Promoting the Regulatory Recognition Approach to Accelerate Regional Financial Integration APFF Seattle 2014 July 7, 2014

AGENDA Overview - Funds Passport Initiatives Asia Region Funds Passport (ARFP) Challenges Recommendations Image source:

THREE REGIONAL FUNDS PASSPORTING INITIATIVES Passport InitiativeOverviewOpportunities Asian Region Funds Passport (ARFP) – an APEC Initiative Consists of Australia, New Zealand, The Philippines, Singapore, South Korea and Thailand Enables fund operators in member economies to offer eligible schemes to retail investors under a streamlined process Consultation paper released for comments (due date July 11, 2014) Reduce costs (more investment choices at reasonable costs) Improve efficiency (increased cross border capital flows & access to savings) Increase investor protection Grow funds expertise & jobs in the region China-Hong Kong Mutual Recognition Pilot scheme to allow mutual funds/CIS authorized in China or Hong Kong to be sold in each other’s jurisdiction Authorization not automatic; foreign fund will have to seek approval from host regulators but under a streamlined process Negotiations completed; pending approval from China’s State Council Initially planned for plain vanilla type products (excluding ETFs, hedge funds, alternate investment funds) China large savings pool (estimated at USD 7.5 T in bank accounts)* Trust company products and insurance ASEAN Collective Investment Scheme (CIS) Framework Launched in Oct between Malaysia, Singapore and Thailand Facilitates the cross-border offering of CIS to retail investors in the three countries Implementation started in early 2014 Initially, "long-only” and retail funds, other asset classes may be permitted at later date Sizeable markets – three markets combined had a total of more than AuM USD250 bn (USD23bn registered offshore funds in Singapore)* Region with high growth * (April 14, 2014) * (Jan. 23, 2014)

THE ARFP CONSULTATION PAPER PROPOSES: Rules governing passport CIS & participating CIS operators Procedures & requirements for passport CIS Supervision framework for CIS Enforcement mechanisms for passport arrangements

KEY ISSUES CRITICAL TO THE ARFP’S SUCCESS Framework Restrictive legal architecture Membership Narrow membership; competing regional passport initiatives Taxation Competing tax regimes; double taxation in cross border flows Distribution Lacked standards and uniformity

Enlargement/ Membership Ensure ARFP legal architecture is compatibility with local jurisdiction laws Create different membership categories Flexibility for future consolidation of funds passport initiatives A clear message to industry on enlargement aspirations Taxation Greater clarity and certainty Tax reliefs in cross border flows UCITS model – e.g. tax neutrality Transparency, Standards & Harmonization Standardized formats for information Development of clear rules under which funds are to be passported and allowed for distribution Uniform notification process and standards for participating jurisdictions Data confidentiality Continued Engagement Cost-benefit analysis APFF as a platform for continued engagement with key stakeholders Technical discussions at participating jurisdictions KEY RECOMMENDATIONS

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