Asia should simply copy Europe's successful Ucits framework rather than striving to develop its own fund passporting programme, a senior HSBC executive has urged.
Chris Edge, managing director at HSBC Securities Services in Luxembourg, went as far as to suggest it was strange that Asia had not tried to copy the Ucits scheme more, because it clearly worked.
“Just adopt it," he urged. "It would be immediately acceptable to member states and acceptable around the world. If you go beyond Asia [with an Asian fund passport scheme] at some point you would have a recognised framework to use. It seems odd to me that it hasn’t been done."
Edge was a panelist on a session entitled "The rise of regional passporting schemes in Asia" at the recent IMAS conference in Singapore.
He argued what lay behind Ucits' success was that it was underpinned by a treaty allowing the free movement of products and capital among member states.
But no such treaty exists in Asia. Both the Asean Collective Investment Scheme (CIS), signed by Singapore, Thailand and Malaysia, and the Asia Region Fund Passport (ARFP) scheme led by Australia, are built around a handbook based on goodwill and a memorandum of understanding.
“I am not sure if that will give investors the confidence they need to buy a product that is not domiciled in their home country,” said Edge. "It’s hard for me to see where the glue is. The glue needs to come from regulators and policymakers and be enshrined in a legal framework to give investors confidence."
Edge pointed to the need for branding if an Asian passport scheme was to be successful, noting that Ucits had become synonymous with security, reliability and protection. He suggested an Asia passport needed something similar to bind it together as a brand.
But Christopher Geh, regional head of sales and marketing at Maybank Asset Management, argued that political factors hindered Asian nations from adopting the Ucits model.
“Everyone wants to be the domicile country," he said. "I’ve looked at the guidelines enforced by regulators in each country. They have a large or small element of the guidelines that you see in Ucits … so it sounds more political [why a Ucits model can't be adapted]. But we're still in the very early stages [of an Asia passport]. We dont know where it will go from here."
Ho Han Ming, partner at law firm Sidley Austin in Singapore, said it was harder for Asia to facilitate rule-making and create investor protection as it was not a union under one regulator providing oversight and enforcement. “There are various sovereigns in Asia which complicates things, with different tax regimes and regulations,” noted Ho.
He said if he were to put his money on which framework had the legs to become Asia's Ucits, it would be the Asean CIS. The scheme has fewer members than ARFP, he said, making it easier to roll out a framework, while separate initiatives were also underway to allow funds and capital to flow freely within Asean member states.
But Ho added that if ARFP adopted the Ucits model it stood a better chance of being able to leapfrog the Asean CIS.
HSBC’s Edge noted that for an Asian fund passport scheme to be successful investors would be domicile-agnostic about products. Success would come, he argued, when investors started to think about whether they understood the fee structure and sales literature, whether they were protected and whether a product had a convenient cut-off point.
He suggested the debate needed to shift from what’s good for the asset manager to what's good for the investor because until investors started to buy these products, the rest was academic.
"Once the investor wins the rest will follow," Edge stated. "If that's not the case the danger is that investors will then resort to the tested model of Ucits."