|Financial Services Update | November 15, 2018
Authors: Shay Wester, Ian Saccomanno, Tra Nguyen, and Bryan Yeoh
November 26, 2018: 2018 TELMIN Business Mission Planning Call 3
Register here to join the third of three planning calls for our Business Mission to the 18th ASEAN Telecommunications and Information Technology Ministers Meeting (TELMIN).
December 4: 2018 Business Mission to the 18th ASEAN Telecommunications and Information Technology Ministers Meeting
We are now registering senior level executives for our Business Mission to the 18th ASEAN Telecommunications and Information Technology Ministers Meeting (TELMIN) taking place Tuesday 4 December to Thursday, 6 December, 2018 in Ubud, Indonesia. To register, please click here.
December 11, 2018 - December 13, 2018: 2018 Myanmar Business Mission
Requested meetings for the 2018 Myanmar Business Mission include: President U Win Myint, State Counsellor Daw Aung San Suu Kyi, Key Cabinet Ministers, Members of Parliament including Speaker of the Pyithu Hluttaw (Lower House) U T Khun Myat, Myanmar Investment Commission, and the UMFCCI. Please contact Jack Myint at email@example.com with any questions or to express interest.
|THE COUNCIL'S TAKE|
Vietnam Releases Draft Law on Securities
Vietnam’s Ministry of Finance (MOF) recently released a second draft of the Law on Securities for public consultation (Full text of the draft here in Vietnamese). The State Securities Commission (SSC) was tasked with revising the law as the current Securities Law was introduced in 2006 at a time when Vietnam’s securities markets were much smaller. Since 2006, the Vietnamese government has become aware of shortcomings in the law as the market has developed.
Changes in the draft law include new conditions for public company status, private placement, redemption of shares, new triggering events of public offer to purchase, expanded scope of “related person,” and changes to acquiring an operation license and enterprise registration certificate for securities companies and fund management companies. Another key change is to conditions for an initial public offering (IPO). The draft law increases the minimum charter capital from VND10 billion (US$430,000) to VND30 billion (US$1.291 million), requires companies to be profitable for two years preceding IPO registration, and sets minimum thresholds for how many shares must be sold off in the IPO.
Another change, notable to all industry sectors, is that the draft law lifts the general mandates for 49 percent foreign ownership caps in public companies and harmonizes the definition of “foreign ownership ratio” with the Law on Enterprise. The change in ownership rules will apply to more than 200 conditional sectors, but will exclude key sensitive sectors, including security, defense, telecommunications, and insurance which will all be left at 49 percent. The cap for banks will also remain at 30 percent, though the government may consider lifting this on a case-by-case basis.
According to Deputy Minister of Finance Huynh Quang Hai, the government is hoping that the new law will continue to encourage development of the market in a faster, stronger and sustainable manner. Vietnam’s stock market was Asia’s top performer last year posting 48 percent growth. The public consultation ends on December 2 and the draft law is expected to be submitted to the Government in the second quarter of 2019 and then to the National Assembly in the fourth quarter of 2019.
Thai Fintech Act Expected this Year
Thailand’s Fintech Act is on track to be enacted by the end of the year according to industry groups that have been involved in drafting. The Fintech Act, which the Council first covered in 2017 in this update, will include measures on electronic transactions, know-your-customer rules, and due diligence. It will also require the government to provide open data sources to entrepreneurs to support innovation. This work to build the regulatory infrastructure of a digital financial services system will be critical to building a thriving and modern financial ecosystem, which has lately been a priority of the Thai government and especially the Bank of Thailand.
Outsourcing Regulations Evolving in ASEAN
Financial services regulators in ASEAN have recently been re-examining regulations how financial institutions outsource IT systems, with changes to regulations in Thailand, Vietnam, and Malaysia.
Thailand: On October 1, Thailand’s Capital Market Supervisory Board (CMSB) issued a new outsourcing regulation that greatly reduces regulatory burden for securities companies. Unlike the previous regulation, which requires securities companies to obtain approval from the Office of the Securities and Exchange Commission (Office of the SEC) prior to outsourcing, now companies only need to notify Office of the SEC within 15 days after they outsource business functions to external providers.
Under the new, more lenient regulation, a securities company may outsource any of its functions if they meet two requirements: (1) the company may not reduce itself to an empty shell and (2) if the outsourced function is a central utility function, the company may only outsource to a provider who has been approved by the Office of the SEC. There is no clear definition under this regulation as to what is considered a “central utility function.” However, the Office of the SEC commented in a public hearing document that fund service platform function and electronic payment for a settlement of securities and derivatives may constitute central utility function. The regulation also stipulates requisite provisions which an outsourcing agreement must contain. A sub-outsourcing arrangement is also permissible provided that the securities company consents to the arrangement and the arrangement contains the same requisite contents that was agreed upon between the securities company and the principal external provider. The SEC is authorized to issue further guidance on the regulation so clarification on some points may emerge in the future.
Vietnam: The State Bank of Vietnam (SBV) on August 21 issued Circular No. 18/2018/TT-NHNN (Circular 18) on the use of cloud computing services by banks. Most notably, Circular 18 introduces new regulations on the use of cloud computing services in banking as well as regulations on outsourcing cloud computing services to third party service providers. Section 6 of Circular 18 sets out some critical steps financial institutions (FIs) must follow before they outsource cloud computing services. Risk assessment is an essential component throughout these steps. First and foremost, FIs must determine the class of information and the level of information system to be outsourced to third party providers. There are three classes of information and three levels of information systems based on level of complexity and confidentiality. Circular 18 provides clear instructions on the classification of these systems. If a third party is hired to perform all administration-related activities of information systems classified at level 2 or higher, FIs must then send the risk assessment report to SVB, who reserves the right to examine the report on a case-by-case basis. In short, SBV employs a notification system which requires FIs to send a report rather than an application for approval. It is unclear, however, how frequently and based on what factors SVB shall choose to review the risk assessment report. Section 6 also recommends several factors FIs should consider when selecting third party providers and specifies provisions an outsourcing contract must entail. It also lists out minimum contents FIs must include in their own information security regulations. These regulations must be signed by the legal representative and implemented throughout the organization. Like the new Thai regulations, the regulation requires notification of higher risk outsourced activities.
Circular 18 will become effective on January 1, 2019 replacing Circular No. 31/2015/TT-NHNN. It applies to all credit institutions (except for people’s credit funds and microfinance institutions), foreign bank branches, and organizations providing intermediary payment services.
Malaysia: Bank Negara Malaysia (BNM) has circulated an update to the Outsourcing Exposure Draft that had previously been floated in late 2017. Some key additions in the update include the introduction of materiality thresholds to certain parts of the regulation, recognition and regulations covering cloud service providers (though there is some uncertainty on how this will apply to public cloud), and additional details in the approval system. In contrast with Vietnam and Thailand, BNM’s preference for an approval regime and continued application of certain parts of the regulation to non-material low risk outsourcing arrangements remain areas of significant concern. Despite those challenges, which the Council continues to encourage BNM to address (see below), implementation of the regulation would represent a significant improvement over the status quo.
Bank Negara Malaysia Digital Regulations
In a significant move to update data governance and strengthen cybersecurity in the financial sector, Bank Negara Malaysia (BNM) recently released an updated Outsourcing Exposure Draft and a new Risk Management in Technology (RMiT) Exposure Draft for public feedback.
The new Outsourcing Draft updates the draft previously released in November 2017, which the Council had also submitted comments on. Some key additions in the update include the introduction of materiality thresholds to certain parts of the regulation, recognition and regulations covering cloud service providers, and additional details in the approval system. BNM’s preference for an approval regime and continued application of certain parts of the regulation to non-material outsourcing arrangements remain areas of significant concern. Despite those challenges, which the Council continues to encourage BNM to address, implementation of the regulation would represent a significant improvement over the status quo. The Council submitted a letter on behalf of members on October 19 raising these issues and other technical challenges in the regulation (attached).
The RMiT Exposure Draft (available here) sets out extensive rules for financial institutions’ technology risk management frameworks. The draft is very comprehensive and covers areas including cybersecurity management, cryptography, data center management and third-party service providers. One area of concern in the draft is restrictions it places on use of public cloud, which does not appear to be reflected in the Outsourcing Draft. A first draft of the Council’s submission has been circulated based on member input (attached). Members can submit further comments on the Exposure Draft to Ian Saccomanno at firstname.lastname@example.org and Tra Nguyen at email@example.com by November 26. A final draft of the Council's letter will then be circulated for further review and edits.
Indonesia Insurance Tax
The Council, in coalition with other industry associations, is continuing to advocate for a resolution to a problematic change in tax policy affecting the insurance industry in Indonesia. Following early advocacy by the Council, the Indonesian Tax Directorate-General issued Circular Letter S-607/PJ.03/2018 to mitigate a problem, however, the Letter did not fully solve the challenge. The Council and other associations are continuing to work with the Tax DG and the Financial Services Authority (OJK) to fully resolve the issue. The challenge emerged in early 2018 when a confidential tax court ruling changed how income taxes for insurance companies are calculated, significantly increasing their tax burden and leading to the charging of additional back-taxes and penalties. Early analysis indicated that the penalties and back-taxes were so large that more than a dozen insurance companies would fall below-mandatory risk-based capital levels if they were to pay them.
|IN THIS UPDATE|
Singapore snaps up lion's share of ASEAN fintech funding at US$222m in January-October 2018 Singapore Business Review 15th Nov 2018
MAS inks deal to promote inclusive financial services Singapore Business Review 15th Nov 2018
Asean a magnet for Asian fintech firms The Business Times 15th Nov 2018
CTRP Package 4 to deepen capital markets, says DOF BusinessMirror 14th Nov 2018
MAS, SGX leverage blockchain tech to settle tokenised assets The Business Times 12th Nov 2018
SET readies digital plan Bangkok Post 10th Nov 2018
MAS, Bank Indonesia set up US$10 billion bilateral financial arrangement Channel NewsAsia 9th Nov 2018
First ICO portal en route Bangkok Post 8th Nov 2018
Peso-renminbi trading to cut business costs, spur flow of Chinese investments BusinessMirror 31st Oct 2018
Vietnamese banks have eye on foreign markets Vietnam News 27th Oct 2018
Binance gets funding to push crypto across Southeast Asia Tech in Asia 23rd Oct 2018
Brunei’s Islamic capital market showing positive growth Borneo Bulletin Online 23rd Oct 2018
Philippines banks slowly tap green financing Phil Star 23rd Oct 2018
OJK's fintech sandbox Lexology 22nd Oct 2018
Fintech seen spurring rush towards capital markets The Nation 7th Nov 2018
Vietnam primed for M&A boom as foreign ownership limit eases Nikkei Asian Review 1st Nov 2018
Singapore’s asset management industry hits $2.39trn International Adviser 29th Oct 2018
Standards launched to enhance transparency, consistency and uniformity of ASEAN Borneo Bulletin Online 26th Oct 2018
Specialist argues for LTF deductions Bangkok Post 20th Oct 2018
Central Bank provides new details on foreign-bank directive The Myanmar Times 15th Nov 2018
Singapore: Three global banks open innovation labs in Singapore MarketWatch 15th Nov 2018
SCB downgrades SME loan view Bangkok Post 9th Nov 2018
Bank of Thailand weighs SME lending requirements Bangkok Post 27th Oct 2018
Bank Indonesia to launch DNDF transactions on Nov. 1 The Jakarta Post 24th Oct 2018
BOT to consider suggestions from developers, banks for home loan policy The Nation 23rd Oct 2018
Thai lenders brace for stricter mortgage rules Nikkei Asian Review 18th Oct 2018
Monetary board member says BSP ready to pause tightening BusinessWorld 16th Oct 2018
Banks required to form task force on payment systems Business World 13th Nov 2018
Singapore and Thailand QR Payments Will Soon Be Standardised Fintech Singapore 12th Nov 2018
Can mobile banking overcome Myanmar’s trust issues? South China Morning Post 6th Nov 2018
Bank Indonesia to Standardize QR Code Payment ASEAN Business News 25th Oct 2018
Cambodia Sees Growing Fintech Industry; Laos Still Lacks Behind Fintech Singapore 24th Oct 2018
Gov’t wants more clearing houses for digital deals Philstar 24th Oct 2018
GSB platform to pool small shop purchasing Bangkok Post 23rd Oct 2018
PayNet to launch DuitNow money transfer service in December The Edge Markets 22nd Oct 2018
Mobile providers to join e-payment services Viet Nam News 22nd Oct 2018
Nets launches PayCollect, an online billing and collections system for businesses The Straits Times 15th Oct 2018
Singapore sets up world's first commercial cyber risk pool Channel NewsAsia 29th Oct 2018
Insurance industry progressing at slow pace, foreign competition needed: AMI The Myanmar Times 29th Oct 2018
Thailand: Insurance institute to pave the way for business in neighbouring markets Asia Insurance Review 26th Oct 2018
Indonesia: Insurance regulator calls for new ideas to grow industry Asia Insurance Review 26th Oct 2018
Indonesia Among World's Most Underinsured Countries Jakarta Globe 23rd Oct 2018
TII aims to build regional operations of Thai firms Bangkok Post 23rd Oct 2018
Philippines: Insurance industry adopt FinTech Asia Insurance Review 19th Oct 2018
President rebukes minister, state insurer over health insurance deficit The Jakarta Post 17th Oct 2018
OJK issues new regulation to improve customer protection in the financial services sector www.hoganlovells.com 15th Nov 2018
Vietnam to lift foreign ownership limit on listed companies Reuters 14th Nov 2018
Singapore to launch tokenised securities settlement system The Asia Times 12th Nov 2018
Thailand’s Deputy Prime Minister Calls for More Cryptocurrency Regulations CCN 10th Nov 2018
BSP: Philippine banks ready for stricter global standards Business World 9th Nov 2018
Myanmar eases restrictions on foreign bank lending Reuters 9th Nov 2018
ASEAN pulls ahead of Japan in capital market reform Nikkei Asian Review 7th Nov 2018
4 Malaysia central bank officials put on leave pending probe into RM2 billion land purchase The Straits Times 31st Oct 2018
New requirements on the use of cloud computing services in banking sector Baker McKenzie Client Alert 24th Oct 2018
Singapore regulator takes a stand against shadow banking by fintechs Freshfields Bruckhaus Deringer 18th Oct 2018
TFA: Fintech law to be enacted this year Bangkok Post 17th Oct 2018