Asia Region Funds Passport & Corporate Collective Investment Vehicle

The passing of the Asia Region Funds Passport (ARFP) bill by Parliament in June 2018 was the first step towards the implementation of this scheme. Underpinning the ARFP is the Corporate Collective Investment Vehicle (CCIV). This is Australia’s response to deliver a corporate structure that investors within the region are familiar with today.

The CCIV regime aims to maximise the impact of initiatives such as the Asia Region Funds Passport (ARFP), enhancing the competitiveness of Australia’s funds management industry, expanding the range of options for Australian investors and attracting foreign investors. The ARFP scheme seeks to strengthen the investment management industry across the Asia-Pacific region by allowing participating countries - Australia, Japan, New Zealand, South Korea and Thailand - to market their funds in each other’s markets.

ARFP combined with the CCIV can be hugely positive for Australia by helping export the country's sophisticated financial services sector, while allowing local fund managers to expand into new growth markets. However, certain challenges need to be addressed before the ARFP can meet its intended goals.

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Work in progress

Tax is a key area where further work is required to develop a level playing field, the simplification of the complex tax treatment in place today is crucial to the ARFP’s & CCIV’s success. Industry continues to drive this initiative to simplify the tax regime that will enhance the global competitiveness of the scheme. Creating a level playing field for taxes across the region is a complex task but it will be central to the long-term success of the ARFP.

Another feature in development, under consultation with Australian Treasury, is the CCIV sub fund model. A new concept introduced to the Australian market by the CCIV regime, it is designed to help fund managers offer clients a range of investment strategies along with better scale and cost savings compared to the managed investment scheme (MIS) regime. However, the CCIV currently does not permit investments across its sub-funds and this could potentially hurt its overall appeal.

Market realities

Before the CCIV can begin to attract significant interest, foreign investors need to become familiar with the CCIV’s company structure, which has been  modelled along the lines of other structures within both the UCITS and /or the United Kingdom's Open-Ended Investment Companies (OEIC) regime , which  differs from the existing unit trust structure under Australia’s MIS regime.

Compounding the investor readiness issue is the proliferation of similar vehicles in the region. These include UCITS-compliant funds, the Singapore Variable Capital Company (SVACC) and Hong Kong’s open-ended fund companies (OFC) – all aimed at capitalising on the rapid growth of Asian economies and increased sophistication of the region’s investors. It will be a challenge for the ARFP & CCIV to scale up in this competitive marketplace.

The UCITS framework is a case in point, having taken over three decades to develop its brand and become the popular scheme it is today.

Various market and geopolitical risks are also at play. An uncertain global economic environment is marked by rising interest rates, a slowing China, and the relative lack of sophistication of capital markets in some jurisdictions. All of these factors, combined with domestic concerns such as Australia’s high debt levels and the spectre of a housing bubble, may pose potential risks to the ARFPs success.

Consultative approach

A welcome factor is the cooperation seen across ARFP markets, which should streamline fund management processes, standardise regulatory frameworks, and ultimately enhance cross-border investments.

The various CCIV consultations led by the Australian Treasury are also encouraging and show that industry concerns are being addressed to develop a competitive product that has the industry’s support and can hold its own in an increasingly competitive market.

The government has just completed the third tranche of public consultations for the CCIV Bill, which addresses issues such as the independence of the depositary, receivership, takeovers and acquisitions, and de-registering of funds, all of which are essential to safeguard investor interests.

Refining the CCIV to make it a viable investment scheme that is recognisable, competitive and successful will take time. BNP Paribas Securities Services welcomes the collaborative approach taken by Australian legislators and, together with the industry, looks forward to working with all market participants to help the CCIV achieve its significant potential.

Disclaimer:

This feature has been prepared by BNP Paribas Securities Services.  BNP Paribas Securities Services ARBN 149 440 291, is a branch of BNP Paribas Securities Services 552 108 011 R.C.S., a licensed bank whose head office is in Paris, France. BNP Paribas Securities Services is licensed in Australia as a Foreign Approved Deposit-taking Institution by APRA and delivers financial services to Wholesale clients under its AFSL, No. 402467.  

The information contained within this document (‘information’) is believed to be reliable however BNP Paribas Securities Services does not warrant its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas Securities Services’ judgment and are subject to change without notice. BNP Paribas Securities Services shall not be liable for any errors, omissions or opinions contained within this document. The information contained in this document is confidential and may not be reproduced in any form without the express written consent of BNP Paribas Securities Services.