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This periodic update provides information on a number of recent significant legislative and regulatory developments in the funds and financial services industry.
The Commonwealth Government has released the draft Asia Region Funds Passport (Passport) and Corporate Collective Investment Vehicle (CCIV) Bills and explanatory materials for public comment. The draft legislation proposes amendments to the Corporations Act 2001 (Cth).
The Passport is a region-wide initiative designed to facilitate the offer of interests in certain collective investment schemes (CIS), established in Passport member economies, to investors in other Passport member economies. It aims to provide Australian funds managers with greater access to economies in the Asia-Pacific region by reducing existing regulatory hurdles. The CCIV scheme creates a new type of investment vehicle, which will allow Australian funds managers to pursue overseas investment opportunities through a company structure. It is intended to complement the Passport by making Australian funds more accessible to foreign investors.
The Government is accepting submissions on the draft Bills until 21 September 2017. Depending on how quickly the final legislation is passed, the Passport could come into effect as early as 1 January 2018.
In 2009, the Australian Financial Centre Forum released a report (the Johnson Report), which recommended a package of reforms to make it easier for Australian fund managers to attract overseas investment in funds run and administered out of Australia. One of the recommendations was to develop an Asia Region Funds Passport.
The purpose of the Passport is to support the development of an Asia-wide managed funds industry through improved market access and regulatory harmonisation. The Passport will allow fund managers from other Passport economies to sell their products in Australia, increasing competition and choice for Australian consumers, and providing cost-effective opportunities to gain investment exposure to a wider range of assets. It will also mean that Australian fund managers will more easily be able to sell their products in other Passport economies. Current signatories to the Passport Memorandum of Cooperation (MoC) are Australia, Japan, New Zealand, Korea and Thailand.
The Passport will allow CISs, which are based and regulated in one economy (the home economy) to be sold to investors in other economies (host economies). The draft Bill contains a number of notable features:
The draft legislation also outlines the process by which Australian CISs may be registered by ASIC as Passport funds, by which foreign Passport funds can notify ASIC of their intention to offer interests in the fund to Australian investors, and the circumstances under which ASIC can reject registration.
In addition to the Passport, the Federal Government is also accepting submissions on the draft CCIV regime, which is a new vehicle that seeks to make Australian funds more comprehensible to foreign investors. Key features of the draft CCIV Bill are:
There was some hope that stand-alone legislation, facilitating a simpler regulatory and compliance regime, would be enacted for the introduction of CCIVs given their purpose. However, funds seeking to access the CCIV regime will not have that benefit and will need to navigate the Corporations Act.
Australian registered schemes and responsible entities, as well as other investment managers with different corporate structures, will be able to register as Passport Funds and offer interests in participating economies without needing to be licensed or regulated in those economies. This requires compliance with the Passport Rules. It is hoped that the Passport will increase the demand from offshore fund operators for Australian distributors and other service providers to facilitate the offer of interests in offshore CISs in Australia under the Passport.
Participating in the Passport regime may necessitate distributors and service providers having authorisations to provide financial services to retail clients, which should be reviewed. Additionally, fund operators, investment managers and other vehicles, currently relying on other exemptions from financial services licensing requirements in Australia and Asia, may be better placed to participate in the Passport regime.
The current consultation window to provide feedback on the proposed regime is narrow, though there will be an additional consultation period in the future. Submissions for the first consultation period close on 21 September 2017. Now that draft legislation has been released, operators and service providers wishing to participate in the regime or service participants in the regime should consider whether they are appropriately resourced and authorised.