The ARFP is a fund passporting scheme that aims to provide fund distribution across the markets of Australia, Japan, Korea, New Zealand and Thailand.
The ICI recommendations, sent in a letter to the ARFP committee, include the expansion of channels for fund distribution and the broadening of tax principles to encourage neutrality between ARFP participants.
On the distribution front, ICI suggests that scheme participants permit the use of ARFP funds within retirement and long-term savings schemes.
With regard to tax issues, ARFP participants’ laws must provide tax neutrality between resident and non-resident funds, resident and non-resident investors and resident and non-resident ARFP operators, the letter said.
Some ARFP participants are revising their domestic tax laws to minimise tax barriers, the letter said. The draft interim guidance published in July outlined the expected new tax laws.
“We note, however, that the draft interim guidance does not address each tax neutrality principal with respect to each ARFP participant,” it said, adding that tax issues continue to present crucial cross-border challenges for the implementation of the scheme.
Tax has indeed been a major hurdle for the fund passport scheme. Although the the initial agreement was signed in 2015, the various jurisdictions involved have been under negotiation for years, unable to reach an agreement on taxation.
With widely differing markets and cultures in the scheme, problems will arise when an ARFP fund must follow different approaches in each host economy to comply with local laws.
Therefore, the letter also recommends that the ARFP joint committee develop a common approach to fund registration and marketing, including a common investor disclosure document.
“A common approach would need to be comparable with host economy requirements so a common experience is shared by the investors.”
Besides the ARFP, the other passporting schemes in the region are the Hong Kong-China Mutual Recognition of Funds and the Asean Collective Investment Scheme (CIS), which connects the fund markets of Singapore, Malaysia and Thailand.
The Asean CIS has not gained traction since its launch in August 2014. So far, only six funds have been approved for retail sale by both home and host countries.
The Hong Kong-China MRF has been the most successful cross-border fund scheme in Asia, with around two dozen mainland funds selling in Hong Kong, but only eight Hong Kong-domiciled funds approved for sale in China.
ICI issued the letter of recommendation to the ARFP joint committee in response to the draft interim guidance on laws and regulations issued by the joint committee in July.
ICI Global carries out the international work of the Investment Company Institute, an association representing regulated funds globally.