25/08/17

Government opens doors to offshore investment vehicles

(Financial Standard) -

The Federal Government is seeking public consultation on the long-awaited legislation for the Asia Region Funds Passport and Corporate Collective Investment Vehicle (CCIV) regime.

The exposure draft legislation for the Asia Region Funds Passport explains the new law will allow Australia, which has the largest funds management industry in the Asia-Pacific region, to export its management products to participating Asian countries with "limited additional regulatory requirements."

These countries - which include Japan, Korea, New Zealand and Thailand - will also be able to sell their managed funds products in Australia, once again with limited additional regulation.

"This will increase competition and choice for Australian consumers. It will also provide cost-effective opportunities to gain investment exposure to a wider range of assets. A study of global pension assets by Willis Towers Watson found that Australia was second only to the United States in its home equity bias," the draft legislation explained.

When regulators in two "sufficiently equivalent jurisdictions" agree to recognise aspects of each other's regulatory systems, collective investment schemes from each economy can be marketed and sold in the other. Generally speaking, the "home regulator" will be responsible for the enforcement of laws relevant to the fund being sold overseas.

As above, complementing the Passport legislation is the CCIV framework, which is modelled on the UK's Open-Ended Investment Companies regime.

Under the framework, a company can register as a CCIV if it is limited by shares and operated by a single corporate director; holds an Australian financial services licence; does not have any officers or employees other than the corporate director; operates at least one sub-fund at all times; and adheres to other more specific requirements detailed in the legislation.

The CCIV regime is intended as a response to the Johnson report's findings that Australia requires a framework providing flow-through tax treatment and investor protection while being more "internationally recognisable" than the country's existing managed investment scheme (MIS) trust-based structure.

The goal is to make Australian investment products more marketable and competitive overseas by making them more compatible with the global market - or as the exposure draft put it, "advance the more general objective of global regulatory alignment."

Comparing the CCIV to the European Union's Undertakings for Collective Investment In Transferable Securities (UCITS) directive, the draft legislation said: "CCIVs will operate with a corporate-based structure, meaning they will have the legal form of a company limited by shares with most of the powers, rights, duties and characteristics of a public company."

Commenting on the release of the draft legislation, Minister for Revenue and Financial Services Kelly O'Dwyer said: "These initiatives will work together to enhance the marketability of Australian managed funds across our region and create domestic and regional economies of scale. This leverages our large pool of funds under management and benefits both fund managers and investors."

The Financial Services Council has long supported the introduction of this legislation. At the FSC's 2016 Leaders Summit in Melbourne, chief executive Sally Loane said: "For heaven's sake, move forward with the recommendations of the Johnson Report. It was written in 2009."