Second Reading SpeechMs O'DWYER (Higgins-Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service)
That this bill be now read a second time.
In 2009, the Australian Financial Centre Forum completed a report titled Australia as a financial centre. The report later became known as the 'Johnson report', named after Mark Johnson who led both the forum and the Australian Financial Centre Task Force.
The Johnson report observed that Australia had arguably the most sophisticated and advanced financial sector in the Asia-Pacific. The financial services sector remains the largest single contributor to GDP of any sector in the Australian economy and employs over 450,000 Australians. Australia also has the sixth-largest pool of managed funds in the world, and the largest in Asia.
The report noted that our financial sector would benefit substantially from greater exports; only four per cent of funds in Australia in 2016 were sourced from overseas. It recommended a package of reforms to make it easier for Australian fund managers to attract overseas investors.
One of these recommendations was the establishment of an Asia Region Funds Passport. The passport would provide a multilateral framework allowing eligible funds to be marketed across member countries, with limited additional regulatory requirements.
The model for the passport has been developed since 2010 through a series of policy and technical workshops attended by representatives from a number of APEC economies.
Subsequently, the Australian government, along with Japan, Korea, New Zealand and Thailand, signed a memorandum of cooperation on the establishment and implementation of the Asia Region Funds Passport, which took effect on 30 June 2016. Since then, signatories have each been implementing the memorandum into domestic law.
The passport will support the development of the Asian funds management industry through improved market access and regulatory harmonisation. This will bring many benefits for our region, and for Australia in particular.
It will allow Australian managed funds to become passport funds and sell their products into other participating economies. This will enable them to market their products to Asia's expanding middle class, and to the growing numbers of high net worth, and ultra-high net worth individuals in the region. Australian fund managers will be able to sell a single product across Asia and achieve greater economies of scale. This should allow lower costs for consumers.
The passport will also allow managed fund providers from other participating economies to become passport funds and sell their products into Australia. This will increase competition and choice for Australian investors. It will provide cost-effective opportunities to gain investment exposure to a wider range of assets, whilst ensuring protection for consumers.
This bill introduces legislation to give effect to agreements made under the memorandum and to prepare Australia for the passport.
Schedule 1 establishes a new chapter 8A in the Corporations Act, which mainly implements the common regulatory arrangements in annex 2 of the memorandum. Chapter 8A, among other things, sets out the process whereby Australian managed investment schemes may be registered by ASIC as passport funds. It also sets out the process whereby foreign passport funds may notify ASIC of their intention to offer interests in their respective funds to Australian investors, and the circumstances in which ASIC may reject such notifications.
The new chapter also provides for a mechanism to incorporate the passport rules in annex 3 of the memorandum into Australian law through the making of a legislative instrument. These rules form a common set of obligations on all operators of passport funds. It imposes an obligation on passport funds and operators registered in Australia, as well as foreign passport funds and operators offering interests in Australia, to comply with these rules.
Finally, schedule 2 makes amendments to other parts of the Corporations Act clarifying, among other things, how the obligations in those parts are to apply to foreign passport funds, as allowed under annex 1 of the memorandum. Key areas in which statutory obligations are made to apply to foreign passport funds in this manner include financial reporting, licensing and disclosure.
The passport complements two other initiatives recommended by the Johnson report and supported by the Australian government: an investment manager regime and a new corporate collective investment vehicle. Parliament already passed legislation establishing the investment manager regime in June 2015. This has clarified that investments by nonresidents in foreign assets would generally be exempt from tax in Australia, ensuring that Australian fund managers can compete with overseas financial centres, including Hong Kong, Singapore, London and Tokyo.
The corporate collective investment vehicle bill is to be brought before parliament later this year. It will allow Australian fund managers to market their funds, including through the passport, using a globally consistent corporate structure.
The Legislative and Governance Forum on Corporations was consulted in relation to amendments in the bill, as required under the Corporations Agreement 2002, and has approved them.
Full details of the measure are contained in the explanatory memorandum to the bill.