Table of Contents

Global Shock, Risks, and Asian Financial Reform

Global Shock, Risks, and Asian Financial Reform

Edited by Iwan J. Azis and Hyun S. Shin

The growth of financial markets has clearly outpaced the development of financial market regulations. With growing complexity in the world of finance and the resultant higher frequency of financial crises, all eyes have shifted toward the current inadequacy of financial regulation. This book expertly examines what this episode means for Asia’s financial sector and its stability, and what the implications will be for the region’s financial regulation. By focusing on legal and institutional frameworks the book also elaborates on various issues and challenges in terms of how financial liberalization can maximize the benefits and minimize the risks of crisis.

Chapter 17: Global financial regulatory trends and challenges for the development of the insurance and pensions sector in the Asia-Pacific region

Arup Chatterjee

Subjects: economics and finance, asian economics, financial economics and regulation, money and banking

Extract

The 2008–09 global financial crisis has prompted wide-ranging regulatory reforms to be undertaken by the international community to strengthen the resilience of the global financial sector. Some of the activities of the insurance and private pensions sector, which was relatively less affected by the crisis than other financial sectors, under certain conditions have the potential to be systemically relevant if conducted on a huge scale and with poor risk governance and supervisory oversight. Such non-core activities are closer to quasi-banking and include speculative derivatives trading on non-insurance firm balance sheets and the mismanagement of short-term funding. Therefore, the insurance industry can be considered systemically important. The regulatory reforms that have been unleashed are a part of important initiatives to reformulate the future landscape for finance, including the IAIS’s Insurance Core Principles (IAIS 2011a), the EU’s Solvency II Directive, and Basel III capital adequacy requirements. The identification of global systemically important insurers (G-SIIs) and the supervision of internationally active insurance groups (IAIGs) is also likely to place additional demands on regulators to address sub-optimal supervisory structures and prudential issues such as enhanced risk-based capital frameworks, and place greater regulatory focus on policyholder compensation schemes, group-wide supervision, and more coordinated resolution mechanisms.

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