Tun Dato Dr. Mahathir bin Mohamad, former prime minister of Malaysia was keynote speaker at the Financial Executives Institute of the Philippines (FINEX) 49th Anniversary and Annual Conference on Friday, Oct. 13. The theme “Breaking Barriers to Competitiveness in the ASEAN Financial Sector” was defined and drawn by Dr. Mahathir — as he spoke of “individual economies [which must] decide for themselves how to improve competitiveness despite the mantra of globalization that had held sway over nations in the past two decades (BusinessWorld, 10.14.2017).”
Dr. Mahathir pointed out that the 10 members of the Association of Southeast Asian Nations (ASEAN) have varied degrees of development and “If you ask these… groups of countries to compete, you will know who will win — obviously, the strongest, the biggest, the richest, the most developed will achieve success,” he said (Ibid.).
But Dr. Mahathir has said often that he was for ASEAN’s drive for deeper economic integration noting that “ASEAN does not impose a standard formula for all… the poorer countries must be given time and must not be restricted in the way they manage their economies, so that they can catch up with the rich countries (nikkei.com, 05.31.2016).”
And at the FINEX Conference, Deputy Governor, Supervision and Examination Sector, Bangko Sentral ng Pilipinas Chuchi Fornacier said that from the establishment of the ASEAN Economic Community (AEC) in 2015, ASEAN has seen gradual trade and financial integration. “From 2007 to 2016, trade in ASEAN economies increased by nearly $600 billion from $1.6 trillion to $2.2 trillion, with intra-ASEAN trade comprising the largest share of ASEAN’s total trade by partner.”
The Philippines enacted Republic Act 10641 in July 2014 allowing foreign banks to own up to 100% of the voting stock of an existing local bank. Ten regional banks have entered the Philippines, with eight more (including two ASEAN) expressing interest. By 2020, there should be at least one bilateral accord with each of the ten ASEAN member countries, Dep. Gov. Fonacier said.
Foreign banks in the Philippines have attracted foreign direct investments, about $15.7 billion in 2015, for example, from the US, Japan, China, and Thailand. They have enhanced delivery of financial products with their technology and support systems for bank operations, as well as having provided 7,000 bank jobs for Filipinos.
To prepare local banks for competition in a regional system, the BSP developed a comprehensive policy reform program which includes a good governance framework that focuses on the fit, proper requirements and responsibilities of the banks’ board of directors and senior management and risk management guidelines updated to international standards. For regulatory capital, the BSP has adopted the international Basel III reforms and for Anti-Money Laundering, the BSP has aligned with the AML Act and the Financial Action Task Force (FATF) guidance on Correspondent Banking services.
Securities and Exchange Commission Chair Teresita Herbosa, who spoke after Dep. Gov. Fonacier at the FINEX Conference expressed regret, probably near frustration that the SEC is unable to sign off on several ASEAN initiatives that could help enhance cooperation in the region for the benefit of all. Though the SEC has actively participated in intra-regional capital and bond markets fora, the country, through the SEC could not sign the Multilateral Memorandum of Understanding (MMOU) that has been adopted by the IOSCO or the International Organization of Securities Commissions in 2002.
Atty. Herbosa explained that the IOSCO is at the same level of authority and influence as the Financial Action Task Force (FATF) that focuses on international money laundering. The IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation, to protect investors; ensure that capital markets are fair, efficient and transparent, and to facilitate international cooperation.
The MMOU is an international information sharing agreement which the Philippine SEC cannot sign because of bank secrecy laws. In ASEAN, it is only the Philippines, Cambodia and Myanmar who are not yet MMOU signatories, Chair Herbosa said.
The IOSCO requires that for a country to be able to sign off on the MMOU, the securities regulator itself (meaning the SEC) must be able to directly access bank records and information; share these with requesting foreign securities regulators; access information from officers and employees of banks and financial institutions; get relevant records; allow such information to be used in court proceedings; issue subpoenas; and compel the taking of testimonies from those involved in potential anomaly.
The SEC has attempted twice to sign the MMOU by virtue of the AMLA, however, in both instances these were denied by the IOSCO. The bank secrecy laws have to be repealed, according to Atty. Herbosa. She added that “the mere mention of this sends some legislators in shock” — the only option left is to propose to the Philippine Congress to amend the Securities Regulation Code, or vest the SEC with those seven specific powers as insisted by IOSCO to be required for signing up to fully integrated, shared transparent financial cooperation and integration in global finance and securities.
Will Congress ever amend the Bank Secrecy law and/or amend the Securities Regulation Code, at least as a show of good faith and cooperation towards “Breaking Barriers to Competitiveness in the ASEAN Financial Sector?”
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.