Korea's Financial Services Commission announced on January 20 that the Asia Region Funds Passport ("ARFP") will be implemented in Korea from May 27, 2020 and that it is revising subordinate provisions of the Financial Investment Services and Capital Markets Act in accordance with the Memorandum of Cooperation on the Establishment and Implementation of the Asia Region Funds Passport ("MOC"), which was signed by the governments of Korea, Australia, Japan, New Zealand and Thailand in April 2016.  The aim of the ARFP is to facilitate the offer of interests in certain collective investment schemes ("CIS") established in ARFP member countries to investors in other ARFP member countries through improved market access and regulatory harmonization. 

Overview of ARFP Regime 

The ARFP provides a multilateral framework within which a CIS operator who operates an eligible CIS (a Passport Fund) in a passport member country ("home country") will be able to offer interests in the fund to investors in other Passport member countries ("host country").  

Becoming a Passport Fund is a two part process – registration by the home country regulator and then approval for entry by the host country regulator.  To be registered, the home country regulator must be satisfied that (among other things) the fund operator is an eligible entity and the fund satisfies certain eligibility requirements, which are set forth in Annex 3 "Passport Rules" of the MOC.  For an operator to be classified as an eligible entity, it must satisfy certain requirements, including (among others) requirements relating to value of funds under management, capital, organizational competence and track record.  In addition, only funds investing in currency, deposits, depository receipts over gold, transferable securities and money market instruments are eligible to become a Passport Fund.  Once registered and operating, a Passport Fund must comply with ongoing compliance and notification requirements in both the home and host jurisdictions. 

Home country laws and regulations will apply to the registration of the Passport Fund and the CIS operator's management of the Passport Fund, while host country laws and regulations will apply to the interaction between the investor and the Passport Fund.  For example, an Australian Passport Fund offered in Korea will be subject to Korean laws on distribution, disclosure, complaints handling and marketing, while the registration and ongoing management of the Australian Passport Fund would be subject to Australian laws. 

Key Takeaways 

From May 27, 2020, eligible CIS operators managing eligible CIS in Australia, Japan, New Zealand and/or Thailand will be able to apply to the Financial Supervisory Service of Korea to publicly offer interests in the funds to investors in Korea.  If registered in another ARFP member country as a Passport Fund, the fund will, in principle, be deemed eligible for a simplified registration process in Korea without having to separately register the CIS in Korea or be licensed in Korea.  Such CIS operators that are interested in doing so will be subject to Korean laws on distribution, disclosure, marketing and ongoing obligations, so it would be prudent for such CIS operators to become familiar with these laws in advance. 

From May 27, 2020, eligible CIS operators in Korea will be able to register their Korean funds in Korea as Passport Funds.  If registered as a Passport Fund, the fund will, in principle, be deemed eligible for a simplified registration process in other ARFP member countries without having to separately register the CIS in each of those countries or be licensed in each country. 

Taking Advantage of the ARFP Regime 

Asset managers in Korea and in ARFP member countries (and local counsel in those countries) who are interested in taking advantage of the benefits of the ARFP regime may wish to consider (i) reviewing whether they and the retail funds they wish to offer satisfy applicable eligibility requirements for registration as Passport Funds in their home countries and (ii) reviewing the laws of prospective host countries that will govern distribution, disclosure, marketing and ongoing obligations applicable to Passport Funds in those host countries.