Singapore may have chosen to participate in two Asian fund passporting schemes, but it is widely argued that the city-state is more supportive of the Association of Southeast Asian Nations initiative. And that is not the only factor stacking up in favour of the Asean plan.
The Asean scheme – proposed by Singapore, Thailand and Malaysia – is further advanced than the Asia region funds passport (ARFP) plan unveiled less than a month earlier, which will involve Australia, New Zealand, Korea and Singapore.
The former has been discussed in one form or other for a few years, and Singapore launched a consultation in May last year. Participating Asean members have reached initial agreements on some of the structural details and the aim is to go live in 2014, but the ARFP scheme will not hold a consultation until next year.
Recent developments seem to suggest a greater focus by the Monetary Authority of Singapore (MAS) on the Asean framework, say lawyers.
MAS declined to comment on its relative level of support for the two proposals. However, a spokesman did says that the three signatory jurisdictions will release a handbook to provide guidance to fund managers on “various administrative matters, including application procedures and marketing/distribution process”.
Another potential issue with the AFRP is whether there will be sufficient demand to support it. While most agreement the potential for success of the bilateral China-Hong Kong mutual recognition proposal is clear, the level of interest from Australians in South Korean product – and vice versa – is less obvious to some. And market participants suggest Singapore may be more successful in attracting flows from investors in Southeast Asia than elsewhere.
Moreover, given Asean’s large, relatively young population of 600 million and its fast-emerging middle class, many point to the region – namely Indonesia – as offering particularly strong potential for the asset management industry. The burgeoning insurance sector in certain Southeast Asian countries will also be a catalyst on this front, note market participants.
While Indonesia is not part of the latest Asean passport plan, it had figured in earlier discussions and seems likely to join in future, once the scheme expands its scope.
Then there is the issue of which country will be the ‘lead’ jurisdiction, as regards funds domiciling. This is likely to be harder to settle with regard to the Apec plan, since the four participants are mature fund markets that could be seen as equivalents to one another.
Meanwhile, it is hard to imagine any jurisdiction other than Singapore taking the lead in Southeast Asia in respect of the Asean scheme.
“I think there will be a struggle [within Apec] as to which domicile becomes the favoured jurisdiction,” says Rolfe Hayden, a partner in the funds practice at law firm Simmons & Simmons in Hong Kong. “To a certain extent, there was a similar struggle in the EU before the market basically settled for Luxembourg on Ucits and Ireland for alternatives.”
The steps taken by Asean have so far been positive, especially with its decision to start small while still open to adding more members rather than “trying to be all things to all people,” says the Asia counsel at a large fund manager.
“The challenge with Asia is that it is such a huge geographical, cultural and economic expanse that trying to come up with an Asian funds passport is like trying to boil the ocean," he adds. "Take two markets in Southeast Asia, and they are very different from basic regulation to tax treatment to social, economic and political structure, so it is too difficult to take 12 members and force them all."