Asia: Malaysia’s IOSCO coup might kick-start Asean progress

Left to right: IOSCO chairman Ashley Alder, PM Najib Razak and Tan Sri Ranjit Ajit Singh, chairman of the Malaysian Securities Commission, at the launch

The International Organization of Securities Commissions (IOSCO) has opened its first significant presence outside of Madrid with a new regional office in Kuala Lumpur.

Apart from granting Malaysia and its Securities Commission bragging rights, it might just move along the glacial progress of Asean cross-border market initiatives.

IOSCO – whose members regulate markets with more than $140 trillion, accounting for 95% of all markets worldwide – took the step to develop capital markets and strengthen capabilities in Asia.

The idea was first seriously mooted about five years ago, and Malaysia – whose Securities Commission is an active IOSCO advocate – pitched itself as host.

“Part of our proposition was that Malaysia is uniquely placed as an advanced emerging market,” says Tan Sri Ranjit Ajit Singh, chairman of the Securities Commission and the driving force of the new hub.

Hong Kong and Singapore, though bigger markets, are not considered emerging; Malaysia is, but with sophisticated markets and regulation. 

Beyond the country’s delight at its selection – prime minister Najib Razak spoke at the launch – which it sees as an endorsement of the quality of Malaysia’s capital market and its regulation, the new hub might be most significant in the context of Asean market integration and cross-border flows.

“There is a very strong continuous commitment towards having connected markets,” says Ranjit. “In some cases, the solutions may be multilateral, in some cases bilateral, but the thrust of it is we have connected markets, and that’s the model the Asean regulators are taking.”

However, progress has been slow.

“We think the presence of an IOSCO hub in the region will help accelerate some of the discussions that are taking place in terms of cross-border connectivity,” continues Ranjit.

Why? Well, partly it’s a coincidence of interests. Some issues that have stopped harmonization are around differing standards, but standards would be brought into line by becoming members of the IOSCO multilateral memorandum of understanding (MMoU).

“Being a member is a pre-requisite for some of the initiatives we are working on,” Ranjit says. “Some jurisdictions are keen to be able to participate in an Asean initiative on connectivity, but are not able to reach that status.

“By having IOSCO located here, it will help prepare them for getting on to the MMoU, which will help expedite the meeting of the standard, which will help the connectivity. I cannot overemphasize how significant they [Asean regulators] see this as being.”

Greater interconnectivity of Asean markets – such as the long-discussed fund passporting scheme – is very much in Malaysia’s interests, as it is relatively low on population and relatively high on expertise and market infrastructure. Selling Shariah-compliant product into Indonesia is an obvious example.

Ranjit is also chair of the Asean capital markets forum, and has talked about the need for Asean asset classes, which means two things: a greater profile for the Asean markets themselves “to provide at least an alternative to the very large India and China markets”, and specific product, such as Asean indices, exchange-traded funds and even bond investment classes.

Part of that process is the creation of a standard collective investment framework for the region.

“We’re not there yet, but we’re moving towards it,” says Ranjit.

Malaysia, Singapore and Thailand do have a collective framework in place, and Ranjit says there are 13 qualifying funds that have been put forward, but a broader passporting initiative is “still in discussion”, as it has been for years.

“We need to be able to create much more awareness around what Asean offers,” he says. “There still isn’t sufficient research available in an easy manner for investors beyond the headlines of the countries.”

Ashley Alder, the chairman of IOSCO as well as the head of the Hong Kong Securities & Futures Commission, says there are compelling reasons why the hub “is likely to deliver capacity building in a way other efforts struggled to do.

“If you have a regional hub in Asia, you are bound to have much better insight into local needs around the region because you’re on the ground.”

Training initiatives will be configured for regional issues, and regional regulators brought closer together, he says.

“Our economies in Asia still tend to be very bank centric in terms of reliance on credit rather than capital markets,” says Alder. “And we have a massive infrastructure financing gap.

“So the hub has great potential to be part of the solution that enables us to accelerate capital market development across Asia and ultimately to enable Asian savings to be deployed to fund Asian growth.”