Carla Hoorweg, Senior Policy Manager for Investment, Global Markets and Tax at the Financial Services Council, explains the Asia Region Funds Passport and discusses the likelihood of a pan-Asian fund passport.
There seems to be growing buzz about the ARFP. For those who haven’t been following the developments, what is the ARFP?
The ARFP is a multilateral agreement between participating jurisdictions to recognise retail fund products from each other’s markets. Conceptually, it’s similar to Europe’s UCITS framework in that it’s a regulatory regime operating across a number of jurisdictions (not a ‘product’ per se). There are minimum threshold requirements that a fund operator/licensee must meet, which will be signed off by the home regulator and product specifications that must also be met. Both sets of rules are contained in the Memorandum of Cooperation (MoC) signed on 28 April 2016 by Japan, Korea, Australia, and New Zealand, and also on 28 June 2016 by Thailand. Consumer protection and distribution laws of the ‘host’ country (i.e. the country where the product is being marketed) will apply and will be administered by the host country regulator.
What is the current state of the ARFP project and what are the next steps?
Countries that have already signed on to the MoC have until 31 December 2017 to implement the rules domestically. Countries which have been involved in earlier discussions, including Singapore and the Philippines have until 30 June 2016 to sign on as an original participant. Other countries may also be allowed to join later, on agreement by those already in the regime. The ARFP will formally commence once two countries have implemented the rules domestically.
What are some of the key challenges for the ARFP project?
Tax, tax, and tax. Participating countries are working together to identify the tax issues at a product, investor, and fund level. At this stage it is unclear how these issues will be resolved. What is clear is that the existing MoC is not a tax treaty. So resolution of tax issues will require each country to make the relevant changes to its own law.
Another key question is distribution. The ARFP rules will provide mutual recognition at the product issuance level but not for distribution. It looks likely that product issuers will need to partner with a local distributor to be able to satisfy local distribution licensing rules, a la UCITS.
How successful do you think the project can be and do you think other countries will join in the future?
There is huge scope for the project to be successful. The signing of the MoC has been a trigger for the naysayers to realise that regime is actually going to happen, which is adding to the momentum. But, like UCITS, this will not be an overnight success story. The ARFP rules are detailed and there is much to digest before a fund operator will feel comfortable enough to develop and issue products in another market.
There are a couple of other notable fund passport and mutual recognition initiatives happening in Asia. How do these intersect with the ARFP? Do you think there will be a convergence at some point, to create a more “pan-Asian” fund passport?
Convergence is always a possibility. The regimes currently operating in the region include the ASEAN Collective Investment Scheme (CIS), in which Singapore, Malaysia, and Thailand participate and the Hong Kong–China Mutual Recognition regime. The ARFP will intersect with the ASEAN CIS through Thailand and Singapore, if it decides to join, but generally the ARFP rules have been written with the ability to allow additional economies to join. The ARFP requirements may result in some countries needing to satisfy other obligations before they can join, such as compliance with certain IOSCO principles. Again, any kind of convergence won’t happen overnight but it’s certainly a possibility.
Finally, what’s the best book you’ve read this year?
I am ashamed to say that I’ve only read one book in its entirety this year and that was Principles of Contemporary Corporate Governance by Du Plessis et al, which was the core text for my final Masters of Law subject. This will make me sound like a bit of a regulatory nerd but it’s a great read!
About Carla Hoorweg
Carla Hoorweg is the Senior Policy Manager for Investment, Global Markets and Tax at the Financial Services Council (FSC).
Prior to joining the FSC in 2012, Carla worked for Henry Davis York law firm in their Financial Services Group. Carla has previously served as a ministerial advisor to the NSW state government where her policy portfolio included revenue (state and commonwealth), finance, commerce, insurance, and superannuation.
Carla has over 15 years’ experience in financial services, gained through various product development and corporate strategy roles encompassing mortgages, managed investment schemes, debentures, and wholesale investment advisory services.
Carla holds a Juris Doctor from the University of Technology Sydney, an Executive MBA from the Australian Graduate School of Management, a Bachelor and Graduate Diploma in Applied Psychology from the University of Canberra, a current NSW practicing certificate and is an Affiliate of the Australian Institute of Company Directors.
The positions expressed in this material are those of the author as of 6/29/16 and may or may not be consistent with the views of Brown Brothers Harriman & Co. and its subsidiaries and affiliates (“BBH”), and are intended for informational purposes only. Information contained herein is based upon various sources believed to be reliable and subject to change without notice. Furthermore, these positions are not intended to predict or guarantee the future performance of any currencies or markets. This material should not be construed as research or as investment, legal or tax advice, nor should it be considered information sufficient upon which to base an investment decision.