MBA of Banking & finance

FUND MANAGEMENT & TREASORY OPERATION

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Submission Date :
Lecturer

Assignment 2
WEEK 5
Dr. Khairul Anuar

Student name:

Anas ALhajjar

Student ID:

110037722

Semester

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MBF 2273 FUND MANAGEMENT

ASSIGNMENT II

Assignment
Review and summarise the PwCs Asia Region Funds Passport document.

After years of waiting for an Asian equivalent of Europes successful UCITS platform
for mutual funds, not one but three possible versions have come along in 2013,
providing both global and local fund managers much to think about when planning
the future for their businesses. Of the fifteen markets in the Asia Pacific region where
mutual funds or unit trusts are actively sold, eight of them have, through the three
proposals, got together to see whether they can agree among themselves on a funds
passport. This paper takes a look at the proposals, with a view to providing guidance
to fund management companies on each, to assist them in their planning.Three
Passports, Eight Countries most countries in the Asia Pacific region dont allow the
cross-border selling of collective investment funds (mutual funds or unit trusts). Thus,
funds established and managed in one country cannot to be sold into another.
However, Hong Kong, Singapore and Taiwan, subject to authorization by the local
regulators, allow some offshore cross-border funds to be sold. It has been European
UCITS vehicles that have facilitated the offering of funds in these three jurisdictions,
but these funds are usually domiciled in Luxembourg or Dublin and then approved
separately by local regulators in each country. While Hong Kong, Singapore and
Taiwan are now well developed UCITS markets, others such as Korea, Japan, Australia,
Indonesia, Malaysia, The Philippines, Sri Lanka, Thailand or Vietnam, are not, and
markets such as China and India do not allow them at all, so UCITS have only been a
partial regional solution for firms wanting to sell across bordersIn the last year, three
funds passport options have been announced which has surprised the market.On
January 23, 2013, Alexa Lam, the Deputy CEO of the Hong Kong Securities and Futures
Commission (SFC) confirmed that it was in negotiations with the China Securities
Regulatory Commission (CSRC) to introduce a mutual recognition scheme whereby
mutual funds and unit trusts that had been authorized and domiciled in either China
or Hong Kong respectively, could be sold in the others jurisdiction.On September 24,
2013, Finance Ministers of Australia, South Korea, Singapore and New Zealand signed
a proposed Asia Region Funds Passport Agreement in Indonesia on the sidelines of
the Annual meeting of Asia-Pacific Economic Cooperation (APEC) Finance Ministers.

On October 2, 2013 the securities market regulators of Singapore, Malaysia and

Thailand at a meeting of the ASEAN Capital Markets Forum in Bangkok, under a
Memorandum of Understanding (MOU) agreed terms for the cross-border offering of
collective investment schemes (CIS) in their three countries.The proposals offer
investment managers the option of selling the same product in more than one market
of the region, allowing for economies of scale. But a minimum requirement will be
local domicile and perhaps local management, which will have its costs. These
conditions would also exclude UCITS vehicles from the new regime. The passporting
schemes will not however, see the end of UCITS in the region. Investment managers
will still use UCITS, particularly as part of a global strategy. Local funds will also be
used for ease of access to some markets. The proposed passporting regimes offer a
third option. Below we discuss the proposals and how firms can benefit.The Asian
region has shown signicant economic growth over the last 10 years which has led to
a notable accumulation of assets. The region has moved from the manufacturing
engine of the world to the place where private banks and other wealth managers,
together with attendant fund management businesses have seen most opportunity to
grow their businesses. It is forecast that the collective wealth of the Asian region will
exceed that of North America within the next couple of years making the region an
even more important market for fund managers and associated industries The Taiwan
mutual fund management business for example, at around US$190 billion in size, is
approximately equal to the size of Hong Kong and Singapore combined. China, which
only started a mutual fund industry less than 15 years ago and now has more than
US$400 billion in AUM, has more than 100 times the number of fund investors than
are in Hong Kong. Thailand, Indonesia and the Philippines each have rapidly growing,
young and increasingly economically independent populations larger than the size of
Germany. The high average regional savings rate, the need to self-provide for
retirement, and many other factors all lead to the potential in the next few years of
seeing massive growth for the asset management business, and everyone wants apart
of that!APEC Asia Region Funds Passport (ARFP) Australia initiated the APEC funds

passport proposal following a 2009 review by the Australian government into

Australia as a financial center (known as the Johnson Report). APEC Finance
Ministers welcomed efforts to facilitate cross-border funds in their 2010 Finance
Ministers Statement which was the first nod of support for exploration of the funds
passport idea. In 2011 the possible exploration of a pilot was mentioned for the first
time. In 2012 Ministers said they looked forward to further development of the
proposed model, governing arrangements and policies for a pilot ARFP. In 2013 the
proposal became more concrete with the public commitment of four countries to it
and the release of a framework document. Finance Ministers noted in their
September 24, 2013 Statement, the progress in the establishment of a passport
including

the

development

of

framework

document

with

voluntary

guiding

principles and basic arrangements. They also welcomed the Statement of Intent (SOI)
signed by Australia, New Zealand, Korea and Singapore to consult on the detailed
rules for implementation with a view to possibly joining a pilot.While only four
markets have signaled their intent to move forward at this time, other markets may
follow. Since 2010, when APEC Ministers first supported exploration of the idea,
meetings were held in Hong Kong, Malaysia, Singapore, Thailand, Vietnam and Taiwan
to explore the initiative. Up to 10 different markets participated in those meetings.
Government representatives had discussions on detailed proposals such as product
structure, licensing and dispute resolution. Those who have not committed might do
so as the initiative progresses. The inclusion of several markets from the Asia Pacific,
particularly the larger fund markets where substantial assets reside, would make the
APEC initiative appealing The SOI sets out a timeline of action, detailed as follows:
Joint public consultations will be held from January to June 2014 on technical and
procedural rules and arrangements.
Refinement of technical and procedural rules will occur from June to December
2014 taking into account public comments.

 In February 2015 an arrangement document will be signed by those markets that

wish to become members of the passport when it is launched by a pilot group of
markets.
From February to December 2015 a pilot group of markets will implement
legislation

and

measures

where

necessary

to

give

effect

to

the

arrangement

document.
In January 2016, eligible schemes in member markets can access the passport.
The Framework Document sets out the rationale for the scheme, as well as the scope
and applicable rules of the passport. It also discusses the pilot group, including the
eligibility to become a passport member economy. Supervisory and enforcement
cooperation, governance and implementation are also addressed. In some areas, the
host jurisdictions laws and regulations apply and in other areas special passport rules
will apply. The vision is however, that over time the varied requirements will be
reduced. Host economy laws and regulations will apply where they relate to the
investor

e.g.

distribution,

disclosure,

complaints,

marketing

and

communications.

Additional rules, beyond those that apply to local collective funds, may be imposed on
passport funds.The establishment of the Asia Region Funds Passpor considered to be
important to the growth and prosperof the regions funds management industry and
in turn ability to support growth across the region. The economic and demographic
fundamentals of the Asia region support the view that it will be the future growt
engine of the global funds management industry.The GDP growth rate in the Asia
region is forecast to double the rate of the rest of the world. Within the reg there are
many developing economies with a need foinvestment capital to fund the expected
significant growth in their GDP. There are also developed economies with established
pension systems and/or high rates of saving that have funds available to invest The
population of the Asia region is over 4 billion, representi over 60% of the worlds
population. It is expected to grow by 25% by 20502 and ageing of the population will
be at its most rapid between 2010 and 2030.Increased levels of savings and

investments will be required in order to avoid unsustainable pressure on government

finances Many economies have established pension and sovereign wealth funds in
order to help fund the costs of these growing and ageing populations throughout
retirement. In addition to funding growth and supporting the liquidity and diversity of
the capital markets in the region, the key benefits to the region of an Asia Region
Funds Passport include:
Improved efficiency and cost reduction. Cross border capital flows will provide fund
managers access to larger savings pools and allow for greater economies of scale.
Increased investor choice and ability to diversify, providing investors with access to
otherwise inaccessible markets, investments and foreign expertise.
Growth of funds management jobs and expertise in the region.Significant benefits
to the wider economy
development,

with

Across the region economies are at different stages of

emerging

markets

undergoing

significant

development

and

therefore in need of capital, while some countries, particularly those with a welldeveloped pension/superannuation system and sovereign wealth funds have assets to
invest to meet this capital need. For example, in Australia, FUM is forecast to grow
from AUD1.4 trillion to in excess ofAUD5 trillion over the next two decades. The Asia
Region Funds Passport would facilitate the flow of capital across the region of capital
across the region Investors across the region can choose to more readily access
growth opportunities within member countries Capital market liquidity and diversity
across the region would be enhanced Increased visibility of and interest in the Asia
Increased visibility of and interest in the Asia regions locally-constituted funds,
resulting in greater global competitiveness of the Asia region funds management
industry Increased support for the growth of the funds management industry across
the region and retention of expertise and employment within the region.