ICI Global urges changes to regional fund passport scheme

15 July 2014   Category: News, Asia, Australia, Global, Korea, Philippines, Singapore, Thailand, New Zealand, Asia Pacific   By Asia Asset Management

ICI Global, the international arm of US body the Investment Company Institute, has issued a number of recommendations as part of strengthening the operational, implementation, and tax aspects of the imminent Asia Region Fund Passport (ARFP) initiative.

The proposal comes after the governments of Australia, New Zealand, Singapore, Korea, the Philippines, and Thailand, in April released a public consultation paper with regard to the ARFP scheme that enables the countries’ asset managers to sell or “passport” their funds into all six markets. The ARFP is expected to commence in 2016.

ICI Global said in a statement that the “timely and exciting” initiative, which is designed to deepen financial markets and benefit investors in the six countries, holds promise. Additional changes to the proposals, however, would improve the initiative’s potential for long-term success.

As such, ICI Global makes several recommendations to ensure the initial take-up and the long-term viability and success of the cross-border fund framework.

“This is a highly valuable initiative for the region and we applaud APEC’s efforts on the consultation. The timing is excellent as it coincides with strong growth of the fund industry in the region. We believe this framework could help achieve the passport objectives including supporting deeper financial markets and industry growth to the benefit of investors,” said Qiumei Yang, chief executive officer of ICI Global Asia-Pacific.

“To be globally competitive and successful, fund firms are increasingly centralising management resources and research systems, and the “passport concept” of allowing a single fund structure to be offered efficiently across all six economies will benefit both fund sponsors and fund investors. The changes we recommend will help make the passport more economically and operationally feasible,” she said.

ICI Global made the following recommendations for the six countries to consider:

  • Operational recommendations: For cross-border success, regulated funds require a workable passport framework. The letter describes the importance of reducing operational challenges, such as the impact of different investment restrictions and investor disclosure requirements, as well as duplicative or conflicting delegation rules that unnecessarily restrict access to portfolio management in other locations. Specifically, funds need to be able to take advantage of their existing efficiencies and expertise in offering their products through passport funds. Managers frequently seek to offer ‘mirror’ funds that offer the same investment objectives and strategies in different markets and facilitating common approaches across the region will help ensure the passport’s success.
  • Implementation recommendations: Looking to the future, the letter recommends that as the passport initiative is finalised, the six countries form a “college or group of representatives from member economies” to monitor passport developments and help resolve differences in implementation while promoting coordination, harmonisation, and convergence of rules. A formal ongoing review and revision process is necessary for the long-term viability of a passport programme.
  • Tax recommendations: The initiative must ensure tax neutrality and tax certainty for funds across APEC jurisdictions. Passported funds should receive equal tax treatment, regardless of any existing home country tax advantages. A level playing field would support competition among firms and choice for investors. In addition, funds and their investors should have clarity over, for example, the tax consequences of a fund portfolio investment. Tax certainty is critical for funds to make the economic investment to expand and for investors to invest their money. To ensure that tax issues do not erode the benefits of investing in a passport fund, ICI Global recommends that the member economies work together to identify and address tax issues.

Ms. Yang has submitted ICI Global’s comments on behalf of regulated investment funds to finance ministers in the six countries proposing the scheme.