The pending free trade agreement between Australia and Korea is being hailed as a vital step if the proposed Asia Region Funds Passport (ARFP) is to succeed.

Yesterday Australian trade minister Andrew Robb publically released the text of the agreement. The deal, signed last December, will give Australian exporters improved market access and investment protections.

Once the agreement is fully implemented, expected to be before the end of this year, 99.8% of Australia’s exports (by value) to Korea will enter duty free.

While this is important for the agriculture, manufacturing, resources and energy sectors among others, it is equally significant for the financial services sector.

South Korea is Australia’s third-largest export market, but do date financial services have made up a small part of that.

Under the treaty, Australian financial services providers would be able to provide specific financial services for the first time on a cross-border basis. This would allow Australian suppliers to operate in Korea, where they may not otherwise have the resources to open a full commercial presence.

John Brogden, chief executive of the Financial Services Council – which represents retail and wholesale fund houses, super funds, life insurers, advisory networks and trustee firms – notes that financial services is Australia’s largest industry.

“Initiatives like the South Korea Free Trade Agreement and the Murray Review [of Australia’s financial system] will help deliver outcomes that facilitate Australian financial services exports to Asia and an export-oriented and globally competitive Australian financial services industry,” he states.

He says Australian financial services providers would benefit from commitments that require Korea to allow Australian institutions to transfer data into and out of its territory.

“Trade in financial services requires the free movement of data across borders. This is vital for the Asia Region Funds Passport – which will harmonise funds management regulation across the region – to succeed,” he explains.

Finance ministers from Australia, Korea, Singapore and New Zealand signed a statement of intent at the Asia Pacific Economic Cooperation (Apec) meeting in Bali, Indonesia, last September to develop a passport to facilitate cross-border fund sales, as reported.

The scheme is set to engage in a public consultation process between participating countries (and possibly beyond) this year, ahead of implementation in 2016.

It has been greeted with a heavy dose of scepticism within industry circles in Asia, on the understanding that the four participating nations are too culturally and geographically diverse to make it practicable.

However, unlike the other two planned cross-border fund initiatives in Asia – one between HK- China and the other between Asean countries – it has also been noted that ARFP countries are most closely aligned in terms of market development, making coordination less of an issue in some circumstances.

AsianInvestor had heard rumours that the ARFP scheme will be an online-only programme. Interestingly, the Korea-Australia free trade agreement does contain commitments to support business in harnessing the efficiencies of electronic commerce, while ensuring the protection of consumers online.

But while a source with close knowledge of the ARFP negotiations confirms that digital distribution for ARFP has been discussed and forms part of the plans, he poured cold water on the prospect of it being a digital-only scheme.

“Europe’s Ucits [Undertaking for Collective Investments in Transferable Securities] scheme is the reference model being used for ARFP,” he tells AsianInvestor.

“The industry will be transformed through digital engagement, and its impact is something that needs to be thought about, particularly when being mindful of margin pressure. The development of ARFP could well come together with the industry’s digital transformation.”

A recent report published by PwC, entitled Asset Management 2020: A Brave New World, noted that technology and digital delivery would be a big part of shaping the industry’s future.

Australia and Korea are planning to sign their free trade agreement formally in the first half of this year. The text will then be tabled in Australia’s Parliament and any amendments would need to be passed. Similarly the treaty would need approval from Korea’s National Assembly.

It is understood both countries aim to complete their domestic treaty processes towards the end of this year. They will then exchange diplomatic notes, and 30 days later the treaty will be in full force.