Asia is the world's fastest-growing economic region and comprises more than 60% of the world's population. The sheer rate of growth and progress in the Asia Pacific region underscores the rapid pace of development and the growing need for a wider variety of financial instruments and products.
Given the growing interest in the economies and sophistication of the financial markets in the Asia Pacific region, a number of economies in Asia have now gotten together to initiate Asia-centric fund passport schemes. As a result of the regional discussions, two promising schemes have emerged:
- The ASEAN CIS Framework for Cross-Border Offering of Funds
- The APEC Asia Region Funds Passport
Association of Southeast Asian Nations (ASEAN) CIS Framework for the Cross-Border Offering of Funds
On 1 October 2013, the ASEAN Capital Markets Forums (ACMF) announced that the securities regulators of Singapore, Malaysia and Thailand (the Framework Countries) have signed a Memorandum of Understanding to establish the ASEAN CIS Framework (the Framework) for the cross border offering of Collective Investment Schemes (CIS). The Framework is envisioned to facilitate the cross border offering of CISs targeted at retail investors and is likely to be implemented in the first half of 2014.
The Framework, which will be established by the capital market authorities of Singapore, Malaysia and Thailand will look to facilitate the cross-border offers of CISs, enabling fund managers from those jurisdictions to offer their funds directly to retail investors in the Framework Countries.
The Framework countries have adopted the Standards of Qualifying CIS, which will work to govern the cross border offering of CISs under the Framework and to ensure that the retail funds offered under the Framework are managed based on industry best practices. These Standards sets out the types of CIS that can qualify under the Framework, the minimum qualifications required for the CIS operator and its management and personnel, relevant investment restrictions, and the obligations of the CIS operator.
The Framework Countries have also separately agreed to an arrangement to provide mutual assistance to facilitate cross-border offerings of CISs to non-retail investors.
Asia-Pacific Economic Cooperation (APEC) Asia Region Funds Passport
On 20 September 2013, the finance ministers of Singapore, the Republic of Korea, Australia and New Zealand (the ARFP Signatories) signed a statement of intent to establish the Asia Region Funds Passport (theARFP), which will, not unlike the ASEAN CIS Framework, facilitate the distribution across regional borders of CIS funds manufactured, distributed and administered within the region. When implemented, the ARFP will enable CIS operators who operate in a Passport member economy to offer interests in any CIS that is constituted and authorised to investors in other Passport member economies. This is part of the wider effort to reduce the barriers to cross-border financial transactions, which was created by differences among the laws and regulations of the economies. It is intended for the ARFP to be operational from January 2016 onwards.
The ARFP Signatories, through the establishment of the ARFP, aims to achieve the following objectives:
- To provide investors with a more diverse range of investment opportunities, enabling them to better manage their portfolio and meet their investment objectives;
- To deepen the Asia region's capital markets to attract finance for growth in the region;
- To facilitate the recycling of the region's savings locally, growing the pool of funds available for investment in the region;
- To strengthen the capacity, expertise and international competitiveness of financial markets in the region and the fund management industry, with a view to supporting sound economic development; and
- To maintain the legal and regulatory frameworks which promote investor protection, fair, efficient, and transparent markets for financial services, support financial stability and provide high standards in the management and distribution of CIS.
The ARFP Framework Document sets out the scope and applicable rules of the ARFP. It also discusses the establishment of the pilot group and the eligibility of other economies who wish to join the ARFP scheme. The Framework Document also addresses the areas of supervisory and enforcement co-operation, governance and the implementation of the ARFP scheme.
In general, the host economy's laws and regulations will apply where they relate to the direct interaction between the investor and the ARFP eligible CIS. The home economy's laws and regulations will apply to the authorization of the CIS operator, and the authorization and operation of the CIS fund. The aim is to gradually reduce the variance between the laws and regulations of the home and host economies. Special rules will apply to achieve a streamlined authorization process. The special rules will also apply to improve regulatory controls, ensure the quality of the CIS fund offered, and improve investor protection.
The implementation of the two different fund passport schemes expands the potential investor pool for CIS offerings.
The schemes, if successful, promises to improve efficiency and reduce costs for CIS operators by promoting homogeneity in the CIS frameworks in the region. Cross-border capital flows will also provide fund managers with access to larger savings pools and allow for greater economies of scale. It is hoped that the increase in the variety of CIS funds in the Asia Pacific fund market, combined with the access to previously inaccessible markets, investment opportunities and foreign expertise, will also result in greater investor choice, which brings along with it the ability to diversify risk and assets.
Singapore: Strategically Positioned
As the only country currently with a foot in both schemes, Singapore is strategically positioned to take advantage of the beneficial impacts of the passport schemes. In general, if a CIS operator is able to meet the regulatory requirements and offer the CIS fund in Singapore, the CIS operator can potentially extend the CIS fund offer to the participating economies in both schemes. Currently, the ASEAN CIS framework standards are broadly in line with Singapore's domestic requirements governing fund offerings, while the ARFP standards have not yet been finalised and released. It is anticipated that the ARFP standards will also be roughly in line with Singapore's regulatory requirements.