degree of market orientation, stage of development, size and degree of openness. asian economies have however, recognised the respective individual comparative advantages and have leveraged on the prevailing complementarities. given the diverse nature of the region, it would be highly ambitious and challenging to achieve the necessary preconditions for achieving an integration that is similar to that in europe. the integration process in europe was taken forward with the establishment of supranational institutions with mandates to promote common approaches and frameworks across the member states in the union. in contrast, asia is adopting a more flexible approach. regional financial integration in asia has manifested itself mainly in the form of greater regional presence and participation in domestic financial systems. this is taking place with the gradual and sequenced liberalisation of the financial sector and the capital account. capital bis central bankers ’ speeches account liberalisation in particular is prompting increased intra - regional investment and portfolio flows which in turn contributes to the deepening of the financial markets. by itself, the liberalisation of the financial sector and the capital account will however, not be sufficient to achieve regional financial integration. most important, is the development of regional financial markets, the financial infrastructure including the regional payments and settlement systems, harmonising the financial standards and practices including the regulatory and supervisory regime and building the institutional capacity of the domestic financial intermediaries. for the asean region, an agreement has already been reached to allow for different speeds of integration depending on the state of readiness of the respective member countries. this is being reinforced by arrangements for surveillance for assessments of risks to the region and regional frameworks for crisis management and resolution, including arrangements for mutual assistance. equally important in this process is the cooperation and collaboration among regulatory authorities for sustaining regional financial stability. much of this work has focused on putting in place strong and effective institutional arrangements to preserve regional financial stability. in the decade following the asian financial crisis, most of asia has accelerated the pace of financial sector development and reforms. several of the asian economies have made significant strides in improving the soundness and efficiency of financial institutions and in developing domestic financial markets. at the regional level, key initiatives have included the development of the regional bond markets through the creation of various asian bond funds and the asean + 3 bond market initiatives, the regional arrangements for crisis management that includes liquidity support, and the collaborative efforts advanced under emeap to facilitate liquidity management for financial institutions operating in the region through crossborder collateral arrangements. currently, while intra - regional

##ised 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 opportunities and collateral efficiencies, in turn raising costs to participants. there is also a need to close important information gaps on the rules that will govern global ccps, including the criteria for mutual recognition of ccps and membership conditions, as well as details on the arrangements to mitigate the concentration of risk to the ccp itself or its members. these gaps are currently limiting a more complete assessment of domestic and regional options for central clearing. the global reforms for the most part would contribute to the promotion of more consistent approaches to regulation which is an important precondition for greater financial integration in asia. in a number of countries, the global reforms have had a role in accelerating further domestic priorities to strengthen financial resilience. initiatives that are being advanced at the global level also work to strengthen regional financial stability arrangements. this includes putting in place more robust frameworks for the oversight of systemically important financial institutions at a regional level. within asia, a clear evolution of such frameworks can already be seen in the operationalisation of cross - border supervisory colleges for financial institutions with a significant regional presence. the reforms have further encouraged closer coordination and communication on financial stability developments between countries in the region. this has been borne out of common perspectives and challenges shared among countries in the region on the direction and impact of the reforms, and the need to bring forward the collective views of the region. these implications will further strengthen the foundations for regional financial integration in asia. policy shifts and the proliferation of binding “ one - size - fits - all ” regulatory prescriptions however, goes against the grain of regulation that is proportionate to risk which has been a well established principle of sound regulation. there is therefore considerable risk to simply following new “ trends ” which may lead us down yet another potentially