Other reforms, such as the structural changes to banking models that are being contemplated in the UK and the implementation of wide-ranging reforms under the Dodd-Frank Act in the US, although not being imposed outside these countries, are nevertheless charting a path forward that is likely to have wider ramifications, given the significant cross-border operations of affected institutions, including in Asia. Like most jurisdictions, the options for central clearing for domestic OTC derivatives are also being examined. These reforms are already under way in the world’s larger financial markets to meet the G20 mandate for standardised OTC derivatives transactions to be centrally cleared by the end of 2012. For smaller OTC derivatives markets in Asia, the effects on domestic market efficiency and stability are key considerations in contemplating a move towards central clearing arrangements. A key concern is the potential for the offshore central clearing of transactions in key domestic markets to increase the stability risks to the domestic financial system. There will also be limited scope for domestic regulatory authorities to have oversight on such offshore central counterparties (CCP) and to respond during periods of financial stress. Domestic central clearing arrangements, however, could have negative effects on efficiency and the functioning of the market, in particular for cross border transactions. In addition, fragmented clearing arrangements could reduce netting  BIS central bankers’ speeches  3  opportunities and collateral efficiencies, in turn raising costs to participants.

In the medium term, the region is expected to benefit from the deeper regional financial integration agreed by the leaders of ASEAN and recently reported concluding of TPP negotiation. These agreements would result in a more efficient allocation of regional savings to meet the region’s large investment needs which will support growth and consequently financial well-being and soundness. The improved income arising from the economic developments will spur greater demand for insurance services in the region and present immense growth opportunities for the insurance and takaful industry. The Asia Pacific region offers high growth prospects over the long term underpinned by potential demand arising from structural changes and evolving risk exposure. This will have the implication of increasing wealth and shifting preferences, but challenged by a rapidly ageing population and frequent incidences of catastrophic events. First, increasing wealth and shifting preferences in Asia Pacific Rising incomes have increased the spending power and affluence of consumers in Asia Pacific. GDP per capita for the region reached 15,242 US dollars as at end-2013, well above the world average of 10,613 US dollars for the same period. Reflecting higher standards of living and enhanced purchasing power, demand for insurance products in the region has evolved to encompass a broader range of protection and investment solutions that are more responsive to differing risk and return preferences. This has also been Malaysia’s experience, with the significant growth of investment-linked insurance premiums over the last decade alone.