Asia is the future growth engine for Australia’s funds management industry, but regulatory differences between countries make it inefficient and expensive to sell financial products in the region. Australia’s proposed Asia Region Funds Management Passport will change all this by creating one set of rules for all.
Australia is part of Asia. Our economic engagement with Asia is now so entrenched and growing at such a rate that we expect our relationship with Asia will surpass that with Britain in the 1950s, when Great Britain’s share of our trade was more than 50 per cent.
It’s clear. Three-quarters of our export trade is with Asia. Seventy percent of our imports are from Asia. Both are growing and free trade agreements are one of the main reasons this exchange is a robust, healthy win-win.
But there’s a huge opportunity we’re missing out on. We don’t have the same regulatory freedom when it comes to financial services.
To draw an analogy with commodities trading, you wouldn’t export steel products to Singapore via an office somewhere in Europe, but that’s what we have to do with investment products.
Australian funds managers can not distribute their funds products in most Asian countries without a lengthy, complex process to satisfy all local requirements in relation to licensing of the manager, registration of the fund, disclosure and custody. But this is not the case for European funds managers because Europe has enjoyed regulatory recognition under the UCITS framework since 2001. As a result, as much as 40 per cent of European fund sales are sourced from Asia.
There are lessons to be learned from our successes in trade arenas such as agriculture and manufacturing. The solution currently being considered by APEC is a multilaterally agreed framework that would allow the cross border marketing of funds across participating Asian economies – an Asia Region Funds Passport.
As with any trade negotiation, it won’t be simple. There will be issues of mutual recognition, jurisdiction and regulatory equivalence, protection for investors and, of course, operational issues. But we have, in our regional forums like APEC, the platform through which to make this happen. The APEC Finance Ministers are already working together on the issue.
Governments and business alike are taking the dialogue seriously. The opportunity is worth it.
Financial services is Australia’s biggest industry. Asia is potentially its biggest market, with 60 per cent of the world’s population, but only 13 per cent of funds under management. Add the aging population and growing wealth in Asia to the region’s continuing population growth and the opportunity looms even larger.
The Asia Region Funds Passport is clearly a passport to success and now is the time to make it happen. In making it happen we must not forget to make our Passport as competitive as it can be.