The Asia Region Funds Passport (Passport) was launched on 1 February 2019. This was agreed at the fifth face-to-face meeting of the Asia Region Funds Passport Joint Committee in Auckland, New Zealand on 19 and 20 September 2018.
Japan, Thailand and Australia are now ready to receive registration applications from local prospective Passport funds and entry applications from foreign Passport funds. The Republic of Korea and New Zealand are still in the process of finalising the legal and regulatory requirements for implementation required in their respective jurisdictions.
The Passport will enable cross-border offerings of managed funds to retail investors while maintaining effective legal and regulatory arrangements for investor protection. The Passport aims to provide significant benefits to investors through enabling greater fund choice. It is also intended to strengthen the capacity, expertise and international competitiveness of the funds industry and financial markets in the region. The Passport also seeks to promote investment between the participating economies by removing unnecessary regulatory barriers and reducing the cost of raising capital in all participating economies.
The Passport allows an operator of a foreign passport fund established and regulated in one participating home economy to offer interests to persons in another participating host economy, subject to the Passport rules and any additional requirements that a participating economy may impose.
The Passport prescribes a number of criteria in order to offer funds within the participating economy. Some of the key criteria are set out below:
- constituent documents - the operator of a passport fund must ensure that the passport fund has a compliant constituent document at all times
- operator being an “eligible entity” – the operator of a passport fund must meet the financial resources test, track record test and organisational arrangement test, among others. The operator must also have discretionary management powers over others’ money with a total asset value of at least US$500m. The officers of the operator must also meet qualification requirements under the Passport
- financial resources of the operator – the operator of a passport fund must at all times meet the financial resources test (ie. its equity (converted at the relevant exchange rate, where not denominated in USD) is greater than US$1,000,000 plus additional capital amount (as defined under the Passport rules))
- qualification of officers of the operator of a passport fund – (i) its chief executive officer (or the equivalent) should have at least 10 years of relevant experience within the previous 15 years as an officer or employee in an IOSCO financial services related business, with 5 of the 10 years in a managerial or supervisory role, and (ii) at least 2 executive directors (or the equivalent), which may include the chief executive officer, each with at least 5 years of relevant experience within the past 7 years as an officer or employee in a managerial or supervisory role in an IOSCO financial services related business
- independent oversight entity – the independent oversight entity must monitor the operator for compliance with the constituent documents of the passport fund and the laws and regulations of the participating home economy, and
- permitted investments - the Passport sets out limits on the types of assets that a passport fund may acquire. In addition to entering into derivatives or securities lending arrangements, a passport fund may generally only acquire currency, deposits, depository receipts over gold, transferable securities and money market instruments.
Whilst Singapore had signed a Statement of Intent, it has yet to sign the memorandum of co-operation due to tax concerns which may put Singapore-domiciled fund managers at a disadvantage. As such, Singapore is at present not a participating jurisdiction. Singapore currently participates in the “passporting” regime of the ASEAN CIS Framework. There is optimism Singapore will participate in the Passport in the future.
If you have any questions or would like to find out more, please contact our funds partner in Singapore, Jek-Aun Long.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.