ICI Global Applauds Asia Region Funds Passport Initiative; Recommends Operational, Implementation, Tax Changes
London, 14 July 2014—A “timely and exciting” initiative designed to deepen the financial markets and benefit investors in six countries in the Asia-Pacific region holds promise, said ICI Global in its comment letter on the Asia Region Funds Passport (ARFP) initiative. Additional changes to the proposal, however, would improve the initiative’s long-term success. The proposal is designed to allow investors to invest in regulated funds that are “passported” from any of the six countries included in the agreement.
ICI Global commends efforts by six participating Asia-Pacific Economic Cooperation (APEC) countries to set up a passport initiative that accounts for differences among member economies, while ensuring adequate investor protection, fostering competition, and deepening financial markets. To help ensure the initial take-up and the long-term viability and success of the cross-border fund framework, ICI Global’s comment letter includes a number of recommendations for addressing operational, implementation, and tax issues.
‘This is a highly valuable initiative for the region and we applaud APEC’s efforts on the consultation. The timing is excellent as it coincides with strong growth of the fund industry in the region. We believe this framework could help achieve the passport objectives including supporting deeper financial markets and industry growth to the benefit of investors,’ said Qiumei Yang, CEO, ICI Global Asia-Pacific. ‘To be globally competitive and successful, fund firms are increasingly centralising management resources and research systems, and the “passport concept” of allowing a single fund structure to be offered efficiently across all six economies will benefit both fund sponsors and fund investors. The changes we recommend will help make the passport more economically and operationally feasible.’
Yang submitted ICI Global comments on behalf of regulated investment funds to finance ministers in the six countries proposing the scheme: Australia, Korea, New Zealand, Singapore, Thailand, and the Philippines.
Operational, Implementation, and Tax Changes Would Strengthen Passport
The six countries should explore and address several operational, implementation, and tax issues, ICI Global explains in its letter. The following are highlights of some of those recommendations.
- Operational recommendations. For cross-border success, regulated funds require a workable passport framework. The letter describes the importance of reducing operational challenges, such as the impact of different investment restrictions and investor disclosure requirements, as well as duplicative or conflicting delegation rules that unnecessarily restrict access to portfolio management in other locations. Specifically, funds need to be able to take advantage of their existing efficiencies and expertise in offering their products through passport funds. Managers frequently seek to offer ‘mirror’ funds that offer the same investment objectives and strategies in different markets and facilitating common approaches across the region will help ensure the passport’s success.
- Implementation recommendations. Looking to the future, the letter recommends that as the passport initiative is finalised, the six countries form a ‘college or group of representatives from member economies’ to monitor passport developments and help resolve differences in implementation while promoting coordination, harmonisation, and convergence of rules. A formal ongoing review and revision process is necessary for the long-term viability of a passport program.
- Tax recommendations. The initiative must ensure tax neutrality and tax certainty for funds across APEC jurisdictions. Passported funds should receive equal tax treatment, regardless of any existing home country tax advantages. A level playing field would support competition among firms and choice for investors. In addition, funds and their investors should have clarity over, for example, the tax consequences of a fund portfolio investment. Tax certainty is critical for funds to make the economic investment to expand and for investors to invest their money. To ensure that tax issues do not erode the benefits of investing in a passport fund, ICI Global recommends that the member economies work together to identify and address tax issues.
Passport Represents Opportunity for Continued Regional Growth
The Asia-Pacific region, including the six countries in the passport initiative, have experienced significant growth in total fund assets in the last two decades—more than 450 percent, according to recent ICI Global research. ICI Global believes a strong and flexible regulatory framework will help foster a stronger and larger regional industry. This initiative also fits well with the worldwide growth of cross-border funds, which nearly tripled in number between 2002 and 2012 to more than 9,000 funds worldwide.