Members of the Association of Southeast Asian Nations (ASEAN) have long wanted a single integrated marketplace for listed securities but recent moves towards mutual recognition of funds suggests the goal is now closer, according to a briefing note from legal firm Dechert.
In November 2007, ASEAN member states adopted the ASEAN Economic Community Blueprint 2015 (AEC Blueprint), which outlines the process towards an ASEAN Economic Community (AEC) by 2015.
In 2009 the ASEAN Capital Markets Forum (ACMF) created a framework for the mutual recognition of cross-border offerings of collective investment schemes (CISs) within ASEAN to non-retail investors. The intention was to extend this to retail investors once adequate protective measures were in place.
But the development of an ASEAN funds passport still has some way to go. Thailand and Singapore, who have taken the lead thus far, still need to agree exact details and mechanisms over the coming months.
The Monetary Authority of Singapore drafted a proposal to develop a mutual recognition framework for retail CIS. In April, it circulated the “Consultation on Draft Standard Requirements and Product Restrictions for Mutual Recognition of CIS under ASEAN Capital Markets Reform”.
ASEAN capital market regulators reviewed the draft, and consultation closed on 11 May. There was no period of public consultation.
On June 27 the Thai Securities and Exchange Commission said it would allow ASEAN CISs to be offered to accredited investors by July, with the goal of extending the initiative to retail investors later in 2012, as per the ACMF initiative.
It intended to promote cross-border offering of securities by allowing products that have been authorized in one ASEAN jurisdiction to be offered in another without the need to apply to the regulator of the second jurisdiction for approval.
Dechert said the advantages of such a scheme are expected to be two-fold: (i) on the ASEAN-level, driving the ACMF initiative forward; while (ii) locally, providing Thai investors with an alternative to investing in foreign markets, and concurrently developing the Thai mutual fund industry.
No other ASEAN regulators have proposed anything regarding a funds passport. Given the different stages of economic and political development among member states, it is unlikely all will be prepared to take the initial leap.
Aside from Thailand and Singapore, other potential early participants may include Indonesia and Malaysia.
Meanwhile, Asia-Pacific nations such as Hong Kong, Taiwan and Australia, which are outside ASEAN, are likely to monitor these developments with interest, especially given recent discussions about establishing a separate Asia Region Funds Passport.
From a global perspective, the ASEAN region represents a significant bloc with much potential for investment. With a history of regional cooperation, there is every possibility that an ASEAN funds passport may come to pass.
Non-ASEAN investment schemes may need to consider establishing a presence within ASEAN, and/or registering for local distribution in order to benefit from the access afforded by an ASEAN funds passport.