The capital markets regulators of Singapore, Malaysia and Thailand1 have, under the auspices of the ASEAN Capital Markets Forums, jointly launched the ASEAN CIS Framework (Framework). Fund managers based in Singapore, Malaysia or Thailand now have an avenue to offer collective investment schemes (CIS) constituted in their respective home jurisdictions to retail investors in other Framework jurisdictions through a streamlined authorisation process. Prior to the Framework, separate applications to the regulators of each jurisdiction in which the offering is proposed to be made would have to be submitted and considered under the respective local regimes.
OPERATION OF THE FRAMEWORK
The Handbook for CIS Operators of ASEAN CISs issued on 25 August 2014 elaborates on the procedures to effect a cross-border offering of a CIS under the Framework2. A brief synopsis of how this would work from the perspective of a Singapore-based manager and CIS follows below3 .
Authorisation by Home Regulator
- the CIS must be properly constituted in Singapore and authorised under Section 286 of the Securities and Futures Act, Cap 289 for an offering in Singapore
- following authorisation, the MAS then assesses if the manager and CIS qualify under the Framework. As part of this exercise, the MAS will consider if the prescribed ‘minimum’ conditions set out in the Standards of Qualifying CIS (the Standards) are met. These include, amongst others:
- licensing/registration requirements applicable to the manager, trustee or fund supervisor
- asset custody arrangements
- product restrictions4
- independent NAV calculation, disclosure as well as pricing requirements
- redemption rights and payment procedures
- investor limited liability protection and rights relating to amendment of the CIS’ constitutive documents, as well as conflicts of interest measures
- nomenclature and marketing wise, a CIS must not hold itself out as ‘capital guaranteed’, ‘capital protected’, ‘principal protected’, a ‘real estate investment trust’ or ‘REIT’
- if the manager and CIS pass muster, the MAS will issue a standard-form ‘no-objection’ letter to this effect5
Application to the Host Regulator
- the manager then submits an application (on a prescribed ASEAN CIS Application Form, with the requisite supporting documents) to the Host Regulator seeking approval for a public offering in the Host Jurisdiction
- the application will undergo a streamlined authorisation process which is anticipated to not take longer than that required in reviewing a local fund application
- notwithstanding the Home Regulator may have concluded that the CIS qualifies as an ASEAN CIS, the Host Regulator has the right to effectively ‘re-assess’ the application, notably to ensure that Home Jurisdiction conditions are (in addition to the Standards) met
- disclosure requirements of the Host Jurisdiction are to be complied with
- offering materials in compliance with the Host Jurisdiction’s rules are necessary but can take the form of the prospectus submitted to the Home Regulator with an appropriate wrapper
- the Host Regulator may reject an application (or if initially granted, suspend or revoke the same) on various grounds including non-compliance with Host Jurisdiction rules or the CIS’ constitutive documents, and submission of false or misleading information6
Distribution in the Host Jurisdiction
- if approved, the ASEAN CIS offering is made through local intermediaries licensed or regulated in the Host Jurisdiction
- offers of the ASEAN CIS will have been or will concurrently be made, in Singapore
- these include ensuring that offering materials are kept accurate, updated supplements or offering documents are promptly filed with both the Home and Host Regulators, otherwise applicable reporting obligations in the Host Jurisdictions are complied with7 and to report any significant changes to the CIS Operator8 or ASEAN CIS
- an independent auditor should be appointed to conduct an annual audit of the qualifying CIS, covering, at a minimal, compliance with the Standards, and to provide an independent auditor’s report to the supervisor of the ASEAN CIS, the Home and the Host Regulators. This audit should be conducted in the Home Jurisdiction by an accordingly registered or regulated auditor.
The establishment of the Framework has been met with generally positive feedback as it should provide retail investors with greater investment choice at lower access costs. It remains to be seen if the Framework will indeed bring about a quicker, cheaper and less cumbersome cross-border offering of retail funds into Singapore, Malaysia and Thailand. For instance, while the Standards prescribe for uniformity in qualifying conditions, additional / more stringent requirements may be imposed under Host Jurisdiction rules, a reality-check that the authorisation regimes of the Framework countries are not yet (and perhaps may never be) completely on ‘all-fours’.
Launch of the Framework has taken place against the backdrop of the [separate] APEC Region Funds Passport9 which is due to be implemented by 2016 and which counts as its member participants Singapore, Korea, Australia, New Zealand and more recently, the Philippines and Thailand. It is not the intent of this briefing to discuss how and in what manner the approaches taken in both schemes differ but for managers based in countries who are able to participate in both schemes, a comparative analysis would be an interesting exercise to undertake.