In brief - A key international change for the Australian investment management sector is the Asia Region Funds Passport (Passport). The Passport is an initiative of APEC.
The Asia Region Funds Passport Joint Committee held its fourth face-to-face meeting in Sydney recently and its function includes monitoring the implementation of the Passport arrangements across the participating economies - Australia, Japan, New Zealand, Republic of Korea and Thailand. The media release by the Joint Committee following its meeting appears to indicate implementation well progressed. In Australia, a Bill was introduced into Parliament at the end of March this year, Japan and Thailand have completed their preparation, New Zealand is having the Passport Rules incorporated into legislation and the Republic of Korea is expected to put legislation before the National Assembly in June of this year.
The Passport represents a significant development for the investment management sector within Australia and the Asia Pacific region
In money terms, the potential size of the funds management market for retail investors will become much bigger under the arrangements. The ability to access this market is a key outcome of the Passport.
The addition of new retail investor markets and new product supply should have appeal as the potential funds market significantly increases.
The Australian Treasury prepared the following useful summary diagram for the establishment of the Passport. For Australia ASIC is the key regulator.
Source: A copy of the original diagram is available on the Australian Treasury website under the Passport Slides link here
Implementation of the Passport by a participant is necessary. Following implementation, commencement of the Passport occurs:
- when notification is provided by the participants of implementation having been effected; and
- notification has occurred for more than 1 participant.
As soon as 2 participants provide notification of implementation having been effected, passporting can occur between those participants. The implementation process allows for passporting even when implementation is still to be effected in another participant.
As a regulatory framework, the Passport operates at a level to ensure retail client protection. We expect there will be participation on a wholesale basis as well.
- UCITS is the well-known regulatory framework on which the Passport can be compared. UCITS with retail client regulatory protection settings is also attractive to wholesale investors.
- Australia provides an attractive retail and wholesale client investor base.
The ARFP is complex.
- The arrangement brings together a number of different jurisdictions and investors, with the intention of reducing regulatory requirements around the operation of a fund.
- The Australian Treasury in September 2017 issued a consultation paper for proposed law changes in order to implement the Passport, although this did not include consequential amendments and regulatory changes to address reduced regulatory requirements.
There will also be changes to address the requirements for Australia as a host jurisdiction. In this regard there is a need to take into consideration Australia's obligations as a participant under the Memorandum of Cooperation for the Passport. Broadly:
- The requirements proposed to offer a foreign passport fund do not diverge significantly from the current distribution requirements for a registered fund, although some additional disclosure requirements are proposed.
- Requirements where operators of foreign passport funds may need to pay attention in light of existing arrangements, are in respect of their obligations to comply with continuous disclosure requirements in Australia, to provide copies of reports made available to investors in the home economy, with an English summary, conflicted remuneration requirements for Australian distribution arrangements and licensing requirements for fund operation. With respect to licensing, licensing obligations are removed for the operation of the fund to given effect to the intent of the Passport,thowever related activities or novel activities will require consideration.
- The Joint Committee for the Passport has made available information on host economy requirements across key areas and we encourage industry to engage with this.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.