The Philippines will likely become a signatory to the APEC Asia Region Funds Passport (ARFP) by next year, which would trigger the Asean collective investment scheme (CIS) initiative to take off in Manila.
An official of the Securities and Exchange Commission (SEC) says the Philippine government has taken major steps in its future participation in the funds passport and CIS -- the Asian version of Europe’s UCITS (Undertakings for Collective Investment in Transferable Securities) – during the past year.
“We’re looking at signing ARFP next year and so far, it’s a go,” says SEC Commissioner Manuel Huberto B. Gaite.
He presented the government’s actions leading to the ARFP and CIS participation during the recent Asset’s 9th Philippine Forum in association with the Fund Managers Association of the Philippines in Manila.
In both initiatives, the SEC is joined by the country’s central bank, the Bangko Sentral ng Pilipinas (BSP), and the Insurance Commission (IC) in its review and assessments of risks and benefits. Gaite reveals at the forum sidelines that only one consent or certification from the three involved agencies is required.
The ARFP is a topic that is new in Philippine circles that only a select few in the government and private sectors are able to discuss it with some clarity. The CIS is more talked about, especially when discussions centres on a regional platform for collective investment funds that are made in Asia and sold across the region.
“Such a vehicle was inevitable because governments sought to have greater control over the regulation of funds being sold to local investors and as economies attempted to develop domestic financial industries and to recyle savings in the region rather than only in the US and Europe,” says Gaite.
Among Asean and APEC member countries, only two “promising schemes” are on authorities’ minds – the CIS which is a framework for cross-border funds offering and the ARFP which will make that possible. The CIS’s MOU was signed on October 13 2013 while the ARFP is targeted to cover a wider territory by 2015.
“After four years of discussions, we now have at Asean the CIS and at APEC, we are now on the verge of finalizing the ARFP,” Gaite informs fund managers, bankers and investors in the forum.
The pace of meetings and public consultations has accelerated as 2015 approaches, with the SEC commissioner noting the target is to refine the technical and procedural rules by year’s end. There will be an ARFP technical and working group meeting in late November in Manila.
Gaite is confident that by March 2015, the ARFP memorandum of understanding will be signed by “economies that wish to become members of the passporting scheme when the pilot ARFP is launched by 2016.”
“Between the signing of the ARFP MOU and its launching, economies that have joined the pilot launch shall work on their local legislation to give effect to the passporting arrangement,” he adds.
Philippine ARFP participation
Gaite says the SEC, BSP and IC have laid some grounds for the eventual participation in the ARFP next year.
First, there were amendments to pertinent laws that have been implemented. This was required because the SEC is unable to share information with other regulators about bank transactions because of the Bank Secrecy Law.
“But because of recent amendments to the AML (Anti-Money Laundering Law) the SEC thru AMLC (AML Council) of which the commission’s chair is a member, can now have access to bank records specially those connected with securities fraud investigations,” he shares.
Second, the SEC has re-filed its application with the International Organization of Securities Commission (IOSCO) to become a signatory to Appendix “A”. “The application is undergoing review and evaluation, and hopefully we will get a favorable response by next year,” says Gaite. The IOSCO is a requirement before joining the ARFP.
Gaite discloses that the new CIS Law is now being drafted, this being the third. “The passage of this proposed legislation is very timely to the different regional integration initiatives,” he says.
And lastly, the SEC and the other regulators need to implement changes to ensure rules and regulations are tight and working.
“It is humbly suggested that individual Asean economies continue to build confidence by keeping ‘one’s house in order’ in preparation for that goal of Asean integration,” remarks Gaite. “The greatest threat is remaining complacent and not preparing for the changes affecting our markets.”
The SEC official says the Philippines is signing the ARFP because it will provide investors with diverse investment options and thus create a deeper capital market. “It will facilitate the recycling of the region’s savings locally, growing the pool of funds available for investment in the region as well as strengthen the capacity, expertise and international competitiveness of financial markets and the fund management industry in the region.”
When successfully implemented, the benefits to both domestic and regional investors are worth the effort. “It will expand the potential pool for CIS offerings (and) improve efficiency and reduce costs for CIS operators,” says Gaite.
Gaite adds that cross-border capital flows will also give fund managers access to larger savings pools, bigger economies of scale and “(combined) with other facilitating factors in the market, will result in wider investor choices and better ability to diversify risks and assets.”
