2020 vision: Trends in Asia to define the New Year

In the fourth part of our ‘what to look out for in 2020’, we ask industry experts’ in Asia for their input on trends to watch out for in the New Year.

By Editors

Japanese market participants face rush to renew bond tax exemption status

Yasuhiro Ohno, head of custody sales and client services, Mizuho Bank

Back in 2016, the Japanese government’s bond tax reform – Japanese Bond Income Tax Exemption Scheme (J-BIEM) – was introduced with an expiry date of five years. To maintain tax-exempt status under J-BIEM, global custodians and other entities acting as Qualified Foreign Intermediaries (QFIs) will need to submit renewal applications to the tax office through agent banks in Japan. All J-BIEM statuses given by 31 December 2015 will expire on 31 December 2020. That means that for the first-time-ever, participants will need to apply for J-BIEM renewal. If not renewed in time, the J-BIEM status will be lost, and bonds shall be taxed. As there is no way to reclaim the paid tax, all parties in the custody chain need to move ahead of the expiry date, and work on this theme most likely throughout 2020.

 

The rise of the local custodian

Sachin Samant, senior executive vice president, Kotak Mahindra Bank

In the custody space, two themes emerge in the wake of the recent market conditions in India which has been hit by the NBFC crisis and insolvencies of market intermediaries. One, we see an increased focus of clients on counterparty risk. A reliable custodian with a strong balance sheet, excellent reputation and good risk management policies would end up being the preferred choice of clients going ahead.

Secondly, clients are now more aware of the advantages of dealing with a local custodian with deep know-how of local regulations –  who can help them seek regulatory clarity on matters of complex business requirements and ensure clients are conducting business in a manner that confirms to the requirements of the local regulator all the time.

 

Custodians to work closer with SMEs

Viraj Kulkarni, CEO and founder, PIVOT Management Consulting

A crystal ball gaze for 2020 shows the promise of a greater focus on efficiency, lesser risks, an eye on developing and servicing new segments that lead to wealth creation, especially in emerging markets. Regulations on high net-worth Individuals and entities will avail custody services and enhance wealth protection, make capital markets more secure and thus spur the growth of alternative investment funds and portfolio management scheme segments.

The SME segment will transcend boundaries, growing aspect the capital markets on a global scale. Custodians could nurture companies in this segment to grow into great oaks, by providing customised services that facilitate growth, as they become segment agnostic and provide the vanilla custody products. This could de-risk the markets, improve investor confidence, and be welcomed by regulators and governments while developing economies and lead to wealth creation in a secure manner. Outlier solutions promotes growth.

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