Singapore, Australia, Korea, New Zealand, Philippines, and Thailand have released a joint consultation paper on the proposed rules and arrangements that will govern the operation of the Asia Region Funds Passport (“ARFP”). The ARFP is an APEC initiative for the creation of a regulatory arrangement for the cross-border offer of collective investment schemes (“CIS”) in participating economies. When implemented, it will allow fund managers operating in a passport member economy to offer their funds in other passport member economies under a streamlined authorisation process.

The consultation paper sets out the substantive rules that will apply to participating fund managers and passport funds. It also sets out common standards and expectations amongst regulators from passport member economies on the supervision of passport funds, including the protection of investor interests. The last day for comments is 11 July 2014.

Following the consultation, the jurisdictions that decide to participate in the passport will together work towards the launch of the ARFP in 2016. This Update takes a look at the Consultation Paper.

Applicable Rules

A fund manager that intends to obtain a passport to operate outside its home jurisdiction will need to comply with the laws and regulations of its home jurisdiction, the foreign jurisdiction it intends to enter (the “host jurisdiction”), and the applicable rules under the ARFP regime. The applicable laws and regulations will apply in the following ways:

• The basic eligibility criteria outlining which CIS can access the passport will be set out in passport rules.
• The laws and regulations of the host jurisdiction will apply to the offer of CIS to investors in the host jurisdiction.
• In the remaining areas of regulation, the laws and regulations of the home jurisdiction will apply but in a number of areas, these will be supplemented with passport rules. If the requirements of the home jurisdiction exceed those of the passport rules, compliance with the home jurisdiction requirements will suffice. If the converse is the case, the CIS will need to meet the higher standard of the passport rules.

Accordingly, the proposed application process is briefly as follows:

• The home regulator will assess whether a prospective passport fund meets the eligibility and registration requirements of the home jurisdiction as well as the passport funds regime.
• Once a passport fund has been authorised by its home regulator, it may apply for entry into each host jurisdiction in which it wishes to make offers.
• In assessing an application, the host regulator will not generally reassess the passport fund’s compliance with th home jurisdiction laws and regulations or the passport rules. Instead, it will focus on assessing the documents required to be lodged with the application by the host jurisdiction laws and regulations (for example, disclosure documents).

Basic Eligibility Criteria: Passport Rules To Apply

There are three types of basic eligibility criteria. These relate to:

• the types of CIS that are eligible;
• where they are located; and
• the CIS having made an offer in the home jurisdiction.

Types Of CIS

Each jurisdiction will nominate types of CIS that are authorised for offer to the public in its economy and could be offered under the passport. Only eligible CIS which invest predominantly in transferable securities and certain other liquid assets will fall within the scope of the passport arrangements.

Location Of CIS

A CIS can only be offered as a passport fund if:

• the CIS is constituted or established, and authorised in a passport member jurisdiction; and
• the operator is authorised and has a principal place of business in that same jurisdiction.

Home Jurisdiction Public Offer

Interests in a passport fund may be offered in a host jurisdiction if the following conditions are met:

• There is an ongoing offer of the interests in the home jurisdiction;
• The offer attracts the offering and disclosure requirements of the home jurisdiction that would apply to an offer to the public at large;
• The interests may be acquired by any member of the public in the home jurisdiction on an application under the offer, subject to applicable laws;
• Information about the offer is made available to persons who customarily arrange for investments in regulated CIS operated by the passport fund operator in an equivalent way to the way in which information about some or all other regulated CIS of the operator is made available;
• If commissions are paid by the passport fund operator on most of its other regulated CIS to persons who arrange for investments in the regulated CIS, equivalent commissions to that payable in relation to another regulated CIS are payable in the same circumstances in relation to the passport fund which is the subject of the offer; and
• If the passport fund operator enters contracts under which persons arrange for investments to be made for most of its other regulated CIS, those contracts or substantially equivalent contracts are entered in relation to the passport fund which is the subject of the offer.

Dealing With Investors: Host Jurisdiction Rules To Apply

In general, the laws and regulations of the host jurisdiction will apply in relation to the offers of interests to investors in its jurisdiction. This will involves in particular the following matters:

• Marketing;
• Distribution and licensing of distributors;
• Listing and quotation of interests;
• Disclosure of information about the CIS; and
• Complaints handling, including both internal dispute resolution and external dispute resolution.

Areas Where Home Jurisdiction and Passport Rules Apply

As noted above, there are various areas where home jurisdiction and passport rules will apply. We set out below a table of the applicable proposed passport rules that will apply.

For further information, please contact:

Kah Keong Low, Partner, WongPartnership

[email protected]

Elaine Chan, Partner, WongPartnership

[email protected]

Joy Tan, Partner, WongPartnership

[email protected]