Passports for Funds Products
Financial authorities have begun to take steps to introduce the Asia Region Funds Passport, an initiative among five East Asian countries to facilitate the cross-border marketing of managed funds.
The Financial Services Commission (FSC) announced on June 12 that an amendment to the Capital Market and Financial Investment Business Act was passed at a cabinet meeting. The proposal will be submitted to the National Assembly this month to lay the legal ground for the implementation of the region-wide initiative.
The Asia Region Funds Passport was first proposed in an Asia-Pacific Economic Cooperation (APEC) conference in November 2011. It is a system intended to allow a managed fund in one member country to be offered more easily to investors in other participating countries by simplifying the registration and sales procedures.
In April 2016, the five countries -- Korea, New Zealand, Japan, Thailand and Australia -- signed MOUs and started revising their respective regulations. Korea is planning to issue funds passports beginning the first half of 2019.
"The funds passport program aims to facilitate the import of excellent overseas fund products and the export of Korean funds," the FSC said. “We participate in the program with a view to expanding fund options for domestic investors and enhancing the competitiveness of the Korean asset management industry."
The amendment included clauses regarding the registration of a domestic fund that meets certain requirements as a passport fund. The FSC will define the qualifications of a passport fund in subordinate acts.
Under the agreement among the member countries, a passport fund management company should have over US$500 million in investment assets and has been in the fund management business for over 5 years.
A passport fund should be invested in securities, deposits and short-term financial instruments and derivatives. A fund management company should not invest more than 20 percent of the assets of the fund in its subsidiaries.
In addition, the FSC amendment proposes to exempt a foreign passport fund management company from a set of requirements that are currently applied to an ordinary foreign fund management company when it intends to register its fund products in Korea.
For instance, under the current regulations, a foreign fund management company should have more than one trillion won worth of assets under its management to be qualified to register its fund products in Korea. This requirement will not be applied to a foreign passport fund management company.
The FSC will assemble a task force with experts from the FSC, the Korea Financial Investment Association and the financial industry to make preparations for the system. It plans to operate a pilot program before the full-scale implementation of the system.
The Asia Region Funds Passport will be first introduced in Japan and Thailand in August this year.