Law firm gives lowdown on regional CIS compliance

03 December 2013   Category: News, Asia, Australia, Korea, Malaysia, Singapore, Thailand, New Zealand, Southeast Asia   By Toby Garrod

Speaking at Asia Asset Management’s Ninth Annual Roundtable in Brunei, Han Ming Ho, partner at Sidley Austin LLP in Singapore, presented an overview of the key criteria every fund manager should know before he or she considers working within the region’s various collective investment schemes (CIS).

A rundown of the criteria is listed below.

ASEAN CIS framework

Framework to be implemented in Singapore, Malaysia and Thailand in first half of 2014.

Key criteria for a qualifying fund under the framework

  • Constituted and authorised in a member jurisdiction for retail offer;
  • Has a manager that is licensed or registered by home regulator and satisfies other minimum manager qualifications under the Common Standards;
  • Has a trustee (or fund supervisor) that is domiciled and regulated in same jurisdiction as the fund and satisfies other minimum trustee qualifications under the Common Standards;
  • Has custody arrangement that satisfies the requirements for custody of fund assets under the Common Standards;
  • Complies with prescribed investment restrictions set out in the Common Standards.

A qualifying fund cannot:

  • Name or describe itself as “capital guaranteed”, “capital protected” or “principal protected;
  • Name or describe itself as a “real estate investment trust” or “REIT”;
  • Charge performance fees.

Minimum track record of manager:

  • Five years minimum track record in managing funds;
  • Global assets under management (AUM) of at least US$500 million (including related companies’ AUM, but excluding AUM from property funds or REITs).

Minimum capitalisation of manager:

  • Shareholders' equity of at least US$1 million;
  • Where manager’s AUM exceeds US$500 million, additional capital of 0.1% of AUM in excess of US$500 million (possible to procure professional indemnity insurance (PII) in lieu of this additional capital).

Minimum experience of CEO:

  • Ten years experience in financial or capital markets.

Minimum experience of board of directors:

  • For executive director, five years experience in financial or capital markets;
  • For non-executive director, five years experience in any other field.

 Framework audit requirements:

  • Manager to appoint independent auditor to conduct annual audit of manager covering its compliance with Common Standards;
  • Manager to provide independent auditor’s report to trustee, home regulator and host regulator.

Manager may delegate up to 100% of its fund management function to foreign sub-manager/delegate that is:

  • Regulated by a framework signatory;
  • Subject to the minimum manager qualifications under the Common Standards;
  • Subject to the exchange of information and supervisory arrangement under the framework MOU.

Manager may only delegate up to 20% of NAV of qualifying fund to foreign sub-manager/delegate that is not regulated by a signatory to the framework, and provided that the foreign sub-manager/delegate is: 

  • Domiciled in a jurisdiction that is a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information;
  • Acceptable to the home regulator of qualifying fund.

Permissible investments:

  • May only invest in transferable securities, money market instruments, deposits, units in other funds and financial derivatives (note permissible investments are subject to certain eligibility requirements);
  • Single entity limit;
  • Subject to limit of 10% of net assets for investments in transferable securities or money market instruments issued by a single issuer (single entity limit);
  • Single entity limit is raised to 35% in the case of government debt securities with a minimum credit rating of investment grade;
  • Single entity limit is lowered to 5% in the case of non-investment grade, unrated or unlisted securities (in aggregate, such investments must not exceed 15% of net assets).

Initiative of APEC

Framework to facilitate cross-border offers of retail APEC funds

  • Manager in passport member economy can offer locally constituted and authorised funds to retail investors in other passport member economy under streamlined process;
  • Pilot group economies for initial launch of APEC passport;
  • Singapore, South Korea, Australia and New Zealand;
  • January to June 2014;
  • Public consultations on technical and procedural rules;
  • June to December 2014;
  • Refining of rules to take into account feedback, finalised rules set out in arrangement document;
  • February 2015;
  • Pilot group to sign arrangement document;
  • February to December 2015;
  • Pilot group to implement legislation to give effect to arrangement document;
  • January 2016;
  • Launch of APEC Passport.

Key criteria for an eligible fund under APEC passport

  • Constituted and authorised in a passport member economy;
  • Can take the form of any legal vehicle;
  • Meets home economy’s regulatory requirements for offers to retail investors;
  • Has a manager that is authorised and/or licensed, and having its principal place of business, in the home economy;
  • Is well diversified in terms of the exposure to issuers of financial products;
  • Is liquid and does not have complex features that may increase risk;
  • Is open-ended (i.e. with interests which are redeemable on request, except in specified circumstances).