6 July, 2015
On 27 February 2015, Singapore, Australia, Korea, New Zealand, Philippines and Thailand released a joint consultation paper (“Second Consultation Paper”) on the proposed rules that will govern the operation of the Asia Region Funds Passport (“ARFP”). The Working Group also issued its responses to feedback on a public consultation published on 16 April 2014 (“First Public Consultation”) on the same subject.
The proposed rules are not greatly different from the framework proposed in the initial consultation. This update will therefore only focus on those areas where changes were made:
- The First Public Consultation had proposed that there had to be an ongoing offer of interests in a passport fund in its home jurisdiction in order for interests in the fund to be offered in a host jurisdiction. The Second Consultation Paper provides two other alternatives where interests in a passport fund may be offered in a host jurisdiction:
- There is an ongoing offer of interests in a sub fund which forms part of the same regulated collective investment scheme as the passport fund; or
- At least 30% of the value of interests in the collective investment schemes for the operation of which the operator is responsible are held by members of those collective investment schemes resident in the home jurisdiction and the operator has provided a disclosure document to the home regulator that meets the requirements for a disclosure document for an offer of interests in the passport fund that would normally apply to an offer of interests in a regulated collective investment scheme to the general public in the home jurisdiction.
- The First Public Consultation had required that a passport fund have, among other officers and employees, at least one investment officer, who would be responsible for investment decisions. The Second Public Consultation does not require the investment officer to be responsible for investment decisions, but must at least be responsible for supervising investment decisions including monitoring and evaluatingthe performance of an investment management delegate and being substantially involved in decisions about whether the delegate should continue based on its performance.
- The First Consultation Paper had stipulated that where the investment management function is to be delegated, the passport fund must ensure that the delegate meets certain requirements as to regulation and eligibility as set out in the passport rules. The Second Consultation Paper provides that passport fund operators will be allowed to delegate investment management functions for up to 20% of the fund’s assets under management to any entity which is regulated by an IOSCO Appendix A signatory, and is subject to a regulatory regime that provides broadly similar outcomes. A passport fund operator will only be allowed to delegate investment management functions for more than 20% of the fund’s assets under management if the officers of the delegate also meet certain minimum experience requirements.
- The Second Consultation Paper clarifies that an operator may, subject to a floor of 10%, limit the number of interests that may be redeemed on any one day and defer redemption requests that exceed that limit.
- The First Consultation Paper had stated that redemption had to be allowed in the currency of any economy. The Second Consultation Paper provides that operators need only offer redemptions in the currency in which a member acquired their interests subject to any reasonable costs based on a reasonable estimate of costs for the required foreign exchange.
- The First Consultation Paper had proposed that exchange traded funds (“ETFs”) provide redemption rights when there was a suspension of trading for five consecutive days. The Second Consultation Paper excludes existing ETFs from this requirement, which will only apply to new ETFs.
The ARFP is targeted to be launched around the second half of 2016.