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n investment fund, or mutual fund, is defined by Indonesia Capital Market Law No. 8/1995 on the Indonesian Capital Market as a vehicle used by an investment manager to raise funds from the public for investment in a securities portfolio. In a more specific definition, the US Securities and Exchange Commission (SEC) considers it a type of professionally managed Collective Investment Scheme (CIS) that pools money from a number of investors to purchase securities.

CIS have been one of the main subjects of the capital market integration in ASEAN since the establishment of the ASEAN Capital Markets Forum (ACMF) in 2004 under the purview of ASEAN finance ministers. The initiative is currently being further broadened by the inclusive attention to the subject by the Asia-Pacific Economic Cooperation (APEC) finance ministers group.

The ACMF announced last August that the ASEAN CIS framework for cross-border offering of CIS is currently operational in three countries in ASEAN (Malaysia, Singapore and Thailand).

This framework allows fund managers operating in a member jurisdiction to offer CIS constituted and authorized in that jurisdiction to retail investors in other member jurisdictions under a streamlined authorization process.

Thus, qualified fund managers now have a direct and efficient channel for cross-border distribution of funds in those three markets. Furthermore, six countries, namely Australia, South Korea, New Zealand, the Philippines, Singapore and Thailand have committed themselves to the implementation of broader cross-border offering of CIS under the Asia Region Funds Passport (ARFP) initiative.

The ARFP will enable eligible CIS in member economies to be offered across borders in other economies, in accordance with the agreed framework. The irony is that Indonesia was included in neither the framework nor the ARFP, with no possibility to join in the near future.

Despite this exclusion, Indonesia currently registers one of the highest stock index growth rates in the Asia-Pacific region, at around 19.43 percent this year, placed third after Thailand and India. Indonesia also currently has higher market capitalization growth rates than other countries in the region, amounting to 24.8 percent this year, with a total value of US$410.38 billion as of August. Assets under Management (AUM), or total market value of investments managed by a mutual fund, amounted to $18.5 billion.

Though it remains below Malaysia, Singapore and Thailand, whose AUM as of 2012 amounted to $111 billion, $53.1 billion and $73.2 billion, respectively, the number is higher than in other countries in the region. Net sales of mutual funds, or the calculation of total sales minus total redemptions plus net exchanges, are also higher than the average Asia-Pacific performance, with a 4.25 percent increase this year alone.

With these figures, as well as our demographic bonus, Indonesia certainly has all the preconditions needed to participate in both the ASEAN CIS framework and the ARFP, the only cross-border CIS initiatives in the region. We now lag behind the starting line, with less opportunity to reap the benefits of the integration.

Investors and fund managers in Malaysia can now exploit the full opportunity of ASEAN, which has one of the highest savings rates in the world; funds can be reinvested in the region to generate returns and contribute to the region'€™s future growth prospects. Singaporeans have admitted that they will benefit from an increase in the choice of funds for investment, as well as a direct and efficient route to offer their funds to retail investors in other ASEAN countries.

Meanwhile, Thailand has suggested that the framework is opening the door for more business opportunities for Thailand'€™s private sector, in addition to offering a new range of products for Thailand'€™s investors to diversify their portfolios.

A joint report published by the Australian Financial Services Council and PricewaterhouseCoopers in late 2010 pointed out that, in addition to funding growth and supporting the liquidity and diversity of the capital markets in the region, the key benefits to the region of an ARFP included improved efficiency and cost reduction and increased investor choice and ability to diversify.

The report argued that cross-border capital flows would provide fund managers with access to larger savings pools and allow for greater economies of scale. Investors are provided with access to otherwise inaccessible markets, investments and foreign expertise.

In the case of the ASEAN CIS framework for cross-border offering of CIS, Indonesia is not able to join the initiative, mostly because of external factors: Indonesia is currently classified as a Non-Cooperative Jurisdiction by the Financial Action Task Force (FATF) on money laundering and counter-terrorist financing of the OECD.

Being taken off this negative list requires stronger enforcement of the anti-money laundering law.

 As for the ARFP, Indonesia has opted out of the arrangement for the moment because of the lack of domestic infrastructure and the relative poverty of its funds industry.

Thus, Indonesia is currently classified by the ARFP as a country that still needs to build its capacities. Lack of infrastructure and an under-developed funds industry have also contributed to authorities'€™ inability to regulate.

In the case of Indonesia, we are perhaps running a bit late in issuing a series of regulations related to CIS. Not to mention the fact that authorities are not responding promptly to or anticipating the dynamic development of cross-border CIS. While development is getting broader across the Asia-Pacific region, we are still left behind, responding to ASEAN demands.

Indonesia needs to immediately catch up with other countries that are already participating in the ASEAN CIS framework and the ARFP. The responsibility is with the relevant authority, in this case the Indonesia Financial Services Authority (OJK).