Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)Chapter 10: CCIVs - Extension of Asia Region Funds Passport regime
Outline of chapter
10.1 This Chapter details amendments that extend the ARFP regime to CCIVs.
Context of amendments
10.2 The ARFP Act provides a multilateral framework that allows eligible funds to be marketed across participating economies. The ARFP allows certain funds from other participating economies (notified foreign passport funds) to sell their products in Australia. Funds that qualify as Australian passport funds may also offer interests outside of Australia in other participating economies.
10.3 Currently, only registered schemes may become Australian passport funds. This is because registered schemes were the only type of regulated collective investment vehicle for retail investors at the time that the ARFP Act commenced. However, the Government's intention has always been that, once established, sub-funds of retail CCIVs would also be permitted to become Australian passport funds.
Summary of new law
10.4 Amendments in Schedule 2 to the Bill allow a sub-fund of a retail CCIV to be registered as an Australian passport fund. Other minor amendments extend the existing passport arrangements to sub-funds that become Australian passport funds.
Comparison of key features of new law and current law
| New law | Current law |
| A sub-fund of a retail CCIV may become an Australian passport fund. The corporate director of the CCIV is the operator of the fund. | No equivalent. |
| A sub-fund ceases to be an Australian passport fund if it is deregistered as a sub-fund. | No equivalent. |
| When deciding whether to reject a foreign passport fund's notice of intention on the ground that it would be contrary to the public interest, ASIC must disregard any benefits that may arise from limiting competition for MISs or CCIVs. | No equivalent. |
Detailed explanation of new law
Registering a sub-fund as an Australian Passport Fund
10.5 The corporate director of a retail CCIV may lodge an application with ASIC to register a sub-fund of the CCIV as an Australian passport fund. This provides the corporate director with the flexibility to elect to register only some of the sub-funds of the CCIV as passport funds. [Schedule 2, items 4 and 169, definition of 'Australian passport fund' in section 9 of the Corporations Act and subsection 1212(1)]
10.6 Sub-funds of a wholesale CCIV cannot become Australian passport funds. Nevertheless, a CCIV which does not have any retail clients may elect to become a retail CCIV by notifying ASIC of its status as a retail CCIV. This ensures that a sub-fund may be registered as an Australian Passport Fund before it has any members.
10.7 The process for registering a sub-fund of a retail CCIV as a passport fund is the same as the process for registering a MIS as a passport fund. ASIC must consider whether the requirements in the Corporations Act and the ASIC Act are likely to be complied with and whether the sub-fund meets the requirements for a passport fund in Annex 3 of the Corporations (Passport) Rules. [13] If satisfied of these matters, ASIC must register the sub-fund as an Australian passport fund and assign it an Australian Passport Fund Registration Number. The corporate director then becomes the operator of the passport fund. [Schedule 2, items 171 to 178, subparagraphs 1212(2)(b)(i) to (ii), paragraphs 1212(2)(b), 1212A(1)(a) to (b), subsections 1212(3) and 1212A(1) to (2), and section 1212A]
10.8 When lodging documents with ASIC, the CCIV must ensure that all documents relating to the sub-fund that has been registered as an Australian passport fund contain its Australian Passport Fund Registration Number. [Schedule 2, items 179 to 180, section 1212B]
10.9 Amendments have also been made to Part 8A.3 to account for the possibility of the passport arrangements being extended to other types of entities in the future. New defined terms have been created to describe a fund that seeks to become an Australian passport fund (collective investment fund) and the person that would control the fund (proposed operator). Currently the only types of funds that may register to become Australian passport funds are registered schemes, MISs that have applied to become registered schemes and sub-funds of retail CCIVs. The only companies that may be a proposed operator are the responsibility entity of a scheme and the corporate director of a CCIV. [Schedule 2, items 170 to 182, sections 1212, 1212A and 1212B]
Deregistration of an Australian Passport Fund
10.10 If a sub-fund is an Australian passport fund, ASIC cannot deregister the sub-fund unless it is of the opinion that deregistration would not be contrary to the interests of protected members. Protected members are members who became members after the fund became an Australian passport fund or on the expectation that the fund would become an Australian passport fund (excluding the operator, a former operator or any persons related to the current or former operator). For a discussion of the process for ASIC-initiated deregistration, see paragraphs 7.179 to 7.192. [Schedule 1, item 4, subsections 1239A(4) and (5)]
10.11 Similarly, a person cannot apply to voluntarily deregister a sub-fund if the sub-fund has protected members. For a discussion of the voluntary deregistration process, see paragraphs 7.170 to 7.178. [Schedule 1, item 4, subsections 1239(9) to (10)]
10.12 If a sub-fund is deregistered as a sub-fund, it automatically ceases to be an Australian passport fund and ASIC must ensure that the Register of Passport Funds is updated (see paragraph 7.201). The reinstatement of the sub-fund does not reinstate it as an Australian passport fund (see paragraph 7.212). [Schedule 1, item 4, subsections 1239D(5) and 1239G(6)]
10.13 There is also a process in the existing law for a sub-fund to deregister as only an Australian passport fund and continue to remain established as a sub-fund (see existing Subdivision A of Division 1 of Part 8A.7 of the Corporations Act).
Rejecting a notice of intention from a foreign passport fund
10.14 A minor amendment has been made to one of the circumstances when ASIC may reject a foreign passport fund's notice of intention to become a notified foreign passport fund and offer interests in Australia.
10.15 The existing law allows ASIC to reject the notice if ASIC is of the opinion that it is not in Australia's public interest for the fund to offer interests in Australia. Public interest is then defined so that it excludes any benefits that may arise from limiting competition for MISs (see paragraph 1213B(1)(b) and subsection 1213B(3) of the Corporations Act). This definition has been amended to also exclude any benefits from limiting competition for CCIVs. [Schedule 2, items 11 and 181, definition of 'expectation' in section 9 of the Corporations Act and subsection 1213B(3)]