Implementing The Asia Region Funds Passport In Australia.

Legal News & Analysis - Asia Pacific - Australia - Investment Funds

Asia Pacific Legal Updates


12 September, 2017


Implementing The Asia Region Funds Passport In Australia.


What you need to know


The Government released an exposure draft Bill and explanatory memorandum for public consultation on 25 August 2017, which will implement the Asia Region Funds Passport regime in Australia.


The Passport will allow funds based and regulated in one economy (the Home Economy) to be "passported" or sold to investors in other economies in the region (Host Economies).


The intention is that the corporate collective investment vehicle proposals (also the subject of current consultation) will, when implemented, facilitate participation by Australian fund managers in the Passport regime.


The Government has now released, on 25 August 2017, an exposure draft Bill and explanatory memorandum, to implement in Australia the common regulatory framework for collective investment schemes (CISs) in Australia.


The Passport will allow CISs based and regulated in one economy (the Home Economy) to be "passported" or sold to investors in other economies in the region (Host Economies).


Australia's participation in the Passport goes back to the Australian Financial Centre Forum's Report in 2009, Australia as a Financial Centre – Building On Our Strengths (the Johnson Report) which among other things, recommended the development of the Passport.


Since 2010, Australia has been working with a number of other Asian economies, to develop the proposed arrangements for the Passport.  Steps have included:


  • the release of draft Passport rules (in February 2015, for public consultation);
  • the signature by participating economies of a Statement of Understanding (in September 2015); and
  • the execution of a Memorandum of Cooperation on the establishment and implementation of the Asia Region Funds Passport (the MOC) (in April 2016).


Along with Australia, Japan, South Korea, New Zealand and Thailand were the other signatories to the MOC. 


How does the proposed Bill seek to implement Passport arrangements into Australian law?


It establishes a mechanism for incorporating the Passport Rules annexed to the MOC into Australian law and imposes obligations on Passport funds and operators registered in Australia as well as foreign Passport funds and operators offering interests in Australia to comply with the Passport Rules;


It establishes a new Chapter 8A in the Corporations Act to implement common regulatory arrangements, including the process whereby foreign passport funds may notify ASIC their intention to offer interests in the fund to Australian investors in the circumstance in which ASIC may reject that notification; and


It otherwise amends the Corporations Act to clarify how some obligations in those parts apply to foreign Passport funds particularly with respect to financial reporting, licencing and disclosure.


Relevantly, the draft Bill provides (at clause 1211) that the Minister may, by legislative instrument, make rules for matters relating to Passport funds, and that those rules must be substantially the same as those in Annex 3 to the MOC.  The draft legislative instrument is not in the package of materials which have been released for public consultation.


In respect of each jurisdiction that was a signatory to the MOC, a type of collective investment scheme or CIS has been identified.  In relation to Australia, a CIS registered under the Corporations Act 2001 is one that could qualify for a Passport so that it can be offered to investors in other participant economies.  The Government's intention is that a sub-fund of its proposed new corporate collective investment vehicle (CCIV) will also be capable of satisfying the definition of a "regulated CIS" for Australia.  Please see our Financial Services Update (issued 28 August 2017) on the exposure draft Bill and explanatory memorandum for the CCIV, which were issued by Treasury on the same day as the consultation package for the Passport.


How to register for a Passport - Australian funds


Funds registered under the Corporations Act in Australia (MIS) may apply to become Passport funds by lodging an application in the prescribed form with ASIC.  ASIC must register the MIS if the operator of the MIS meets the eligibility criteria in the MOC and ASIC is satisfied that the MIS will comply with the corporations legislation in Australia, including the Passport Rules for this jurisdiction.  On registration, ASIC will assign the MIS a unique Australian Fund Registration Number (APFRN) and ensure that its details are entered on the Register of Passport Funds.


Importantly, an applicant must provide ASIC with the Product Disclosure Statement (PDS) that it must prepare before it can offer interests to retail clients in Australia.  This requirement to provide a PDS at the time of applying for registration differs from other registration processes under the Corporations Act but is intended to give ASIC the opportunity to determine whether the MIS is likely to comply with the PDS requirements.


ASIC must register an MIS as a Passport fund if ASIC is satisfied that the MIS meets two conditions, namely:

the MIS is likely to comply with the Corporations Act, ASIC Act and the Passport Rules for this jurisdiction; and
the operator of the MIS meets the eligibility requirements in sub-section 3 (4) of Annex 2 of the MOC.


These eligibility requirements are that the operator:


  • is responsible for operating an MIS with assets of at least USD 500 million or has discretionary management powers over at least the same amount of client money;
  • has its principal place of business in Australia;
  • has officers with the qualifications specified in the Passport Rules;
  • meets the financial resources test in the Passport Rules (that is, the operator has between USD 1 million and 20 million in equity, depending upon the assets under management);
  • meets the organisational arrangements test in the Passport Rules, including by establishing internal control mechanisms, adequate risk monitoring and adequate procedures for managing conflicts of interest;
  • meets the track record test in the Passport Rules by having at least five years of relevant experience; and
  • meets the good standing test in the Passport Rules by not being subject to a notice that brings into question its integrity or competence.


ASIC has no obligation to process applications for registration of an MIS as a Passport fund within any specific period of time.


How to register in Australia - foreign funds


Funds registered in another participating economy must lodge a notice with ASIC if they intend to offer interests in Australia.  This notification process is designed to be a streamlined process whereby applications must be processed within 21 days. ASIC's power to reject a notice is intended to be limited to specific reasons, such that the fund is unlikely to comply with the Home or Host Economy's laws and regulations, entry is not in the public interest or the name of the fund is unavailable.  While the period during which ASIC may consider an application is limited, the operator of the Passport fund and ASIC can agree to extensions.


In order to be able to register a foreign Passport fund in Australia, the operator must be registered as a foreign company in Australia.  


Like an Australian Passport fund, the operator is also required to provide ASIC with a PDS to assist ASIC to determine whether the fund is likely to comply with Australia's disclosure requirements.  The PDS must comply with the PDS requirements in the Corporations Act and must set out relevant information about the Passport fund.


The operator must also pay any fee prescribed under the Corporations (Fees) Regulation 2001.


It is possible that home and host economies may grant exemptions or modifications from Passport Rules.  However, another jurisdiction does not have to accept these exemptions and modifications and the host regulator must consent in writing to exemptions and modifications of the Passport Rules.


Register and access to information


ASIC must ensure that a Register of Passport Funds, including details of Australian Passport funds and notified foreign Passport funds is recorded.  The register may be established and maintained by ASIC or a third party.


There are certain incidental changes which are made to the law to accommodate foreign Passport funds which have registered in Australia.  For example, the draft Bill contemplates persons can obtain copies of the register of members and the constitution.  In essence, the new law extends the right to obtain a copy of a register and the constitution of a foreign fund to members of the notified foreign Passport fund.  The law will contain certain restrictions on the use of information obtained from the register of members to protect the privacy of members of the fund and prevent their details being used for soliciting donations, advertising or other improper purposes.



There are two offences for breaches of the Passport Rules.


A person who intentionally or recklessly breaches the Passport Rules commits an offence punishable by a fine of up to 2,000 penalty units or five years imprisonment or both. This offence may also attract a civil penalty.

Minor breaches of the Passport Rules are strict liability offences punishable by up to 60 penalty units. The strict liability offence is subject to an infringement notice regime. 


ASIC will also be empowered to make a final or interim stop order against an Australian or notified foreign Passport fund that is not complying, or is not likely to comply, with the relevant Corporations legislation, or the Passport Rules for this jurisdiction.


There are other circumstance in which stop orders may be made against notified foreign Passport funds, for example, if they fail to appoint a local agent or the relevant economy has ceased to be a participating economy.  


There is an extended geographical reach for these offence provisions.  For Australian citizens or bodies corporate, offences can occur regardless of where the conduct which gives rise to the offence occurs, whether in Australia or overseas.  The offences apply to foreign nationals and bodies corporate if the conduct giving rise to the offence occurs in Australia.


Consequential amendments


Consequential amendments are also being made to extend licencing conditions and breach reporting requirements which apply to Australian financial services licensees to include compliance with the laws of each host economy of the fund and the Passport Rules for this jurisdiction.  This has the effect of extending ASIC's existing power to ban a person for non-compliance with the licencing obligations or financial services laws, where the relevant conduct may occur outside the jurisdiction.  Again, this highlights the extended geographical reach of the new law.


ASIC has also been granted power to suspend or cancel the Australian financial services licence of an operator of a notified foreign Passport fund if the members have suffered, or are likely to suffer, loss because the fund breached the Corporations Act, the Corporations Regulations or the Passport Rules for this jurisdiction.  It is however noted that operators of funds may not necessarily be required to have a licence.


Next steps


Ashurst will be an active participant in the consultation process on CCIVs and the Passport through industry working groups and direct participating in Treasury round tables which will occur over the coming weeks.  Submissions close on 21 September.  If you would like us to consider any views about the proposals, please contact us.  We would also be happy to assist with any individual submissions which our clients would like to make on the proposals.

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For further information, please contact:


Lisa Simmons, Partner, Ashurst