The Asia Region Funds Passport (ARFP) is an initiative led by the Asia-Pacific Economic Cooperation (APEC). The objective of the ARFP is to attract and keep finance within the region in order to foster its economic growth as well as to strengthen the investment management industry. Five countries (Australia, Japan, New Zealand, South Korea and Thailand) signed a Memorandum of Understanding to participate in the ARFP.
About the Asia Region Funds Passport – ARFP
The Asia Region Funds Passport (ARFP) has been live since 1 February 2019. Japan, Thailand, Korea, New Zealand and Australia are ready to receive registration applications from local prospective passport funds and entry applications from foreign passport funds.
APEC is continuously promoting the ARFP scheme to other member countries for consideration. The member economies undertook a review of the Asia Region Funds Passport in 2023. The final report identifies barriers faced by industry participants and key opportunities to encourage participation.
The ARFP allows units of funds authorised in a participating country (home jurisdiction) to be offered in other participating countries (host jurisdictions) upon approval as an ARFP fund and host jurisdiction authorisation. The ARFP emphasises investor protection by ensuring that participating countries must be signatory to Appendix A of the International Organization of Securities Commissions Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MMOU).
Key reference document: APEC ARFP website
Key requirements of the Asia Region Funds Passport – ARFP
A passport fund must:
- Be offered subject to the home jurisdiction laws and regulations that would normally apply to the regulation CIS to the general public
- Be distributed in its home jurisdiction
- Only invest in specific asset classes: currency, deposits, depositary receipts over gold, transferable securities and money market instruments.
The Operator of a passport fund must:
- Have equity greater than USD1 million plus additional capital amount
- At all times meet the organisational arrangement test, track record test, good standing test, etc.
Scope of the Asia Region Funds Passport – ARFP
Asset managers in participating countries aim to raise capital from retail investors in the Asia Pacific region using their locally domiciled funds. As of today, the alternative strategies and long short funds are excluded from the scheme.
Industry implications of the Asia Region Funds Passport – ARFP
Funds in Asian economies are largely domestic strategy funds. The ARFP is an excellent opportunity for asset managers to distribute their unique strategies to new markets. Retail investors will benefit from a wider range of fund investment products to choose from.
Challenges for asset managers
Currently, host jurisdictions’ rules significantly differ in areas such as disclosure requirements. In addition, unequal tax treatments between local and foreign funds also hamper foreign fund attractiveness and comparability.
Asset managers also face challenges in managing an effective distribution model such as:
- Currency restrictions in South Korea and Thailand: onshore FX requirements, overall foreign investment quota, foreign currency transaction restrictions
- Fund operator responsibility for appointing suitable local representative, distributor and transfer agent, if applicable, in host jurisdiction(s)
- Tax treatment needs to be harmonised across the participating countries to allow neutrality (at a minimum) between local fund and passported funds
- Distribution via the local channels is also a significant hurdle as this requires distributor education and investment, and online platforms are still in their emerging stage
Asset managers also have to choose the most suitable product for the target market(s), avoiding cannibalising sales of local distributor partners and offering competitive fees against local funds.
Securities Services’ view
The ARFP Joint Committee is strongly committed to the success of the ARFP by actively engaging with the industry. We believe that the ARFP forms a good framework to promote cross-border fund distribution in the Asia Pacific region if the challenges mentioned above can be resolved effectively. The ARFP complements the existing cross-border distribution schemes in the region such as the UCITS and master-feeder fund structures. Distributing in a new market requires a long-term commercial strategy, to offset costs incurred by building distributor networks and meeting reporting requirements.
Key dates of the Asia Region Funds Passport – ARFP
June 2016 –ARFP Memorandum of Cooperation signed
December 2016 –Joint Committee formed
January 2018 – ARFP pilot programme launched
February 2019 – ARFP went live
July 2024 – 15th ARFP Joint Committee Meeting held: the ARFP Joint Committee reported that New Zealand has now taken all steps to implement the recommendations in the variation agreement, and therefore all members had now fully implemented the recommendations.
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