After years of debate, false starts and bureaucratic divisiveness, the third funds passport scheme in Asia Pacific was unveiled yesterday within the space of just eight months. When it rains, it pours.
Malaysia’s Securities Commission, the Monetary Authority of Singapore (MAS) and Thailand’s Securities and Exchange Commission have signed a memorandum of understanding with each other to establish a framework for cross-border distribution of collective investment schemes.
News of the development was delivered yesterday by the Asean Capital Markets Forum (ACMF), with implementation mooted for early 2014. To be eligible, fund firms need to have a five-year track record and at least $500 million in AUM. Full details can be found here in PDF format.
It comes 10 days after finance ministers from Australia, New Zealand, Singapore and South Korea signed a statement of intent at an Asia Pacific Economic Cooperation meeting to develop an Asia Region Funds Passport (ARFP) to facilitate cross-border fund sales between markets, as reported.
That followed the proposed mutual funds recognition platform between Hong Kong and mainland China, announced in January by the deputy CEO of Hong Kong’s Securities and Futures Commission, Alexa Lam.
Yet perversely for schemes designed to drive cross-border collaboration and domestic market development, the fact that three mutually exclusive initiatives have been proposed underlines both competition between Asian jurisdictions and the difficulty of regional regulatory coordination. "There is a jockeying for position," says one industry source who preferred to remain anonymous.
Other insiders point to a sense of panic in rushing out these schemes after years of talks. The sense is that the HK/China mutual recognition programme provided the catalyst, triggering a hurry-up as the other schemes compete to attract some of the same nations to their own version.
The Asean plan had initially included Indonesia, the Philippines and Vietnam, but these nations are absent from ACMF’s announcement yesterday. “I assume there is still a lot of disagreement, or at least they could not come to an agreement, so they [ACMF] have decided to go with just three countries that have agreed on a framework,” says a source. "My guess is they decided to go ahead because of the Asian funds passport announcement last week. There is plenty of competition.”
What is noticeable is that Singapore has included itself in both the latest passport initiatives, and is also known to harbour ambitions of joining HK/China mutual recognition. "Success in all three would make it fully hedged," says one insider.
Meanwhile, Japan - the largest funds market in Asia Pacific - is out in the cold for now, as is Taiwan, which is strongly tipped as next in line for HK/China recognition scheme, although political wranglings featuring president Ma Ying-jeou are seen as potentially disruptive.
On a positive note, the three initiatives provide time pressure for Asian jurisdictions to open up their domestic markets, since to facilitate successful passport schemes they will need to make setting up in-country easy and attractive.
But sources also point to potential cost implications for fund houses, in that all but the largest regional players will be forced to choose between schemes. "I doubt anyone will want to domicile funds in all three platforms," says a senior industry source. "Lots of choices will have to be made, although it is likely they [fund houses] will adopt a wait-and-see approach, at least for now."
Apart, that is, for the HK/China mutual recognition scheme, with fund houses lining up to establish locally domiciled fund platforms in Hong Kong in anticipation of the scheme's introduction.
AsianInvestor has been informed that the target timeline for the HK/China scheme is before the end of this year, with this Christmas being proffered as a frontrunner. "China has long had a history of announcing things around Christmas time," says one insider.
However, sources have rubbished the notion that a Ucits jurisdiction such as Luxembourg or Dublin is in line to be included in the HK/China mutual recognition platform, as reported. "There is not a chance that either would be included because that would be self-defeating," says one. "China is all about control, and that would be giving away control."
Another adds: "The whole idea of a regional funds passport was for Asian nations to bolster their own domestic markets. The reason for this was they were not happy that a lot of control and development in their own fund markets was in the hands of European regulators."