Revised Explanatory Memorandum(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)
General outline and financial impact
Corporations Amendment (Asia Region Funds Passport) Bill 2018
The Bill provides a multilateral framework that allows eligible funds to be marketed across economies participating in the Asia Region Funds Passport with limited additional regulatory requirements.
Date of effect: To be set by proclamation.
Proposal announced: This Bill implements the Government's commitment to the Asia Region Funds Passport Memorandum of Cooperation, which the Government signed on 28 April 2016.
Financial impact: The Bill has no financial impact.
Human rights implications: This Bill raises human rights issues. See Statement of Compatibility with Human Rights - Chapter 9.
Compliance cost impact:
It is anticipated that upfront regulatory costs will equate to a yearly average of $222,880 over the first 10 years of the Passport scheme. Upfront regulatory impacts relate to portfolio management activities, research and analysis, accounting, legal and compliance activities, and other support functions.
New regulatory costs will equate to a yearly average of $1.8 million over the first 10 years, arising from new Passport funds that either already offer or are yet to offer in participating economies.
Regulatory cost impacts will be offset by the expectation that there will be approximately $14 billion of assets under management in Passport funds over a 10-year average, which translates to an average gross regulatory benefit of $6.3 million per year. However, more than half of this comes from activity from collective investment schemes not currently offering in participating economies. Excluding these collective investment schemes reduces gross regulatory benefits to $2.8 million per year.
As a result, total net deregulatory savings (averaged over a 10-year period) will equate to $776,467. However, it must be noted that this calculation does not capture the deregulatory benefits accrued from offering into new markets that are likely to result from removing regulatory barriers.
Summary of regulation impact statement
Regulation impact on business
Impact: The Bill will impact the financial services industry, investors and consumers.
- Australia's funds management industry has a high comparative advantage. However this comparative advantage in funds management has not translated into strong exports of funds management services. This is predominantly due to the way foreign funds are taxed as well as regulatory barriers restricting trade in financial services.
- Along with Japan, Korea, New Zealand and Thailand, the Australian Government signed the Memorandum of Cooperation (MOC) on the Establishment and Implementation of the Asia Region Funds Passport (the Passport), which took effect on 30 June 2016. The MOC is a commitment to implement arrangements in domestic law to facilitate the operation of the Passport.
- The Passport will allow eligible funds to be offered across multiple participating economies under a common set of rules. The main regulatory savings captured relate to reductions in compliance costs from not having to meet multiple sets of regulatory arrangements. A larger pool of investor assets under management also provides greater scope for economies-of-scale benefits to arise for these funds.
- The implementation of the Passport will, however, lead to upfront and regular costs for the industry, such as legal and compliance, accounting, and research analysis costs.
- Consumers will see greater product choice and lower fees as a result of greater competition in the market. Increased access to foreign funds does bring potential risks for consumers. However, a number of arrangements have been put in place to provide a high level of consumer protection.
- There are likely to be positive flow-on benefits from increasing Australia's export of fund management services: increase in job numbers, in the government revenue base and in aggregate gross domestic product.
- The Passport scheme has been developed multilaterally. The process involved consultation by Australian officials with regulators and officials across the region, as well as open consultations involving various stakeholders from the region. The Government has also consulted three times on the draft Bill of the Passport, and held bilateral meetings, presentations and roundtables with predominantly private sector stakeholders as well as ASIC.
- The outcomes of the Passporting regime will be reviewed on an ongoing basis by the Joint Committee (which consists of one representative from each participating economy).