ASIA REGION FUNDS PASSPORT - Treasury

ASIA REGION FUNDS PASSPORT - Treasury

Introducing the framework for Asia Region Funds Passport Summary Context Comparison with other regional initiatives What is the Passport? Objectives Who regulates what? Other host economy laws and regulations Passport rules and application process 2 Context The Johnson Report (2009) recommended a package of funds management reforms:

Investment Manager Regime Collective Investment Vehicles Asia Region Funds Passport Regulators worked co-operatively to develop the Passport framework through 11 policy and technical workshops held between 2011 and 2014, and two joint consultations conducted in 2014 and 2015. Signatories to the Passport Memorandum of Cooperation (MoC) are working to implementation by the end of 2017: Japan, Australia, New Zealand, Korea and Thailand. 3 Comparison with other regional initiatives ASEAN Collective Investment Schemes Eligibility Qualifying CIS operators Malaysia and Thailand Retail investors in Hong Kong China MRF Singapore,

Application Home regulator assesses suitability cross-border distribution Streamlined authorisation process for Fund requirements Qualifications of trustee/fund supervisor 5 years experience USD 500M of assets under management, shareholder equity of USD1M Investment restrictions Transferable securities, money market instruments, deposits, units of other CISs and financial derivatives Additional rules apply for money market funds, master feeder funds, funds of funds and exchangetraded funds Ongoing requirements Home regulator rules generally apply Ongoing reporting in host jurisdiction Breach reporting requirement

Eligibility Hong Kong and mainland Chinese operators of compliant local funds Retail investors Application Domiciled on the host country, fund registered with home regulator Streamlined authorisation process Fund requirements Authorised for over 1 year Fund size not less than RMB200 million Less than 20% of assets in host country Investment management function remains on home country Must appoint a host country representative Distribution to host country investors doesnt exceed 50% of total assets Investment restrictions Only general equity funds, balanced funds, bond funds and unlisted index funds no money market funds Ongoing requirements Home jurisdiction rules generally apply unless it relates to sale and distribution Breach reporting requirement

Asia Region Funds Passport Eligibility Qualifying fund operators from Australia, Japan, South Korea, New Zealand, Thailand Retail investors Application Fund must be registered in home country as a Passport fund Streamlined authorisation/notification process Fund requirements 5 years experience, US$500m FUM for fund manager, qualifications test Min US$1M + 0.1% (capped at US$20m) Mandatory custodian Independent oversight Investment restrictions Only liquid assets, mandatory diversification, no leverage, restrictions on using derivatives Ongoing requirements Assets are managed in accordance with home economy laws, unless it relates to disclosure and distribution Ongoing reporting to both economies Breach reporting requirement

4 What is the Passport? The Passport is a common framework of coordinated regulatory oversight to facilitate cross border issuing of managed investment funds Enables a fund registered in its home economy to be passported into other participating economies Passport funds comply with home economy financial services laws and uniform Passport rules The fund structure only needs to comply with home laws Exempt from most of host economy financial services laws Tax and disclosure regulated by host economy 5 Objectives For investors more choice, lower fees For industry economies of scale and an internationally recognised model (improving ability to attract international funds/investors and easier entry to overseas markets) For markets financial market depth and efficiency For regulators more efficient oversight of cross-border funds

For our region encourages investors to keep savings here, deepening capital markets and supporting growth in financial services provision Managing risks coordinated oversight supports consumer protection and financial stability 6 Who regulates what? 7 Other host economy laws and regulations The table above sets out the main areas in which host economy laws and regulations may apply. Host economies may only impose obligations additional to those on domestic funds if: they are not unduly burdensome for the Passport fund in comparison to a domestic fund; and they are reasonable to promote confidence in retail investment in Passport funds. The Passport Joint Committee is consulting on a guidance note setting out how the host economy laws and regulations are intended to apply. Consultation closes 19 September. Australia can stop Passport funds from another economy entering or selling in Australia if: there is a difference in the interpretation, application or implementation of the MoC (e.g.

imposing an unduly burdensome obligation on Passport funds or not processing applications in time); and the difference cannot be resolved reasonably and in good faith. 8 Passport rules There is a single set of Passport Rules across all Passport economies set out in Annex 3, MoC. Each economy must incorporate into their domestic law. Australia will implement the Passport Rules through a regulation to enable flexibility if the Rules change over time. Sets out minimum standards: 5 years experience, US$500M FUM for fund manager, qualifications test for officers capital requirements: US$1M + 0.1% FUM capped at US$20m mandatory custodian independent oversight (e.g. compliance committee, depositary) Investment restrictions (only liquid assets, mandatory diversification, no leverage, restrictions on using derivatives). 9 The Passport application process Manager establishes

track record of experience and achieves minimum FUM Manager applies to home regulator to register a passport fund Host regulator checks disclosure Fund gives its original application to the host regulator together with any disclosure documents that need approval Home regulator is satisfied that fund meets its domestic requirements and the passport requirements in

the special rules Host regulator gives all clear Fund manager activates distribution channel Ready to issue Manager licenced in home economy 10

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