Thinking | 14 August 2013

Significant Investor Visas – DIAC expands complying investments criteria

The Minister for Immigration recently released a new legislative instrument that significantly extends the categories for managed fund investments for the Significant Investor Stream of Subclass 188 and 888 visas (SIV).

A copy of the new instrument IMMI 13/092 (New Instrument) together with the explanatory memorandum can be found here. The new instrument replaces the previous instrument IMMI 12/117 (Existing Instrument) and is effective from 23 November 2013. The Existing Instrument continues to apply until that time.

Changes in New Instrument broaden the existing categories and introduce new categories of complying investments in which a managed investment scheme could invest in order to qualify under the Subclass 188 and 888 significant investor criteria. The major changes in the Existing Instrument are set out in the table below.

   

So far, one of the major weaknesses of the SIV regime was that the list of complying investments for eligible managed funds in which an SIV applicant could invest was too narrow and the Existing Instrument did not reflect funds management industry practices. Examples include hedging using derivatives, exposures to assets being made via debt rather than equity and fixed income investments returns being made via investments other than government bonds and bank deposits.

Practically speaking, only a few categories of existing managed funds, such as direct property funds with only cash investments and unhedged Australian equities funds, are likely to fit squarely within the complying investments requirements under the Existing Instrument. One of the unintended consequences of the narrow listing of complying investments in the Existing Instrument was that, instead of facilitating investment in existing managed funds, the SIV regime created an imperative for fund managers to structure new managed funds which specifically met the strict criteria imposed by 12/117 and generates unnecessary expense and uncertainty.

The extension of the list of complying investments in the New Instrument is a welcome step by the Minister of Immigration which will result in a greater proportion of existing Australian managed funds being eligible to accept SIV investments. The resulting increase in the number of Australian managed funds that will now be eligible managed funds for SIV purposes will also give SIV applicants better access to quality managed funds with a good operational track record as well as significantly increase competition in the marketplace for SIV investment.

The 23 November 2013 effective date for the New Instrument means that applicants wishing to invest in a managed fund that only complies with the New Instrument will not be able to be granted the visa until after this date. This does not appear to be a big issue given that only a handful of visas have been granted so far.

Despite positive steps being taken by the Minister for Immigration in undertaking industry consultations and extending complying investments to cover a larger proportion of Australian managed funds, there remains significant hurdles in the SIV regime which hinders its intended purposes of sourcing substantial overseas investments. These include:

significant processing bottle necks which have resulted in only three applications being granted since November 2012 (according to Departmental reports);
lack of clarity on source of funding and legal accumulation of assets requirements; and
impediments to the legal transfer of funds from jurisdictions which have foreign exchange controls for the purposes of making SIV investments.
Hall & Wilcox’s migration and financial services team have significant expertise establishing SIV compliance managed funds and advising SIV applicants. For further details, please contact us.

Contact

Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

Eugene Chen

Eugene Chen

Partner & Head of China Practice

Eugene advises Australian and Chinese clients on capital raising, funds management, licensing, anti-money laundering and more.

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