In 2014, Singapore was one of six countries who released a joint consultation paper on the proposed rules and arrangements that will govern the operation of the Asia Funds Region Passport (“ARFP”), an initiative for the creation of a regulatory arrangement for the cross-border offer of collective insurance schemes in participating economies. Singapore signed a Statement of Intent on the ARPF and has been involved in drafting its framework since 2013.

However, at the Asia Pacific Economic Cooperation (Apec) finance ministers meeting in Cebu, the Philippines on 11 September 2015, Singapore chose not to sign a Statement of Understanding on the deal.

The ARFP is due to be launched in 2016, and will allow fund managers operating in one member country to offer their funds in another member country under a streamlined authorisation process. The six nations who have signed the Statement of Understanding are Japan, Australia, South Korea, the Philippines, Thailand and New Zealand. However, Singapore declined to  sign  because  taxation arrangements that had been committed to previously were not included in the Statement of Understanding.

The MAS advised that, when the Statement of Intent was signed by Singapore in 2013, the signatories explicitly committed to reduce the potential impact of taxation arrangements that would otherwise impede the success of the ARFP. The MAS stated that “[t]his was consistent with the feedback that the industry gave, where for the ARFP to be successful there needs to be a level playing field. This means that foreign funds offered to investors in a jurisdiction should be subject to similar tax treatments as funds managed locally.”

However, the MAS noted that the Statement of Understanding did not provide any commitment to addressing the impediment of unequal tax treatment and accordingly would not now be beneficial to fund managers in Singapore.

The MAS has said that it remains open to participating in the ARFP when there is commitment to resolve this tax issue. In the meantime, Singapore will continue to develop and finalise the arrangements for the ARFP, including drafting the regulatory framework.

Our Comments

This development caught many market watchers by surprise and will disappoint wealth managers hoping to leverage upon Singapore’s status as a regional wealth management centre and tap on Singapore’s mass affluent residents as investors.

Singapore also has a comparatively benign tax regime on foreign funds and income received by individual investors in Singapore from foreign funds. Therefore, it makes perfect sense from Singapore’s perspective to step out of the ARFP if the consequence of participating in the ARFP is to open up the Singapore funds market further to foreign fund managers, whilst not securing any benefit or advantage to Singapore-based fund managers who wish to distribute their funds abroad.

It should be remembered that back in August 2014, under the aegis of the ASEAN Capital Markets Forum, MAS, the Securities Commission of Malaysia and the Securities and Exchange Commission of Thailand successfully launched the ASEAN CIS Framework to facilitate cross-border offers of collective investment schemes (“CIS”) to retail investors in these three countries. To the best of our knowledge, no change in tax regulations in Singapore, Malaysia or Thailand was made to jump-start the ASEAN CIS Framework.

For Singapore fund managers who are pursuing the dream of a funds passport to market their funds across the borders, the reality of fulfilling this dream may indeed lie closer in ASEAN, Singapore’s immediate neighbourhood.