REGULATORY DEVELOPMENTS IN ASIA PACIFIC - Volume 1, 2022
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REGULATORY DEVELOPMENTS IN ASIA PACIFIC Volume 1, 2022
CONTENTS
REGULATORY OUTLOOK ................................................................................................................................................................................. 3
UPDATE ON THE REGULATORY LANDSCAPE
WATCHING BRIEF .................................................................................................................................................................................................... 4
UPCOMING REGULATORY CHANGES
APRA SUPERANNUATION DATA TRANSFORMATION ............................................................................................................... 11
REGULATORY OVERVIEW AND UPDATE
ASIC PORTFOLIO HOLDINGS DISCLOSURE .................................................................................................................................... 12
REGULATORY UPDATE
CORPORATE COLLECTIVE INVESTMENT VEHICLE - REGULATIONS ............................................................................. 13
REGULATORY OVERVIEW AND UPDATE
SFC ISSUES CONSULTATION CONCLUSIONS ON THE MANAGEMENT AND DISCLOSURE OF
CLIMATE-RELATED RISKS BY FUND MANAGERS .......................................................................................................................... 14
REGULATORY UPDATE
TRANSITION AWAY FROM LONDON INTERBANK OFFERED RATE.................................................................................. 15
RECENT DEVELOPMENTS
CENTRAL SECURITIES DEPOSITORIES REGULATION ............................................................................................................... 17
RECENT DEVELOPMENTS
DIGITAL ASSETS REGULATIONS ............................................................................................................................................................... 19
REGULATORY OVERVIEW
This newsletter outlines Northern Trust’s thoughts about recent regulatory changes, and how they might affect your
programmes. It summarises recent developments impacting the financial industry and how Northern Trust will support
clients through this period. For more information, contact your Northern Trust representative or visit www.northerntrust.com.
2REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
REGULATORY OUTLOOK
The regulatory outlook in the Asia-Pacific region continues to
evolve. Last year we have seen political posturing that has Northern Trust is committed to
looking at potential solutions
resulted in the delisting of several Chinese securities from the
in this field and advocating for
U.S. exchanges, and we have seen increased developments for alignment between regulators
digitalisation, sustainability goals and disclosures, risk globally and locally. As a part
frameworks, and an increase in transparency. of this commitment, we are
active in a number of industry
In September 2021, the Securities Exchange Board of India proposed a new groups to contribute
regulation for T+1 settlement in the Indian Equity Markets which went live on 25 responses to consultation
February 2022. In a phased implementation approach, all stocks listed across the papers. Should you wish to
Indian exchanges will be moved to the T+1 settlement cycle. The U.S. is following discuss this topic in further
suit and an industry working group has produced a roadmap to help facilitate a detail, please contact your
smooth transition. The Securities Exchange Commission ratifies the working group’s Northern Trust representative.
effort by introduced Shortening the Securities Transaction Settlement Cycle
legislation that would mandate the T+1 settlement cycle and would go into effect in
March of 2024.
On 17 February 2002, the Australian Prudential Regulatory Authority (APRA) issued a
publication on how to manage compliance risk and how to stay out of the headlines.
Prudential standard CPS 220 on risk management sets out APRA’s requirements in
relation to the risk management framework of an APRA-regulated institution.
• APRA's recent supervision has examined larger and more complex entities and
their attention to, and progress on, addressing issues in managing non-
financial risk including their compliance management strategy,
implementation of frameworks and systems, and accountability and oversight
mechanisms to support their strategy.
• Key observations have highlighted that entities should have a clearly defined
approach to managing compliance risk, established processes to support
compliance risk management practices, and specify clear accountability for
managing compliance risk.
• Regulated entities should give the same attention and prioritisation to
compliance risk management that they give to cyber risk, operational risk
management and others.
3REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
Anti-Money Laundering (AML) continues to be on the regulators’ minds and on the
18 February 2022, the Australian Transaction Reports and Analysis Centre AUSTRAC Consultation
(AUSTRAC) issued a consultation on proposed guidance on source of funds and
source of wealth. The guidance is open for public comment until the 1 April 2022. “Your anti-money laundering
The main tenets of the guidance is to ensure financial firms take a risk based and counter-terrorism
approach at understanding where the money comes from, including the end financing (AML/CTF) program
beneficial owner. Some of the main categories they discuss include: must include risk-based
procedures that document
• When to collect and verify the source of funds and wealth when and how you will
• Key considerations when establishing source of funds and wealth establish your customers’
• How to verify the source of funds and wealth source of funds and source of
• Documents and data to support verification wealth, including the source of
In other news, regulators for Australia and Singapore are reviewing the data they funds and source of wealth of
receive for derivative instruments to align the requirements with other jurisdictions your customers’ beneficial
and the Committee on Payment and Market Infrastructures and the International owners.”
Organization of Securities Commissions definitions. Their intent is to issue a rewrite
Consultation can be found
of the data requirements to include such data elements as Unique Product
here.
Identifiers, Unique Transaction Identifiers, and Legal Entity Identifiers to better
identify cross jurisdictional risk. The rewrites are expected to be implemented
starting in 2022 through 2024. The Monetary Authority of Singapore (MAS)
published their proposed amendments to align with CPMI-IOSCO and published an
updated FAQ in January 2022. In December 2021, Hong Kong Monetary Authority
(HKMA) issued a consultation on new calculation period adding eight new
calculation periods to the clearing rules.
The above outlook are just a few regulatory themes that have continued to evolve
over recent years. We can expect regulators to continue to expand their scope and
provide guidance, which is intended to protect the investors and the industry.
WATCHING BRIEF
AUSTRALIA
Digital Assets in Australia – Stablecoins and Viability of Central Bank Digital
Currencies (CBDC)
Treasury and the Reserve Bank of Australia (RBA) are leading a review into the
viability of a Central Bank Digital Currency (CBDC) in the retail market and the merits
of a wholesale CBDC that could be used by financial institutions.
Although it appears CBDCs and stablecoins may play a prominent role in the future
state of payments, no major economies or global reserve banks have made a
definitive decision to issue a CBDC.
4REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
The RBA does recognise the global innovation taking place in the payments space
and the benefits arising from creating an interoperable general purpose CBDC that
can be utilised by different entities and transferred amongst digital wallets.
‘Supporting the evolution of payments’ is one of the six strategic focus areas in the
RBA’s strategic plan, and undertaking research on CBDC is an element of this. The
RBA, along with 28 other organisations under the Digital Finance Cooperative
Research Centre are currently exploring CBDC experiments and downstream
opportunities that would arise from the digitisation of assets. Another initiative being
run concurrently is Project Dunbar, which aims to develop a prototype that would
allow financial institutions in different jurisdictions to transact with each other in
CBDCs without the need for intermediaries. The central banks of Malaysia, Singapore
and South Africa are part of this initiative.
The RBA has made public remarks that it recognises the possibility of stablecoins
playing a larger role within the payments network, as they have the potential to scale
rapidly amongst the retail market. As such, the RBA along with AUSTRAC and the
Association of Corporate Counsel Australia have launched a working group to
research a suitable regulatory framework for crypto assets, stablecoins held within
digital wallets and relevant consumer protections.
Introduction of Retirement Income Covenant bill
The Retirement Income Covenant bill will require superannuation trustees to put a
retirement income strategy in place and outline the plan for assisting members in
their retirement. The strategy must consider how the trustee will guide and support
its members to balance three objectives; maximising income in retirement,
managing various risks and having some flexible access to savings. Should the bill
be passed, the covenant will take effect from 1 July 2022.
APRA Choice Heatmap Expansion
APRA indicated it will expand the coverage of the choice heatmap in the coming
years to coincide with the expansion of the superannuation data collections. 2021
was the first year a heatmap was made public on choice products. There are
currently over 9,000 distinct choice options and the first iteration of the choice
heatmap has focused on multi-sector investment options as they cover a
considerable cross-section of assets and member accounts. APRA’s initial analysis
suggests the choice sector contains elements of significant underperformance
relative to the benchmarks.
APRA Prudential Standard CPS 511 Remuneration
APRA released the final version of the prudential practice guide on remuneration on
18 October 2021. Guidance and examples of better practices has now been
provided for APRA regulated entities to comply with meeting the remuneration
requirements under CPS 511. The prudential standard will be implemented under a
phased approach from 1 January 2023. The main changes relate to the
remuneration arrangements of third-party service providers, risk and conduct
adjustments.
5REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
APRA CPG Climate Change Financial Risks
APRA released the final practice guide on 26 November 2021, with minor changes to
the draft guide that was provided earlier in 2021. CPG 229 imposes no new
regulatory requirements but provides guidance to APRA regulated institutions on
managing climate change related risk within their existing governance frameworks.
Australian Securities and Investments Commission (ASIC) response to
International Sustainability Standards Board
On 3 November 2021, at the 26th UN Climate Change Conference of the Parties, the
International Financial Reporting Standards Foundation Trustees announced the
establishment of the International Sustainability Standards Board to develop a
global baseline for client and sustainability disclosure standards. ASIC have
welcomed the establishment and are supportive of its objectives in setting new
global sustainability standards to provide investors with consistent information.
APRA SPS 530 Investment Governance in Superannuation (consultation)
APRA released its consultation for revisions to the Prudential Standard SPS 530
Investment Governance on 29 September 2021. The consultation has been flagged
by APRA as a priority and will be open until February 2022. Draft amendments
include several enhancements to valuation practices, stress testing and liquidity
management practices. APRA also conducted a thematic review of unlisted asset
valuation practices as part of reviewing investment governance requirement and will
release the findings at a future date.
APRA proposes major increase in superannuation data transparency (consultation)
On 18 February 2022, APRA opened a consultation focused on a major increase in
the breadth and granularity of all of the superannuation data it publishes, to improve
transparency, as part of transformation. The consultation follows on from the
finalisation of Phase 1 of APRA’s Superannuation Data Transformation which
addressed urgent gaps in the data reported by trustees. Having determined 10 new
reporting standards under Phase 1 in September 2021, APRA has issued a
discussion paper outlining proposals to publish the enhanced data. It is proposing
to define most data collected as non-confidential, allowing it to be published - the
first time all data on products and investment options will be published. In addition
to expanding existing data, APRA flagged plans to introduce two types of datasets
for users to access statistics in an easily accessible format for reporting. These are
key metrics datasets which mirror the statistics in the publications without
formatting; and granular datasets for sophisticated users to access more detailed
data. Following an eight-week consultation, APRA intends to issue final rules around
data confidentiality in Jun. 2022, with first publication under the standards soon after.
Submission on these proposals are due by 15 April 2022.
Financial Accountability Regime
The Financial Accountability Regime (FAR) was introduced into the House of
Representatives on 28 October 2021. If legislated, FAR will replace and expand upon
the Banking Executive Accountability Regime. FAR will aim to impose increased
individual and entity level accountability across the financial services sector.
6REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
HONG KONG
Hong Kong Stock Exchange (HKEX) Finalises Framework for Special Purpose
Acquisition Companies Listings in Hong Kong
On 17 December 2021, HKEX announced new rules to create a listing regime for
Special Purpose Acquisition Companies (SPACs) that takes effect on 1 January 2022.
This follows the publications of new rules on SPACs listings in other jurisdictions,
including Singapore and the UK.
Hong Kong SPAC Initial Public Offerings (IPO’s) will be open only to professional
investors and, before completion of a De-SPAC transaction, only professional
investors may trade the SPAC’s securities. This is a significant restriction as compared
to other jurisdictions such as the US and Singapore where all investors (including
retail investors) can participate in SPAC IPOs and trade SPAC securities.
Multiple Central Bank Digital Currency Bridge (mBridge) Project
On 28 September 2021, together with the Hong Kong Centre of the Bank for
International Settlements Innovation Hub, the Bank of Thailand, the Digital Currency
Institute of the People’s Bank of China (PBC), the Central Bank of the United Arab
Emirates and the Hong Kong Monetary Authority published a report, titled
“Inthanon-LionRock to mBridge: Building a multi Central Bank Digital Currency
(mCBDC) platform for international payments”, to deliver the interim findings of the
Multiple Central Bank Digital Currency Bridge (mBridge) project.
Building on the experience learnt from Project Inthanon-LionRock, the mBridge
project will further explore the capabilities of distributed ledger technology (DLT),
through developing a proof-of-concept prototype, to facilitate real-time cross-
border foreign exchange payment-versus-payment transactions in a multi-
jurisdictional context and on a 24/7 basis. The mBridge project will also explore
business use cases in a cross-border context using both domestic and foreign
currencies.
HKEX Reaches Agreement with Mainland Partners on Adding Exchange-traded
Funds (ETFs) to Stock Connect
On 24 December 2021, the HKEX, Shanghai Stock Exchange (SSE), Shenzhen Stock
Exchange (SZSE) and China Securities Depository and Clearing Corporation (CSDC)
reached an agreement on the Stock Connect inclusion arrangements for eligible
ETFs.
As a key enhancement of Stock Connect, the inclusion of ETFs will provide investors
with more options by broadening the existing product ecosystem, and support the
continued development of both markets.
Next, HKEX, SSE, SZSE and CSDC will work closely on the details of inclusion,
including business and technical preparations, such as amendments to relevant
rules. It is estimated that the preparation work will take approximately six months to
complete.
7REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
CHINA
The Launch of Beijing Stock Exchange
On 15 November 2021, the stocks of 81 small and medium-sized enterprises (SMEs)
began trading on the newly launched Beijing Stock Exchange. The new exchange is
acting as a third stock exchange in mainland China, in addition to the Shenzhen and
Shanghai stock exchanges. However, it will play a different role from the existing
exchanges and is expected to better serve the development of innovation-oriented
SMEs.
The China Securities Regulatory Commission has published a series of regulatory
documents that govern transactions, investment compliance management, stock
listings, revisions, issuances for unspecified qualified investors and company
restructuring processes, and exchange member management. Companies issuing
prospectuses for IPOs will be required to submit higher quality information
disclosures. Stock prices will not be permitted to rise or fall more than 30 percent
within a single trading day.
On 12 November 2021, the exchange issued rules (available in Chinese only) on
access by qualified foreign institutional investors (QFII) and renminbi-qualified
foreign institutional investors (RQFII).
The Launch of Wealth Management Connect Scheme
In September 2021, mainland Chinese and Hong Kong regulators announced the
rollout of The Cross-boundary Wealth Management Connect Scheme (Wealth
Management Connect) which will allow residents in the Guangdong-Hong Kong-
Macao Greater Bay Area (GBA) to purchase wealth management products offered
by Hong Kong-based providers. On 10 September 2021, the PBC released the
Implementation Rules (available in Chinese only) for the Cross-boundary Wealth
Management Connect Scheme in the Guangdong-Hong Kong-Macau Greater Bay
Area, marking the official kick-off of the Wealth Management Connect programme.
The Implementation Rules came into effect on 3 October 2021.
The Wealth Management Connect programme enables mainland residents of nine
Guangdong cities in the GBA to invest in investment products sold by banks in Hong
Kong and Macao, and vice versa. China set an initial quota of RMB 300 billion
(US$46.5 billion) for the Wealth Management Connect program with half going in
each direction. Each individual investor can only trade up to RMB 1 million
(US$155,000) on a net remittance basis.
8REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
China extended three-year tax exemption on bond interest for foreign investors
On 27 October 2021, the State Council meeting decided to extend the preferential
tax policy for overseas investors investing in the mainland bond market, as part of its
efforts to promote opening-up and attract foreign investment.
Overseas institutional investors now can invest in China's interbank bond market
through various channels, including QFII and RQFII, direct market entry and the
Bond Connect programme.
The exemption took effect on 7 November 2021 and will last until 31 December
2025.
SINGAPORE
Singapore Exchange introduces SPAC listing framework
On 2 September 2021, Singapore Exchange (SGX) announced new rules that enable
SPACs to list on its mainboard effective 3 September 2021. The new framework will
give companies an alternative capital fund raising route with greater certainty on
price and execution.
The regulatory framework is similar to that in the United States, including allowing
participation of retail investors, but with safeguards including a minimum
subscription level from sponsors. SGX is hoping that sponsors and investors will find
it an attractive SPAC market.
Monetary Authority of Singapore (MAS) and Industry to Pilot Digital Platforms for
Better Data to Support Green Finance
On 9 November 2021, MAS announced that it will partner with the industry to pilot
four digital platforms under Project Greenprint to address the financial sector’s
needs for good data on sustainability. Project Greenprint was launched in December
2020 to harness innovation and technology to promote a green finance ecosystem
through helping to mobilise capital, monitor sustainability commitments, and
measure impact.
MAS will work with the industry to pilot four common utility platforms, with the pilots
expected to be completed in the second half of 2022.
• Greenprint Common Disclosure Portal, developed in partnership with the
Singapore Exchange
• Greenprint Data Orchestrator, which will aggregate sustainability data
• Greenprint ESG Registry, in partnership with Hashstacs Pte Ltd
• Greenprint Marketplace, in partnership with API Exchange (APIX)
9REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
Singapore and China Expand Financial Cooperation by Linking ETF Markets
On 29 December 2021, the MAS announced new initiatives to expand and
strengthen financial cooperation between Singapore and China, particularly in
capital markets and green finance. These initiatives were discussed at the 17th Joint
Council for Bilateral Cooperation between Singapore and China. The new initiatives
include:
• ETF Connect – SGX and SSE have signed a Memorandum of Understanding to
establish an ETF Product Link to enable eligible fund managers to offer ETF
products to investors in each other’s markets.
• Bond platform linkage – SGX and China Foreign Exchange Trade System are
in discussions to establish connectivity between their bond trading platforms.
This will enable greater investor access to China’s bond market.
• Commodity derivatives collaboration – Asia Pacific Futures (APF) is the first
Singapore firm to become an Overseas Special Brokerage Participant of the
Shanghai International Energy Exchange. This will allow Singapore-based
investors to directly trade internationalised onshore commodity products
through APF, thereby facilitating international participation and price discovery
in China’s commodity derivatives markets.
• Green Finance – MAS and the PBC will explore deeper public-private sector
collaboration in green finance, particularly in key areas, such as taxonomies
and green fintech. Clearer definitions for classifying economic activities will
help catalyse greater financing flows to green and transition projects in Asia.
As at end November 2021, Singapore-listed ETFs crossed US$12 billion in assets,
surge by close to 50% in 2021. Currently, the SGX lists 35 ETFs, while the SZSE lists
212 ETFs.
10REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
APRA SUPERANNUATION
DATA TRANSFORMATION
In November 2019, the APRA announced its intention to commence a data transformation
project aimed at improving the breadth, depth and quality of the superannuation data
collection process.
The aim is to improve the comparability and consistency of reported data, with the
project split into three distinct phases.
• Phase 1 (Breadth) will address the most urgent gaps in APRA’s data collection,
particularly for choice products and investment options.
• Phase 2 (Depth) will increase the granularity of the entire collection, taking
advantage of APRA’s new Data Collection Solution and enhanced data analytic
capabilities.
• Phase 3 (Quality) will assess the quality and consistency of the additional data
reported during Phases 1 and 2, and review and address any implementation issues.
UPDATE
Following the first submissions required by the new data collection in September and
October 2021 (in relation to June and September reporting periods respectively), APRA has
continued with its’ consultative engagement process with industry participants through the
ongoing release of ‘Frequently Asked Questions’ and industry focus group collaboration,
with the aim of addressing issues faced during the initial lodgements.
The phased implementation of asset class characteristics required to support the ‘SRS
550.0 Asset Allocation’ form remains in place, with the next set of characteristics coming
into effect from the June 2022 reporting cycle. These include the categorisation of unlisted
equity, property and infrastructure assets, as well as additional granularity required to
support fixed income and cash assets. The final set of characteristics will come into effect
from June 2023, with data being prepared on a ‘best endeavours’ basis in the interim.
In addition, two new components of the standard will come into effect from June 2022,
which encompass the ‘SRF 550.1 Investments and Currency Exposure’, as well as ‘SRF 550.2
Derivatives and Counterparties’.
NORTHERN TRUST ACTIONS
Northern Trust is actively involved in discussions with Australian Custodial
Services Association (ACSA) in the attempt to ensure that changes to
reporting requirements are introduced in a measured fashion. Following
the delivery of reporting to support the first round of submissions, we will
continue to focus on ensuring the reporting suite evolves to meet the next
set of forms and requirements due from June 2022.
11REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
ASIC PORTFOLIO HOLDINGS
DISCLOSURE
The Portfolio Holdings Disclosure requirements will apply to most superannuation
trustees, who will need to provide information about fund holdings on the fund
website within 90 days of the reporting period.
ASIC had previously announced a deferral of the commencement date to 31
December 2021 to enable time for regulations to be finalised.
UPDATE
During November 2021, Treasury released the Corporations Amendments (Portfolio
Holdings Disclosure) Regulations 2021, which finalised the reporting requirements.
These regulations introduced some fairly significant changes from the exposure
draft released earlier which generated a significant amount of feedback from
industry participants. Predominantly these changes are in relation to the
aggregation of positions, the granularity of data required in relation to derivative
positions and the disclosure of unlisted assets.
The regulations require the disclosure of four tables of information in respect of the
holdings within each investment option:
• The first table contains a breakdown of assets, excluding derivatives,
categorised by asset class typically including market values and weightings.
Specific requirements apply based on asset types and whether the assets are
managed by an external party.
• The remaining three tables focus on the disclosure of derivatives by kind of
derivative instrument, asset class and currency. These tables greatly reduce the
level of detail previously included in the exposure draft which prompted
concerns around the relevance to members of this granularity of information.
One previous point of contention was in relation to proposals to individually disclose
market values of unlisted assets given concerns around confidentiality, as well as it
not being aligned to similar global obligations. This has been addressed by
removing the need to value the assets individually. Instead, limited information such
as a percentage ownership is required with a total asset value at a group level only
disclosed.
The regulations also permit the aggregation of assets in certain situations, including
the disclosure of cash by institution and currency, as well as fixed income securities
by issuer or manager depending on whether the assets are internally or externally
managed.
The first reporting date was 31 December 2021, due for publication on trustees’
websites for member consumption in a downloadable format by 31 March 2022.
12REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
NORTHERN TRUST ACTIONS
Northern Trust is actively supporting clients in meeting their regulatory
reporting obligations through the development of reporting that meets these
requirements. We remain part of ACSA’s regulatory affairs working group and
have been involved in efforts to ensure the new requirements are
implemented in a consistent manner across the industry.
CORPORATE COLLECTIVE
INVESTMENT VEHICLE -
REGULATIONS
On 21 December 2021, Treasury released additional draft regulations. Together, the
draft regulations and rules implement key elements of the Corporate Collective
Investment Vehicle (CCIV) regulatory framework, to support the operation of the
CCIV Framework and Other Measures Bill 2021.
This follows on from, and is in response to, the February 2019 release of the full
exposure draft package of the regulatory and tax law which was subject to public
consultation.
The CCIV forms part of the government’s plan to increase the competitiveness of
Australia’s managed fund industry and has committed to establishing a
commercially viable regime for CCIVs from 1 July 2022.
The CCIV will allow fund managers to offer investment products using vehicles that
are more comparable to overseas vehicles with the intent to attracting more
international investors.
The draft regulations centre around the following key areas:
• Requirements for financial reporting and record keeping.
• Arrangements for voting in the context of cross investment.
• Requirements for custody of CCIV assets, including where assets are held in an
offshore jurisdiction or held in an omnibus account.
• Restrictions on cross investment and consideration of other rules regarding the
management of a CCIV’s share capital.
The draft regulations also include various consequential amendments to Chapter 7
of the Corporations Regulations 2001 to ensure that the short form Product
Disclosure Statement regime that is currently available for ‘simple managed
investment schemes’ is also available to and works appropriately for CCIVs in
comparable circumstances.
13REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
The draft rules include consequential amendments to the Corporations (Passport)
Rules 2018 to facilitate the passporting of sub funds of a retail CCIV consistent with
the regulatory framework for CCIVs.
The deadline for submissions in relation to this consultation closed on 21 January
2022.
SFC ISSUES CONSULTATION
CONCLUSIONS ON THE
MANAGEMENT AND
DISCLOSURE OF CLIMATE-
RELATED RISKS BY FUND
MANAGERS
On 20 August 2021, the Securities and Futures Commission (SFC) of Hong Kong
issued Consultation Conclusions on the Management and Disclosure of Climate-
related Risks by Fund Managers and will amend the Fund Manager Code of Conduct
to require Fund Managers managing Collective Investment Schemes (CIS) to take
climate-related risks into consideration in their investment and risk management
processes and make appropriate disclosures. The requirements cover four key
elements, namely governance, investment management, risk management and
disclosure. The new requirements comprise requirements relating to governance,
the investment management process, risk management and disclosure, which have
been developed with reference to the Recommendations of the Taskforce for
Climate-related Financial Disclosures (TCFD) of the Financial Stability Board, the
international body for the global financial system.
The SFC adopts a two-tier approach, namely (i) baseline requirements for all SFC-
licensed fund managers managing CISs and (ii) enhanced standards for large fund
managers with funds under discretionary management equal to or in excess of
HK$8 billion.
14REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
IMPLEMENTATION TIMELINE
The new requirements will become effective after the following transitional periods:
• A 12-month transitional period for large fund managers to comply with the
baseline requirements (i.e., until 20 August 2022) and a contemporaneous 15-
month transitional period for them to comply with the enhanced standards (i.e.,
until 20 November 2022).
• A 15-month transitional period for all other Fund Managers to comply with the
baseline requirements (i.e., until 20 November 2022).
NORTHERN TRUST ACTIONS
Northern Trust’s ESG Insights product helps clients improve their investment
processes, enrich investor engagement and better manage reputational risks.
As part of ESG Insights’ capabilities, the Climate Focus report supports clients
with their internal risk oversight processes and increasing regulatory disclosure
requirements, such as those described by the TCFD framework.
TRANSITION AWAY FROM
LONDON INTERBANK
OFFERED RATE
MUCH WORK DONE
31 December 2021 brought the end of London Interbank Offered Rate (LIBOR)
panel bank submissions for sterling, Swiss franc, Japanese yen and Euro along with Adoption of RFRs
those for one-week and two-month USD LIBOR settings. 24 of 35 LIBOR settings are
“The market has made a great
no longer published, the exception being the three sterling and Japanese yen LIBOR
deal of progress in the
settings that are published under a modified ‘synthetic LIBOR’ and five USD LIBOR
transition away from LIBOR.
settings that will continue until 30 June 2023. The US Alternative Reference Rate
The share of new issuance in
Committee (ARRC) reported on 25 January 2022 that this major milestone was
secondary market activity tied
achieved “without market disruption”.
to LIBOR continues to decline,
LIBOR’s demise has been very clearly sign-posted and driven by the need to move and the pace of transition to
away from rates open to manipulation to those based on deep, liquid, robust and more durable rates like SOFR
transparent markets. The complex transition presented multiple challenges that can has accelerated in the past
be summarised in two buckets 1) new contracts needed to find a replacement few months.”
benchmark(s) reference rate, and 2) outstanding “legacy” contracts needed to
function without disruption following the discontinuance of LIBOR. Central Bank led JANET YELLEN,
US TREASURY SECRETARY
working groups spent years defining replacement rates [alternative Risk Free Rates
(RFRs)], establishing market conventions and promoting best practices to minimise December 2021
the risk of disruption in what was an estimated US$350 trillion LIBOR-linked global
market.
15REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
The European Overnight Index Average (EONIA) was similarly discontinued on 3
January 2022. Many of the same challenges were present in this transition. However,
since 1 October 2019, EONIA has been calculated with a reformed methodology
tracking the €STR, the euro Short-Term Rate of the European Central Bank. It should
be noted that Euro Interbank Offered Rate continues to be published.
The derivatives market was consistently ahead of others in driving the transition
away from LIBOR. The International Swaps and Derivatives Association played a key
role by updating their definitions and creating a fallback protocol to address the lack
of robust contractual language to address LIBOR cessation in ‘legacy‘ bilateral LIBOR
swap contracts. RFR First initiatives across the different markets increased use of
RFRs in new derivative contracts ahead of LIBOR cessation and clearing houses
executed pre-emptive conversions of legacy LIBOR contracts to market standard
Overnight Index Swap trades shortly before year end.
The loan and securitisation markets lagged behind, though the sterling LIBOR bond
market did move to Sterling Overnight Index Average and the advent of Term Regulatory Focus
Secured Overnight Financing Rate (SOFR) was welcomed in the US loans market as
“Together with the PRA, we
a more user-friendly rate. The significant volume of so called ‘tough legacy’ contracts
[the FCA] will also be
ultimately prompted relief. The most commonly used USD LIBOR settings will
continuing to monitor UK-
continue to be published until end-June 2023 to allow more legacy contracts to
supervised firms’ wind-down
mature on their existing terms; use in new contracts* is prohibited with limited
of their legacy LIBOR books,
exceptions. In the UK, the Financial Conduct Authority (FCA) deployed new powers
the end to their new use of US
to change the underlying methodology of LIBOR and to mandate the publication of
dollar LIBOR, and their
so called “synthetic LIBOR rates for 1-month, 3-month, 6-month sterling and yen
preparation for the end of the
LIBOR settings”, for the duration of 2022, and granted “wide permission” to use it in
US dollar LIBOR”.
legacy contracts.
*A joint statement was issued by US supervisors providing guidance on what constitutes a new EDWIN SCHOOLING LATTER,
contract in quarter four of 2021 FCA
MUCH WORK STILL TO DO
While the relief was welcome, it is temporary. Synthetic yen LIBOR is for one year
only and will be ceasing at end-2022. The FCA plans to consult on retiring 1-month
and 6-month synthetic sterling LIBOR at the end of 2022, and on when to retire 3-
month sterling synthetic LIBOR. In a speech made by Edwin Schooling Latter, FCA
Director of Markets and Wholesale Policy and Wholesale Supervision on 8
December 2021, the FCA reminded issuers of bonds relying on synthetic LIBOR that
they still need to act – putting forward the model of consent solutions as a means of
conversation that has successfully been deployed. The completion of LIBOR
transition clearly remains high on the FCA’s agenda.
16REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
A development on the path to USD LIBOR cessation was the passing of the
Adjustable Interest Rate (LIBOR) Act of 2021 by the House of Representatives in Northern Trust’s LIBOR
December 2021 with the hope that the Senate will act quickly on this in 2022. The Act programme will continue to
will help to effect a fair transition for financial contracts which do not consider the monitor the completion of
permanent cessation of LIBOR and have no workable fallbacks. This was welcomed activities tied to the end-2021
by the ARRC as it will “minimize the risk of disruptive litigation and adverse economic cessations. In addition, the
impacts associated with the transition”. In their year-end progress report the ARRC programme will capture
continued to recommend that all market participants cease entering into new LIBOR changes and execute on
contracts “in line with the year-end 2021 supervisory deadline, and fully endorses the transition activity tied to USD
recommendation of the Market Risk Advisory Committee that all markets LIBOR cessation. Should you
participants replace use of LIBOR with SOFR for new contracts”. The ARRC also wish to discuss this topic in
noted some key issues where more work will be required including the further further detail, please contact
development of market conventions for SOFR loans and securitisation markets, and your Northern Trust
highlighted their commitment to ensures market participants are operationally representative.
ready for 2023.
CENTRAL SECURITIES
DEPOSITORIES REGULATION
INDUSTRY AND REGULATORY DEVELOPMENTS
The Central Securities Depositories Regulation (CSDR) aims to increase safety and
improve settlement efficiency, as well as provide a set of common requirements to The European CSDR is one of
ensure the safety of EU Central Securities Depositories (CSDs). the key regulations adopted
in the aftermath of the 2008
CSDR has been harmonising the authorisation and supervision of CSDs within the EU financial crisis.
since 2014. There has been a phased introduction of the requirements, including:
• T+2 settlement cycle
• Authorisation, including strict prudential and conduct rules for CSDs
• Internalised settlement reporting
• Omnibus and segregated accounts, including risk and cost disclosures
Settlement Discipline Regime is the latest phase of CSDR, with measures applying to
trading venues and investment firms and include:
i. the mandatory buy-in regime;
ii. the requirement for CSDs to implement penalty mechanisms; and
iii. the cash compensation mechanism for failed buy-ins.
17REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
The European Commission issued a CSDR Review Proposal on 16 March 2022. The
proposal notes that mandatory buy-ins would be dependent upon the evolution of The industry, in which
settlement efficiencies in the EU. The current evidence suggest that cash penalties Northern Trust is an active
will provide an incentive to improve settlement efficiencies. As a result, buy-ins have participant, is working closely
been temporarily suspended. The expectation of ESMA is that they will propose a with the European
Level 2 amendment - a new date of entry into force for Mandatory Buy-Ins (MBIs). Commission and ESMA,
The industry, in which Northern Trust is an active participant, is working closely with advocating recommendations
the European Commission and ESMA, advocating recommendations in relation to in relation to the scope of the
the scope of the MBI regime as well as continuing to advocate proposals in other MBI regime as well as
areas of the CSDR regime in which outstanding Q&As still reside with ESMA and the continuing to advocate
Commission. proposals in other areas of the
CSDR regime in which
The European Commission is expected to launch the CSDR REFIT proposal in Q1
outstanding Q&As still reside
2022 with an indicative timeframe of March. The expectation of ESMA is that they will
with ESMA and the
propose a Level 2 amendment (a new date of entry into force for MBIs) after the
Commission.
Level 1 amendment is published in the Official Journal as part of the DLT package.
CASH PENALTIES
The CSDR cash penalty mechanism went live at the beginning of February 2022. A
number of teething issues have been highlighted across the industry including To learn more about the
TARGET2 systemic issues and challenges with data in daily reporting from the CSD penalty rates refer to the
and/or agents. The industry is working with the respective association groups such ECSDA Penalty Framework.
as the European Central Securities Depositories Association (ECSDA) as well as ESMA
and the European Central Bank (ECB) to ensure these issues are highlighted and
addressed. All European CSDs have activated their penalty mechanisms with the
exception of Norway (activating in March), Hungary (activating in May indicatively)
and Croatia (date of activation to be determined).
As a reminder, cash penalties for each trade instruction shall be applied for trades
that:
• failed to settle on its intended settlement date; or
• matched after its intended settlement date.
We continue to watch developments with interest and will provide further updates
once the new guidance becomes available.
NORTHERN TRUST ACTIONS
Northern Trust has a formal execution programme in place to meet
obligations under the settlement discipline regime, as well as support our
clients. Our CSDR implementation programme is committed to effectively
managing this change and providing timely information to enable clients to
assess impacts to their business.
18REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
Our core impacted products and services have identified service offering
changes for cash penalties to support readiness activities. We on-boarded an
external third-party system for the management of messaging and cash
penalties, as well as daily and monthly reporting.
Our client engagement increased with both client communications, industry
updates and a client toolkit released to clients.
Northern Trust representatives are actively engaged in industry associations
the Association for Financial Markets in Europe, Association of Global
Custodians and the Investment Association to ensure we continue to monitor
regulatory developments and support ongoing industry lobbying and
development of market practice guides where open questions remain. If you
should have any questions, please contact your Relationship Manager.
DIGITAL ASSETS
REGULATIONS
Our earlier Regulatory Outlook noted how digital and innovation has ever increasing
prominence on the regulatory landscape. Examples include in the US where the
Digital Asset Market Structure and Investor Protection Act of 2021 aims to promote
innovation and growth by providing legal and regulatory certainty for digital assets,
including investor protection.
2021 saw the Bank of England consult on new forms of digital money, with
responses to that consultation still being reviewed. As seen in the latest edition of
the Regulatory Initiatives Grid, the Bank has not yet made a decision on whether to
introduce CBDC, and intends to engage widely with stakeholders on the benefits,
risks and practicalities of doing so. That may not be plain sailing with a report from
the House of Lords Economic Affairs Committee, published in January 2022,
concluding that “there is no convincing case for why the UK needs a central bank
digital currency (CBDC). The committee found that while a CBDC may provide some
advantages, it could present significant challenges for financial stability and the
protection of privacy”.
There have been substantive developments in the EU which we focus on here.
19REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
DEVELOPMENTS IN THE EU
The EU’s Digital Finance Strategy aims to make EU financial services more digital-
friendly and stimulate responsible innovation and competition among financial
service providers in the EU. The key objectives are to reduce fragmentation in the
digital single market, so that consumers can have access to financial products across
borders and that fintech start-ups scale up and grow; ensure rules for applications
such as Artificial Intelligence and blockchain are fit for the digital age; promoting
data sharing and open finance, while maintaining very high standards on privacy
and data protection. The strategy aims to ensure a level playing field among
providers of financial services, be they traditional banks or technology companies:
same activity, same risks, same rules. A number of legislative measures have been
proposed:
Pilot Regime for DLT (DLT Market Infrastructures): the regime should allow for
experimentation within a safe environment leading to the development of a
secondary market for financial instruments in crypto-asset form. The proposals allow
for certain regulated institutions to request exemptions from regulatory
requirements that have previously been identified as obstacles. This would allow
them to develop and test DLT-based infrastructure for trading, custody and
settlement of securities. In Q4 2021, there was provisional agreement between the
Council and the European Parliament, the legislative text now needs to be formally
adopted by both, at which point it will be published. It will enter into force 20 days
later and apply nine months after this date. This pilot regime will be in place for
three years, after which the Commission, based on advice from ESMA, will report to
the Council and the Parliament on the costs and benefits of extending, modifying or
ending it.
Regulation on Markets in Crypto Assets (MiCA): applies to all crypto-assets not
currently covered under existing financial services legislation and establishes
uniform rules for issuers of such crypto-assets as well as for crypto-asset service
providers. ‘Crypto-asset‘ is defined broadly and applies to general crypto-assets
(bitcoin and Ethereum,) utility tokens, asset-referenced tokens and e-money tokens,
picking up the stablecoin universe. Asset referenced tokens are crypto-assets that
reference either multiple currencies, commodities, other crypto-assets or a
combination of these. E-money tokens are defined as crypto-assets that reference a
single currency. All in scope crypto-asset issuers will be required to publish a
whitepaper including all relevant information on the specific crypto-assets. More
stringent requirements apply to issuers of asset-referenced and e-money tokens
aligning requirements more like IPOs and subject to supervision by the European
Banking Authority. Crypto-asset service providers will be required to have a physical
presence in the EU and will require authorisation by the relevant national competent
authority which will allow them to passport throughout the EU. They will also be
subject to prudential requirements, organisational requirements, rules on
safekeeping of clients’ funds, rules on complaint handling procedures and on
conflicts of interests. Additional requirements will apply according to the type of
service provided including, for example, the custody and administration of crypto-
assets on behalf of third parties, the operation of trading platforms for crypto assets,
the placing and execution of orders for crypto-assets on behalf of third parties and
the provision of advice on crypto-assets.
20REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
If adopted, these measures and proposals will impact existing financial providers as
well as bring new entities into the regulatory net.
Digital Operational Resilience Act (DORA): designed to consolidate and upgrade
Information Communication Technologies (ICT) risk requirements throughout the
financial sector to a common set of standards, with the goal of mitigating ICT risks
for operations of all participants of the financial system. DORA covers a broad range
of financial entities – from credit institutions and investment funds to crypto-asset
service providers – in order to ensure that ICT risks are managed in a homogenous
and coherent way. DORA will require in scope financial entities to be put in place:
dedicated ICT risk management capabilities; a management process to monitor,
classify and report major ICT-related incidents to competent authorities; digital
operational resilience testing; and procedures to monitor and manage ICT third-
party risk. DORA allows for information sharing among financial entities regarding
cyber-threat information and intelligence. With reference to critical ICT third-party
service provides, DORA provides for an Oversight Framework at EU level.
In November 2021, the Council of the EU announced that it had adopted its position
on both the DORA and MiCA. The Council and Parliament will now enter trilogue
negotiations on the proposals. Once a provisional political agreement is found
between their negotiators, both institutions will formally adopt the regulations.
NORTHERN TRUST ACTIONS
Northern Trust is committed to looking at potential solutions in this field and
advocating for alignment between regulators globally and locally. As a part of
this commitment, we are active in a number of industry groups to contribute
responses to consultation papers. Should you wish to discuss this topic in
further detail, please contact your Northern Trust representative.
21REGULATORY DEVELOPMENTS IN ASIA PACIFIC VOLUME 1, 2022
All source documents referenced within this newsletter can be directly accessed
using the hyperlinks contained within the electronic edition of the newsletter. To
access the electronic edition please go to:
www.northerntrust.com/insights-research/regulatory-developments
*Information contained herein is current as of the date appearing in this material
only and is subject to change without notice.
CONTACT US
For more information, please contact your Northern Trust representative.
© 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability as an
Illinois corporation under number 0014019. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different
markets and are offered in accordance with local regulation. This material is directed to professional clients only and is not intended for retail
clients. For Asia-Pacific markets, it is directed to expert, institutional, professional and wholesale clients or investors only and should not
be relied upon by retail clients or investors. For legal and regulatory information about our offices and legal entities, visit
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