The regulators of South Korea are to be the latest to implement the AFRP, an initiative that strives to combine the fund markets of Australia, Japan, South Korea, New Zealand and Thailand. 'D-Day' is timed for 27 May.

Fund managers in Korea can only give their funds the use of the passporting regime if they possess US$500 million in AuM and capital of US$1 million.

It was in September 2015 when the Statement of Understanding (SOU) for the establishment of the Asia Region Fund Passport was signed at the APEC Finance Ministers Meeting in Cebu. Partial implementation finally occurred last year in various places on 1 February.

The Passport Rules

Every fund that wants to benefit from a passport must register with its home regulator. It must then apply to another participating nation for 'entry,' as the signatories call it, as a further step towards being marketed in that nation.

Once registered, passport funds must comply with the Passport Rules which cover permitted investments, portfolio restrictions and limits, breach reporting, notifying the home and host regulators of certain changes, custody, financial reporting, annual reviews of compliance with the Passport Rules, redemption, valuation and deregistration.

Once it is in full force, the ARFP will allow capital to flow far more freely in the Asia-Pacific region by providing fund firms with a set of rules to govern the cross-border marketing of managed funds (such as mutual funds). In the longer term, the ARFP might also  facilitate the marketing of funds from the region in Europe through yet another 'mutual recognition' agreement.

The British dimension

This possibility might be on the cards because of Brexit. Just last month, in a paper entitled Facilitating Connectivity: Strengthening UK-APAC Fund Ties, a British think tank called the New City Initiative or NCI (which looks at the future of financial regulation) stated that the UK’s asset management industry manages around £400 billion on behalf of clients in the Asia-Pacific zone and argues that the UK should take advantage of its new-found freedom from European tyranny to join the ARFP.

There are several ways in which the UK funds’ industry could strengthen its distribution footprint in key APAC markets, according to the think tank. One is to create a UK-branded fund structure that might compete with Europe's UCITS (Undertakings for Collective Investments in Trusts and Securities) or its AIFMD (the Alternative Investment Fund Mangers' Directive) on a global scale.

To make such a structure attractive to APAC investors, the NCI suspects that the UK ought to simplify its existing 'tax treatment' rules for foreign investors, quoting a Far Eastern lawyer as saying: “The UK unit trust and open ended investment company (OEIC) never took off in APAC because the UK tax regime is too complicated, whereas Luxembourg and Ireland are more straightforward. If a UK fund structure is to succeed, it must be tax neutral just as it is in the Cayman Islands, Channel Islands, Ireland, or Luxembourg.”

The think tank believes that the less comprehensive Britain's eventual trade deal with the European Union is, the more likely this is to happen.