Australian Government Consults on the Asian Region Funds Passport Bill Exposure Draft
Thursday 22 February 2018 @ 10.26 a.m. | Corporate & Regulatory | Legal Research | Trade & Commerce
The Treasury of the Australian Government this week (19 February 2018) opened submissions on the exposure draft of the Corporations Amendment (Asia Region Funds Passport) Bill 2017(Cth) (the Passport Bill). This consultation, due to close on 5 March 2018, is the third in a series of consultations which have been formulated to develop the legislative groundwork for the Asia Region Funds Passport (the Passport) in Australia.
An affiliated exposure draft, which can be found on TimeBase's LawOne service, is the Treasury Laws Amendment (Corporate 4 Collective Investment Vehicle) Bill 2017. Submissions closed for this draft on 2 February 2018.
Background
On 28 April 2016, the Asia Region Funds Passport’s Memorandum of Cooperation (MOC) was signed by representatives from New Zealand, Korea, Thailand, Japan and Australia. This was the result of six years of negotiation by all of the signatory parties. The MOC then came into effect on 30 June 2016.
The overall function of the MOC is the formulation of the internationally agreed rules and cooperation mechanisms which underpin the Passport.
Since signing the MOC, the signatory parties have been individually working to incorporate the Passport arrangements into their domestic jurisdictions. The Passport is then set to activate when any two participating economies have incorporated the Passport regulations into their prospective legal systems.
The Passport
The Passport aims to allow Australian funds managers to offer and trade products throughout Asia without the burden of requiring multiple approvals in each economy. The Passport itself and its envisioned benefits are outlined in the Passport Bill’s exposure draft explanatory materials:
“1.2 The Passport provides a multilateral framework that allows eligible funds to be marketed across member countries, with limited additional regulatory requirements. The Passport is intended to support the development of an Asia-wide managed funds industry through improved market access and regulatory harmonisation. This will bring many benefits for Australia and our region.
1.3 Australia has the largest funds management industry in the Asia region, largely as a result of our pool of superannuation assets. As a result, Australian fund managers can achieve greater economies of scale and can sell a single product across Asia through the Passport to create regional economies of scale. This should lower costs for consumers.
1.4 It will let managed fund providers from other Passport economies sell their products in Australia. This will increase competition and choice for Australian consumers. It will provide cost-effective opportunities to gain investment exposure to a wider range of assets. A study of global pension assets by Willis Towers Watson found that Australia was second only to the United States in its home equity bias.
1.5 In turn, Australian managed fund providers can sell their products in other Passport economies, including to Asia’s expanding middle class and high net worth individuals. This will continue an existing trend of Australian providers managing overseas funds.”
Australia’s Initiatives
Prior to the present consultation, the Government has conducted consultations on an exposure draft of the core Chapter (26 August 2017 - 25 September 2017), as well as on an exposure draft of consequential amendments to most of the Corporations Act (20 December 2017 - 25 January 2018). This current consultation is considering submissions on the exposure draft of the Passport Bill in its entirety.
The Passport Bill proposes to implement the Passport in Australia by inserting a new Part 8A into the Corporations Act 2001 (Cth). Under the proposed Part 8A, the Treasury Minister is provided with the legislative means of determining and regulating the construction and maintenance of the Passport in Australia. The proposed Part 8A.2 then allocates legislative power to the Minister to create the Passport Rules.
The key changes proposed to be made by the Bill are outlined in page 7 of the exposure draft’s explanatory memorandum:
- It [the Bill] establishes a mechanism for incorporating the Passport Rules in Annex 3 of the MOC into Australian law, and imposes an obligation on passport funds and operators registered in Australia as well as foreign passport funds and operators offering interests in Australia to comply with the Passport Rules.
- It establishes a new Chapter 8A in the Corporations Act which mainly implements the common regulatory arrangements in Annex 2 of the MOC. Chapter 8A among other things sets out the process whereby Australian CISs may be registered by ASIC as passport funds. It also sets out the process whereby foreign passport funds may notify ASIC of their intention to offer interests in the fund to Australian investors and the circumstances in which ASIC may reject such notifications.
- It makes amendments to other parts of the Corporations Act clarifying how the obligations in those parts are to apply to foreign passport funds, as allowed under Annex 1 of the MOC. Key areas in which obligations are made to apply to foreign passport funds in this manner include financial reporting, licensing and disclosure.
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Sources:
Corporations Amendment (Asia Region Funds Passport) Bill 2017 (Cth) exposure draft and explanatory memorandum available on TimeBase's LawOne service.
Treasury Laws Amendment (Corporate 4 Collective Investment Vehicle) Bill 2017 (Cth) exposure draft and explanatory memorandum available on TimeBase's LawOne service.
