3rd EU-Asia Symposium on Relations in Financial Services

 

3rd EU-Asia Symposium on Relations in Financial Services

Following the success of two previous editions in Singapore (2014) and Hong Kong (2015), the 2016 Symposium on EU-Asia Relations in Financial Services took place in Beijing on 26-27 May. 

The implementation of Basel III is affecting banks' trading book, but the full extent of its requirements is still unclear. A more proportionate approach could be considered. The over-reliance on the banking sector remains a threat to financial stability. The development of local currency bond markets in both Europe and Asia is key to diversifying the financial system, but significant barriers remain for the development of a sound legal and market infrastructure, especially in Asia. Meanwhile, shadow banking has developed differently across jurisdictions, e.g. market-based finance in the US and Europe compared to bank-like financial intermediation in Asia. In China, this form of unregulated banking service is gradually approaching the size of traditional banking services. The shift towards more inter-institutional shadow banking activities could give rise to potential systemic risks. But volatility in Asia’s stock markets suggests that more defaults are still to come, especially in China, where the capital-to-output ratio is at an historical peak. Less discretionary actions by local governments and greater diversification of the investor base for local financial markets in the main emerging economies can increase the soundness of the Asian financial system and the economy overall. Moreover, companies' financial technologies (FinTech) are increasingly put to multiple applications, e.g. instant payments, digital currencies and monetary policies, artificial intelligence and advisory services, blockchain and securities settlement and even regulatory compliance. These new tools redefine the financial industry, but the full extent of such developments is still to be fully understood. Asia leads in these developments, especially in retail financial services. The neutrality of technology for regulation has led to a 'wait and see' approach by the regulators, which aims to balance the need for innovation with risk-mitigation actions.

For more details, please see the final programme.

China: In search of a more balanced financial system? Post-event remarks by Karel Lannoo (CEO, CEPS)

Over the past 10 years, the Chinese financial market has developed tremendously, both in terms of size and openness to new technologies. The greatest risk at the moment, however, is posed by the declining prospects for economic growth, resulting in a slight RMB depreciation. Coupled with the gradual opening of the capital account, this is leading to capital outflows and thus exerting further pressure on the financial system.

The Chinese financial system is largely bank-based, with an overactive and volatile equity market, small corporate debt securities and a non-existent investment funds market. The market share of foreign banks is almost insignificant at 1.5%, with very few foreign banks possessing a full bank licence. China has a large savings base (200% of GDP), which benefits the banks, but the real problems lie in the corporate over-indebtedness (150% of GDP), in particular the state-owned enterprises, and the growing shadow-banking sector, which is an alternative savings channel, but one that is overexposed to the real-estate sector, and thus a possible propagator of shocks.

In the context of the development of a more balanced and sustainable financial system, China still has some way to go towards putting the building blocks for a well-functioning capital market in place, such as accounting rules and proper valuation systems, rules on liquidation, an independent rating culture and a free press. China also lacks a strong presence of institutional investors as intermediaries in the capital markets. From a retail financial market perspective, the market seems to be advancing extremely rapidly, with increasing mobile payments and very high penetration of new FinTech solutions.