicly-issued digital assets),that are legal tender.In Australia,digital assets that meet the definition of a financial product or derivative under the Corporations Act 2001(Cth)are subject to regulatory oversight by ASIC.A financ

252、ial product is defined by ASIC as including a managed investment scheme,security,derivative or non-cash payment facility.A derivative refers to a product that derives its value from an underlying instrument,such as a share,a share price index,a pair of currencies,a commodity or a crypto asset.68 How

253、ever,2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets26contracts for the sale or purchase of cryptocurrencies and stablecoins that are settled immediately are not classified as financial products or derivatives,and as such,not currently regulated by ASIC.69 Further,the Australi

254、an Treasury is currently undertaking a token mapping exercise to review the classification of different types of digital assets and how they should be regulated.70 It has proposed that all crypto asset secondary service providers serving retail consumers be licensed by ASIC.The proposed licensing sc

255、ope will apply to brokers,dealers and market operators for digital assets other than financial products,since those dealing with financial products are already subject to regulation.71 The Hong Kong Securities and Futures Commission(HK SFC)regulates digital assets that have the characteristics of a

256、security or futures contract,as defined under the Securities and Futures Ordinance(SFO).In addition,distributors of funds that invest in digital assets,irrespective of whether these assets constitute securities or futures contracts,must be licensed or registered with the HK SFC.Stablecoin arrangemen

257、ts that fulfil the meaning of a stored-value facility are regulated by the HKMA in accordance with the Payment Systems and Stored Value Facilities Ordinance.In addition,the Anti-Money Laundering and Counter-Terrorist Financing Ordinance was recently amended to require all digital asset service provi

258、ders to be licensed and subject to AML/CFT obligations.72 Japan regulates digital assets that grant investors the right to receive profit-sharing(i.e.security tokens)as electronically recorded transferable rights under the Financial Instruments and Exchange Act(FIEA).Digital asset derivatives are al

259、so regulated under the FIEA.On the other hand,payment tokens are regulated as crypto assets under the Payment Services Act,with specific requirements for stablecoins that are pegged to the value of fiat currency.For example,only licensed banks,fund transfer service providers and trust companies can

260、issue stablecoins.Under the Payment Services Act,crypto asset exchange service providers are required to register with JFSA and manage their own assets separately from clients assets.All digital asset service providers are required to implement appropriate AML/CFT measures.The MAS distinguishes betw

261、een security tokens and payment tokens in its regulatory approach.Security tokens that replicate the economic substance of capital market products(including derivatives)are regulated under the Securities and Futures Act,73 while payment tokens are subject to the Payment Services Act.74 MAS is consul

262、ting on a differentiated regulatory framework for stablecoins,taking into account consumer protection and financial stability considerations.In addition,all digital asset service providers must be licensed and subject to AML/CFT obligations.The common risk considerations among the regulators in the

263、four jurisdictions include:Financial crime Technology and cyber risk Marketing and customer disclosures Safeguarding of assets Market integrityFinancial crime:money laundering and terrorist financingFrom its infancy,there were concerns that cryptocurrencies could be exploited to bypass the regulated

264、 financial sector by parties engaging in illicit activities.These fears were realised in 2013,when the US Federal Bureau of Investigation seized Silk Road,an online black market that allowed users to buy guns and drugs using Bitcoin,and arrested its founder.The FATF responded by reviewing the AML/CF

265、T risks posed by cryptocurrencies and providing guidance on how to address them.75 The FATF guidance was subsequently extended to cover other types of digital assets beyond cryptocurrencies.76 As noted above,the regulators in Australia,Hong Kong SAR,Japan and Singapore have aligned with these intern

266、ational standards by requiring digital asset service providers to institute AML/CFT controls.2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets27Examples of financial crime regulation for digital assetsAustraliaIn Australia,all digital currency exchange providers must registerwit

267、h the Australian Transaction Reports and Analysis Centre(AUSTRAC)and manage their AML/CFT risks.77 AUSTRAC has issued a guide to digital asset exchange businesses on how to implement an AML/CFT programme,including a template of possible risks and potential treatments and actions.78 Depending on the

268、outcome of the Australian Treasurys token-mapping exercise,AUSTRACs risk-based approach may be further refined.Hong Kong SARIn Hong Kong SAR,AML/CFT regulation is centrally coordinated by the Financial Services and the Treasury Bureau,with the support of law enforcement agencies like the HK SFC and

269、HKMA.The recent amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance(AMLO)will require all digital asset service providers to be licensed by the HK SFC and implement AML/CFT controls.Prior to this legislative change,only security tokens regulated under the SFO and stablec

270、oin arrangements that qualify as stored value facilities were subject to AML/CFT measures.Pending the commencement of the AMLO amendments,79 digital asset service providers can opt in to regulation by the HK SFC by including at least one security token in their product mix.JapanIn Japan,the JFSA wor

271、ks closely with two self-regulatory organisations the Japan Security Token Offering Association and the Japan Virtual Currency Exchange Association(JVCEA)to regulate the markets for security tokens and other crypto assets respectively.This extends to AML/CFT regulation,where,on JFSAs request,JVCEA i

272、ssued self-regulatory rules in April 2022 to implement the FATF travel rule.80 The Japanese Cabinet recently approved amendments to the Foreign Exchange Act and the Act on Prevention of Transfer of Criminal Proceeds to enshrine the FATF travel rule in law.81 All digital asset service providers are r

273、equired to implement appropriate AML/CFT measures.SingaporeSingapore likewise acknowledges that digital assets can pose high AML/CFT risks and so mandates that all market participants to be licensed and subject to AML/CFT controls,including the FATF Travel Rule.82 In particular,to address the risk o

274、f regulatory arbitrage,a new Financial Services and Markets Act was passed to require all digital asset service providers established in Singapore to be regulated even if they provide services purely outside of Singapore.83 Technology and cyber risks The digital asset industry has seen its share of

275、cyber attacks.A reported US$60 billion worth of digital assets have been stolen from crypto exchanges and personal wallets since 2012,with US$44 billion of that loss occurring between June 2021 and June 2022.84 Hackers have succeeded by exploiting unpatched vulnerabilities or flaws in smart contract

276、s,as well as by stealing passwords with malware or phishing scams.Regulators are therefore paying close attention to how the digital asset ecosystem addresses technology and cyber risks.Apart from safeguards against cyber attacks,regulators are also concerned about system outages that can disrupt cu

277、stomer access to services.Regulators in Australia,Hong Kong SAR,Japan and Singapore have all introduced technology and cyber controls for the industry,covering diverse topics such as risk governance,system and software design,security controls,vulnerability assessments and penetration testing,incide

278、nt management,and disaster recovery.Of particular note,are the following:2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets28 Singapore has proposed to empower MAS to regulate stablecoin arrangements as payment systems.Under the proposal,a systemic stablecoin scheme can be classi

279、fied as a designated payment system and be subject to more stringent requirements on operational resilience and cybersecurity that are aligned with the Principles for Financial Market Infrastructures published by CPMI.85 In addition,MAS has sought feedback on requiring all digital payment token serv

280、ice providers to implement the following controls in Q4 2022:86 Identify their critical systems;Ensure the maximum unscheduled downtime for each critical system does not exceed 4 hours within any 12-month period;Establish a recovery time objective of not more than 4 hours for each critical system;No

281、tify MAS within 1 hour upon the discovery of a system malfunction or IT security incident that has a severe and widespread impact on the service providers operations or materially impacts services to its customers,and submit a root cause and impact analysis report to MAS within 14 days;Implement IT

282、controls to protect customer information from unauthorised access or disclosure;Ensure proper management of private keys that control the movement of customers assets,including segregation of duties,access controls and implementation of the four-eye principle for sensitive tasks;Control the transfer

283、 of digital assets between hot,warm and cold wallets;and Store a suitably high proportion of customers digital assets in cold wallets.To protect customers against cyber attacks,JFSA requires crypto asset exchanges to maintain at least 95%of their customers crypto assets in wallets that are not conne

284、cted to the Internet(so-called cold wallets).87 Any customer crypto assets that are maintained in a wallet other than a cold wallet(so-called hot wallets)must be matched by the crypto asset exchange maintaining the same type and amount of crypto assets in the exchanges own cold wallet(called Redempt

285、ion Guarantee Crypto Assets).Customers that suffer any loss from leakage of crypto assets from their hot wallets can seek recovery from the Redemption Guarantee Crypto Assets maintained by the exchange.The Australian Treasury has recommended that the custodians of private keys used to access custome

286、rs crypto assets must have requisite expertise and infrastructure,and that the private keys should be generated and stored in a way that mitigates the risk of loss and unauthorised access.Service providers should also use signing approaches that minimises the risk of a single point of failure.88 Mar

287、keting and customer disclosures Fair and accurate disclosures are required for investors to understand the digital assets they are investing in and the associated risks.Digital asset issuers typically market their offering by publishing a white paper online setting out the terms of the digital asset

288、 being offered.Pricing information is published by the exchanges on which the digital asset is transacted.There are,however,no standardised formats for such disclosures.Regulatory bodies therefore have a key role to play to ensure that adequate,consistent,reliable and timely information is provided

289、to the investing public.In this regard,it is useful to return to the distinction drawn by regulators between security tokens and other types of digital assets,including payment tokens.Across Australia,Hong Kong SAR,Japan and Singapore,security tokens are subject to securities laws,which prescribe ce

290、rtain disclosure and marketing requirements.These include issuing a prospectus that contains information on the issuer and its business(or a product disclosure statement for a structured product or derivative)when marketing a product,unless the issuer qualifies for an exemption from such disclosures

291、.Securities laws would also generally prohibit the making of false or misleading statements and hawking(i.e.making unsolicited approaches)to investors.Under securities laws,market operators are expected to operate fair and efficient markets by facilitating timely disclosures as well as fair and tran

292、sparent price discovery.2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets29Regulatory practices are more diverse for other types of digital assets.In Australia,digital assets that do not meet the definition of financial product under the Corporations Act are protected under the

293、Australian Consumer Law.The law prohibits the use of misleading and deceptive conduct to market the product.89 The Australian government has sought public feedback on a proposal to disallow hawking or pressure selling of digital assets in Q3 2022.90 This means that crypto asset secondary service pro

294、viders cannot make unsolicited contact with retail consumers to offer crypto assets for sale.In addition,crypto asset secondary service providers will need to have adequate dispute resolution arrangements in place to address consumer complaints and disputes.They will also be expected to ensure that

295、products are not falsely described or misrepresented and that scams are not sold through their platforms.Market operators need to ensure that their markets are fair,transparent and orderly.Since 2017,MAS has been warning consumers on the risk of speculating in cryptocurrencies,as their prices are su

296、bject to sharp swings.In early 2022,MAS issued a set of guidelines to discourage licensed financial institutions from promoting digital payment token services to the general public,91 including:Advertisements on public transport;Public websites;Social media platforms;Broadcast and print media;Provis

297、ion of physical auto-teller machines;and Engaging third party websites or social media influencers.The guidelines also warn that service providers should not promote payment token derivatives contracts as an unregulated substitute for digital payment tokens nor downplay their risks.In addition,servi

298、ce providers must provide customers and potential customers with risk warning statements highlighting the risks associated with trading in digital payment tokens.92 In an October 2022 consultation paper,MAS proposed mandating digital payment token service providers to assess if their retail customer

299、s in Singapore have sufficient knowledge of the risks of digital payment token services before providing any digital payment token services to them.93 MAS also proposed to prohibit digital payment token service providers from offering incentives or credit facilities(including leveraged transactions)

300、to retail investors to participate in digital payment token services or accepting payments for digital payment token services from retail customers using credit or charge cards.Digital asset trading platforms will also be expected to disclose their governance and listing policies,including:Criteria

301、for listing a digital asset;Conditions and processes for suspending or removing a digital asset from trading;Settlement procedures;Measures to address unfair or disorderly trading;and Rights of customers.In Hong Kong SAR,digital asset service providers authorised by the HK SFC are permitted to provi

302、de digital asset dealing services and distribute digital asset derivatives and funds only to professional investors.An exception is made for a limited suite of digital asset derivatives that are traded on regulated exchanges and authorised for offer to retail investors.94 All individual investors(in

303、cluding individuals who are professional investors)must undergo a virtual asset knowledge test before transacting in digital asset derivatives or funds.If the customer does not possess the necessary knowledge,the service provider can proceed only if it has provided training to the customer on the na

304、ture and risks of the digital asset,ascertained that the customer has sufficient net worth to assume the risks involved and assessed that it would be in 2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets30the best interests of the customer.Digital assets that are not authorised f

305、or retail participation will be treated as complex products for which product suitability assessments,additional disclosures and warning statements will be required.Digital asset dealing services can be offered only in partnership with HK SFC licensed digital asset platforms,i.e.service providers ca

306、nnot execute customer trades on non-HK SFC licensed trading platforms.95 In Japan,crypto asset exchange service providers must provide information on contract details and fees and explain the nature and risks of crypto assets to customers.They are also subject to advertising and solicitation regulat

307、ions,including prohibition on making false or misleading statements.96 Safeguarding of assets A robust digital asset ecosystem must be built on the bedrock of safe custody of customer monies and assets.Trust in such safeguarding arrangements is necessary for customers to transact with confidence.In

308、the case of security tokens,the securities laws in most jurisdictions would generally require segregation of customer assets from the licensed entitys own assets.This often takes the form of establishing trust accounts for customer assets.Licensed entities will be subject to regular independent audi

309、ts and be expected to provide periodic account statements and contract notes of transactions so that customers can keep track of their account portfolios.The treatment of other forms of digital assets is less uniform.In Japan,the Payment Services Act requires crypto asset exchange service providers

310、to maintain segregated accounts for their customers assets and be audited.The JFSA is the only financial regulator in the world with this regulation on crypto asset exchange service providers.In addition,crypto asset exchange service providers must manage the bulk(at least 95%)of their clients asset

311、s in offline cold wallets as mentioned earlier.97 Stablecoin issuers are required to ensure redemption at par.To achieve that,only banks,fund transfer service providers and trust companies may issue stablecoins.Trust companies that wish to issue stablecoins against trust beneficiary rights must hold

312、 all the trust assets in the form of bank deposits.Fund transfer service providers must secure their stablecoin liabilities with bank guarantees and/or by holding safe assets such as government bonds and deposits with banks and official depositories.Banks may issue stablecoins as tokenised deposits

313、without holding reserve assets as they are already subject to stringent prudential requirements under the banking law.In Singapore,e-money issuers,merchant acquirers and money transfer agents licensed under the Payment Services Act are expected to safeguard client assets by obtaining an undertaking

314、or guarantee from a safeguarding institution or depositing the assets in a trust account maintained with a safeguarding institution.However,this requirement does not extend to digital payment token operators in respect of payment tokens.MAS has sought public feedback on a proposal to require segrega

315、tion of assets by digital payment token service providers in Q4 2022,98 including whether to mandate the appointment of independent custodians.In addition,they will be expected to disclose whether a consumers assets are co-mingled with those of other consumers and the risks of such co-mingling.They

316、must also perform daily reconciliation of all consumer assets and provide consumers with statements of account on a monthly basis.Further,MAS has proposed that service providers should not mortgage,charge,pledge or hypothecate retail consumers digital assets.For non-retail consumers,service provider

317、s should provide clear risk disclosures and obtain the consumers consent before doing so.For stablecoins,MAS has proposed that issuers must hold reserve assets in cash,cash equivalents or short-dated sovereign debt securities that are at least equivalent to 100%of the par value of the outstanding st

318、ablecoins in circulation.99 Reserve assets would need to be denominated in the same currency as the peg currency for the stablecoin.Requirements on segregation of reserves,timely redemption at par value,and regular independent audits of reserves will also apply.MAS has proposed that a common label b

319、e applied to stablecoins that meet these requirements so as to provide clarity on their regulatory status vis-vis other products.2023 Asia Pacific Financial Services Regulatory Outlook|Digital Assets31 Australia currently does not have safeguarding requirements for digital assets other than those de

320、emed as financial products.The Australian Treasury has proposed that crypto asset secondary service providers be required to hold digital assets on trust for customers in segregated accounts.Where the service provider uses a third party custodian,it should have the appropriate competencies to assess

321、 the custodians compliance with the necessary requirements.100 Hong Kong SAR similarly does not apply safeguarding measures on digital assets other than those regulated as securities or futures contracts by the HK SFC or as stored-value facilities by the HKMA.However,a new licensing regime for virtu

322、al asset service providers will empower SFC to impose requirements on segregation and management of client assets.101 The HKMA has also proposed that stablecoin issuers should be required to maintain reserve assets of appropriate amount and quality to support and stabilise the value of the stablecoi

323、ns.In addition,the legal rights of the holders of the stablecoins vis-vis the issuer and the reserve assets should be clear and enforceable.The process for redemption should similarly be clear,robust and timely.102 Market integrity The rapid growth of the digital asset ecosystem,and the often frenet

324、ic pace of transactions can expose the market to the risk of market manipulation.Both regulators and the industry have a common interest in ensuring market integrity so that investors can trade with confidence and contribute to the ecosystems growth.In September 2022,the US SEC initiated enforcement

325、 action against several parties for scheming to manipulate the trading volume and price of a crypto asset security called Hydro.103 The US SEC has also cited the potential for market manipulation as a key reason for refusing to register several crypto exchange-traded funds.104 Earlier in the year,a

326、group of industry players agreed to collaborate to crack down on market manipulation.Market abuse regimes are well-established in securities laws in Australia,Japan,Hong Kong SAR and Singapore.There are requirements for adequate,accurate and timely disclosures of material information.There are also

327、strict prohibitions against insider trading and manipulative practices,covering the gamut from cornering,wash trades,order spoofing,market rigging,churning to front running.Both regulators and regulated exchanges conduct ongoing surveillance of the markets to detect and investigate suspected cases o

328、f market abuse.While the existing safeguards bode well for the security token market,it is imperative to acquaint market participants with the requirements as many of the new market entrants may not be familiar with financial regulation and how it operates.Regulators will also need to develop a deep

329、 understanding of the digital asset market and the potential threats to market integrity.Turning to digital assets other than security tokens,the prognosis is less sanguine.Among the four jurisdictions in focus,Japan is the only one that has a prohibition against unfair acts in its Payment Services

330、Act that is intended to deter market abuse.Australia,Hong Kong SAR and Singapore do not currently have similar provisions,although both Hong Kong SAR and Singapore have considered introducing regulations to require digital asset service providers to implement policies and controls to prevent,detect

331、and report any market manipulative or abusive trading activities.105 It is,however,unclear if prohibitions against market abuse will be extended to all persons who trade digital assets(including non-licensed persons)as is the case currently for securities trading.2023 Asia Pacific Financial Services

332、 Regulatory Outlook|Digital AssetsKey takeaways for FS firms:Our review of the regulatory developments in Australia,Hong Kong SAR,Japan and Singapore highlight the key risk areas that these regulators are focusing on as they step up regulatory scrutiny of the digital asset ecosystem.FS firms that op

333、erate in the digital asset market,or are planning to do so,should consider the following steps to grow a sustainable business:Develop a clear understanding of the nature of the digital assets that they are dealing with and the associated risks,so as to align with the risk-based regulatory approach that authorities are adopting.Continue to grow digital asset expertise by investing in in-house capab