Background to the Reforms
In 2009, the Australian Financial Centre Forum released a report, which recommended reforms aimed at increasing Australia’s cross-border trade in financial services and improving the competitiveness and efficiency of the financial sector. The report recommended the introduction of the Passport and development of the CCIV.
Key features of the proposed Passport regime
The Passport will allow Collective Investment Schemes (CIS), which are based and regulated in one economy (the home economy) to be sold to investors in other economies (host economies). The regime is aimed at supporting the development of an Asia-wide managed funds industry through improved market access and regulatory harmonisation.
Additionally, the Passport will increase competition and choice for Australian consumers, and provide cost-effective opportunities to gain investment exposure to a wider range of assets. Current signatories to the Passport Memorandum of Cooperation are Australia, Japan, New Zealand, Korea and Thailand. The draft Bill contains a number of notable features:
Passport funds are regulated CISs, that are registered as a passport fund. CISs are more broadly defined than registered schemes and can comprise of vehicles such as partnerships, managed investment funds and corporate investment vehicles.
CISs will be sold through a process of mutual recognition, whereby two or more ‘sufficiently equivalent’ jurisdictions agree to recognise certain aspects of each other’s regulatory systems.
The home economy regulator will be responsible for supervision and enforcement of requirements relating to the funds, as set out in the home economy laws and regulations and in the Passport Rules.
The host economy regulator will be generally responsible for supervision and enforcement of investor-facing obligations (such as disclosure and distribution).
Each Passport economy will be subject to ongoing reporting requirements.
Passport funds and operators in Australia and participating member economies are obliged to implement and comply with the Passport Rules.
The draft legislation outlines the process by which Australian CISs may be registered by ASIC as Passport funds, by which foreign Passport funds can notify ASIC of their intention to offer interests in the fund to Australian investors, and the circumstances under which ASIC can reject registration.
Key features of the proposed CCIV regime
The CCIV scheme creates a new type of investment vehicle, which will allow Australian funds managers to pursue overseas investment opportunities through a company structure. It is intended to complement the Passport by making Australian funds more accessible to foreign investors. Key features of the draft CCIV Bill are:
A company can only register as a CCIV if the company is a company limited by shares and operated by a single corporate director. The corporate director must be a public company that holds an AFSL authorising it to operate a CCIV.
The corporate director’s obligations to the members of the CCIV take precedence over their obligations to their own shareholders. The corporate director may appoint an agent to act on its behalf. A CCIV cannot possess any officers or employees other than the corporate director.
There are two types of CCIVs, wholesale and retail. Wholesale CCIVs are subject to fewer regulatory requirements than retail CCIVs.
A CCIV may be open- or closed-ended.
A CCIV must have at least one sub-fund at all times, and may comprise of multiple sub-funds. All business of a CCIV must be conducted through a sub-fund.
If you would like further information about this, please do not hesitate to contact someone in our Financial Services team.