The Asia Region Funds Passport Initiative – Challenges for Regulatory Coordination

Abstract

In the wake of the global financial crisis of 2008, global and regional coordination has become increasingly important in cross-border financial regulation. In addition to dealing with the general aspects of regulatory supervision and enforcement, coordination now has to deal with the challenges that arise in a range of specific areas. These include crisis management, the regulation of hedge funds, shadow banking activities, over-the-counter derivatives, bank resolution, Basel compliance and financial inclusion, to name a few. The critical question is how coordination should best be achieved. Although there are existing mechanisms for achieving coordination and cooperation in the context of general enforcement and supervisory activity, these mechanisms become more problematic when applied to specific areas such as those identified above. This is because most (if not all) of these areas involve coordination and cooperation between multiple regulators, operating in both a global and regional context, and bring into play a number of dynamics that have their roots in economic, political, financial, legal and other considerations.

The authors consider the challenges for regulatory coordination in relation to the proposed Asia Region Funds Passport (the ‘ARFP’). The paper commences by providing background information on this initiative and the benefits that it is expected to achieve. Other regional initiatives are also discussed. Practical arrangements that are required to support the ARFP, including the need for coordination between the member economies are then discussed. The paper then explores the framework within which effective coordination might be achieved by reference to some of the literature in this field and also the issues and challenges that are specific to the ARFP. The paper concludes by discussing what effective coordination of this initiative might mean for regional coordination in the area of financial regulation generally.