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Asia region funds passport (ARFP) - regulatory memo
Asia region funds passport (ARFP) - regulatory memo
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Asia region funds passport (ARFP) - regulatory memo

05/02/2018

The Asia Region Funds Passport (ARFP) is an initiative led by Asia-Pacific Economic Cooperation (APEC) with the objective of attracting and keeping finance within the region to foster its economic growth, and strengthen the investment management industry. The ARFP forms a good framework to promote cross-border fund distribution in the Asia-Pacific region and will complement the existing cross-border distribution schemes in the region such as the UCITS and master-feeder fund structures

About the Asia region funds passport

The Asia Region Funds Passport (ARFP) is an initiative led by Asia-Pacific Economic Cooperation (APEC) with the objective of attracting and keeping finance within the region to foster its economic growth, and strengthen the investment management industry. Five countries (Australia, Japan, New Zealand, South Korea and Thailand) have signed a Memorandum of Understanding to participate in the ARFP. APEC is continuously promoting the ARFP scheme to other member countries for consideration. Potential new joiners could include India, Indonesia, the Philippines, Singapore and Vietnam. The ARFP will allow 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 Joint Committee, a working group consisting of financial markets representatives from the participating regulators, proposes and enacts the ARFP rules and implementation. The ARFP emphasises investor protection by ensuring that participating countries must meet international IOSCO standards.

Key reference documents:

Key requirements

The fund must:

  • Be constituted or established as a regulated Collective Investment Scheme (CIS) or a sub-fund of a regulated CIS in one of the participating ARFP jurisdictions
  • Be distributed in its home jurisdiction
  • Have a net asset value of at least USD 500mn
  • Only invest in specific asset classes: transferable securities, money market instruments, deposits, depositary receipts over gold, derivatives, units of other funds. Further details are in the ARFP rules document

 The fund’s operator must have a minimum capital of USD 1mn, plus 0.1% of Assets under Management (AuM) above USD 500mn of AuM, up to USD 20mn. The ARFP commits to a 21-day application review timeline for ARFP eligibility.

Scope

Asset managers in participating countries that aim to raise capital from retail investors in the Asia-Pacific region using their locally domiciled funds. Currently, only certain investors in some countries can directly access a limited range of foreign funds. For instance, Australia (wholesale investors), Japan and South Korea allow the distribution of UCITS funds.

Industry implications

Funds in most Asian economies are largely domestic strategy funds. The ARFP will be an excellent opportunity for asset managers to distribute their unique strategies to new markets. Local asset managers will face increased competition from foreign asset managers, likely leading to a downward pressure on fees. 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 in host jurisdiction(s)

They 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.

BNP Paribas Securities Services' view

The ARFP Joint Committee is strongly committed to the success of the ARPF 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. The ARFP will complement the existing cross-border distribution schemes in the region such as the UCITS and master-feeder fund structures. The ARFP Joint Committee launched a pilot programme in January 2018, inviting industry players to participate in testing the processes and treatment relating to launching an ARFP fund. We expect to see the first ARFP funds launched within the first half of 2018. Asset managers are likely to take a wait-and-see approach to the scheme. 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

September 2013 - Signing of ARFP Statement of Intent

September 2015 - Signing of ARFP Statement of Understanding

June 2016 - Signing ARFP Memorandum of Cooperation

December 2016 - Formation of Joint Committee

August 2017 - Third ARFP consultation paper released Guidance for laws and regulations

January 2018 - ARFP pilot programme launched

Early 2018 - Local legislation finalisation

Mid 2018 - First ARFP fund launched

Download the regulatory memo

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