On 28 March 2018, the Corporations Amendment (Asia Region Funds Passport) Bill 2018 (Bill) (available here) was introduced to Parliament. The introduction of the Bill reinforces the Government's commitment to the Asia Region Funds Passport (Passport), a multilateral framework that allows eligible funds to be marketed across participating economies.
The Bill follows the signing of a Memorandum of Cooperation (MOC) which came into effect on 30 April 2016 and set out the internationally agreed rules and cooperation mechanisms underpinning the Passport. Currently Australia, Japan, New Zealand, South Korea and Thailand are signatories to the MOC. The Bill is designed to implement the Passport arrangements into Australian law.
Becoming a Passport Fund
The Bill sets out the requirements for registering both Australian passport funds and foreign passport funds, which is further supported by draft regulatory guides released by ASIC on 26 October 2017 (available here). These requirements are broadly summarised below.
ASIC must register a scheme as an Australian passport fund if ASIC is of the opinion that the responsible entity meets the eligibility criteria in the MOC and ASIC is satisfied that the scheme will comply with the corporations legislation in Australia, including the Passport Rules. There is no prescribed timeframe within which ASIC must conclude its assessment. Foreign passport funds will generally be notified within 15 business days if the information required under the notice of intention has not been provided. Interests in foreign passport funds may be offered to persons in Australia if 15 business days have passed and the foreign passport fund operator has not received a request from ASIC for further information or a rejection notice.
Key Eligibility Requirements
Under the MOC, Passport operators are required to meet certain eligibility requirements. The Bill refers to the eligibility criteria, which requires the responsible entity of an Australian passport fund to demonstrate it:
- meets the financial resources test in the Passport Rules (that is, the responsible entity has between US$1 million and US$21 million in equity, depending on the value of the assets under management);
- is responsible for operating a registered managed investment scheme with assets of at least US$500 million or has discretionary management powers over at least the same amount of client money;
- meets the track record test under the Passport Rules by having at least five years of relevant experience;
- meets the organisational arrangements test in the Passport Rules, including by establishing internal control mechanisms, adequate risk monitoring and adequate procedures for managing conflicts of interest;
- has officers with the relevant qualifications specified in the Passport Rules; and
- meets the good standing test in the Passport Rules by not being subject to a notice that brings into question its integrity or competence.
Key Obligations that will Apply to Foreign Passport Funds
The Bill also addresses obligations in relation to reporting, licensing, marketing and future of financial advice requirements that apply to registered managed investment schemes. The Bill proposes further amendments to the Corporations Act 2001 (Cth) that seek to ensure those obligations that currently apply to registered managed investment schemes in Australia will apply in the same way to foreign passport funds. Relevantly, foreign passport fund operators will need to partner with an Australian financial services licensee to distribute and offer interests in a foreign passport fund in Australia.
Where to Next?
The Passport is widely seen as a key building block to increasing financial integration across the Asia-Pacific region and, in particular, to facilitating the flow of capital into the region's equity and debt markets. The Passport presents a powerful opportunity for fund managers from participating economies to target new markets across the region. For Australia, the Passport will be complemented by a new corporate collective investment vehicle regime, which will provide Australian fund managers with a new corporate vehicle (and following that a limited partnership vehicle) to export to Asian investors. The Asia-Pacific Economic Cooperation are seeking expressions of interest to participate in a pilot program for the Passport, which is expected to commence later this year following further industry discussions later this month.