Monetary Authority of Singapore (MAS) has updated its “Guidelines on Licensing, Registration, and Conduct of Business for Fund Management Companies” and “FAQs on the Licensing and Registration of Fund Management Companies” over recent years. Notable changes have been made and clarity has been provided by MAS on business activities to be conducted in by Fund Managers and license application standards to adhere to.
We have summarized below key changes to take note of when intending to be a regulated fund manager in Singapore.
What MAS considers to be a good quality submission for a license or registration?
MAS has provided guidelines to the industry to adhere to when submitting a license or registration application. In general, applications need to address the following:
- A clear description of the business model and plans which is supported by professional experience and expertise of the proposed management team
- A clear description of risk management, compliance and audit arrangements which are in line with the nature of the proposed fund model
- For applicants who are part of a global set up, clear explanation of the applicant’s role in Singapore together with any functions or services that it will receive or provide to related corporations
- Documentary evidence of the applicant’s ability to meet base capital and financial requirements
- Where regulatory action has been taken against the applicant or its related corporations, an assessment of the impact of the action and a description of the steps taken to effectively address the root cause of the regulatory breach
Can Singapore licensed fund management companies (FMCs) manage customer assets and monies held at accounts opened with brokers, including foreign brokers who are not regulated in Singapore?
FMCs are not allowed to market, recommend or staple the services of foreign brokers that are not licensed or regulated in Singapore. Foreign companies who are providing such services in Singapore may be deemed to be conducting regulated activities in Singapore and would be in breach of an extra-territorial provision in the Securities Futures Act.
FMCs who are onboarding customers who already have opened broker accounts with foreign brokers is permitted as long as FMCs are able to show that the customer already had an existing account and that the account was not opened shortly prior to the establishment of the relationship with FMC
Managing monies of Non-AI Investment Professionals for FMCs
FMCs who are permitted to only deal with accredited/institutional investors may carry on business in fund management with their employees who do not meet the definition of accredited/institutional investors. Investment professionals employed by the FMC or employed within the same corporate group are the only employees who are permitted to take part in the fund management activities. FMCs must employ certain safeguards when dealing with investment professionals as investors:
- Maintain records of investment professionals whom FMC is carrying on business with and ensure document contains an assessment of their status as investment professionals.
- Investment professionals’ participation in the fund is strictly voluntary and is able to demonstrate that.
- Investment professionals must be apprised of the risks involved and acknowledge in writing that he would not be accorded the regulatory safeguards as a retail investor.
- If an investment professional ceases employment, he is not permitted to make further investments. He may continue with current investment.
- FMC needs to have a clear policy on the treatment or handling of investment professionals’ investments.
Conducting Substantive Fund Management Activity
MAS has made clear that fund managers who intend to be licensed or registered in Singapore must conduct substantive fund management activities in Singapore such as portfolio management, investment research or trade execution. A person, who acts as an investment adviser, sub-adviser or provides research to other investment managers (either in Singapore or overseas) would also be considered to be doing substantive fund management activities if the following conditions are met:
- Able to exercise influence or control over the management of the investment portfolio; or
- Provide inputs to the portfolio composition.
In order to determine if the person has influence or control over the management of the portfolio, the person must have the knowledge, or access to the holdings of the portfolio beyond what is publicly available, or is named or referred to in the fund documents or marketing materials.
Entities intending to set up a fund structure solely to raise capital for an operating business or purely engage in marketing of funds and/or client servicing would not qualify for fund management licensing in Singapore.
Experience of Relevant Individuals
FMCs who intend to be licensed or registered are required to have competent CEO and directors appointed. FMCs who are dealing with accredited/institutional investors must have at least 2 directors with at least 5 years of experience and managerial experience. MAS has elaborated on what they would consider being relevant experience and managerial experience. MAS expects the board of directors of the FMC should collectively have experience in portfolio management, as well as in support functions such as risk management, operations, and compliance. At least one of the Executive Directors must have portfolio management experience in asset classes or markets that the FMC intends to invest in.
MAS will not consider the experience in investing one’s own money as relevant experience especially for an FMC that is intending to manage third parties monies. MAS has also clarified that in assessing the period of relevant experience, MAS would not consider multiple short stints that occurred a long time ago.
In ensuring that the CEO and directors exercise effective control over the FMC, MAS may require the CEO and directors to have meaningful stakes in the FMC. This would align the interests of the owners and the management team.
MAS has also clarified that an individual’s appointments should accurately reflect his/her responsibilities and involvement within the FMC and appointments should not be made for the sole purpose of meeting the minimum staffing requirements.
Acquisitions of Licensed Fund Management Companies
MAS prior approval is required before a person obtains effective control of any Capital Market Services Licence Holders. A person is deemed to have effective control if he whether acting alone or together with any connected person, acquires more than 20% of issued share capital or 20% or more of the voting power of the licensee. An application must be submitted to MAS by licensed fund managers to proceed with the change in effective control of the FMC. Registered fund managers are required to submit a notification of change within 14 days of any change to its shareholders.
In general, MAS does not favor the sale or transfer of licenses or registration statutes without meaningful underlying businesses, as a shortcut for new shareholders to start a new fund management business or to gain easy entry into Singapore financial system.
MAS will consider the fitness and proprietary of the potential acquirer and the process would be similar to one obtaining a new license. MAS will consider the merits of each case to determine whether to grant approval.
How can Argus help?
Argus is a compliance regulatory firm that assists financial institutions with their compliance requirements in Singapore. Argus provides the full spectrum of services for Compliance of Fund Management Companies which includes license applications. Our dedicated regulatory compliance team is able to analyze your business, help put together a business plan and submit the relevant license application to the MAS. Please to us today at email@example.com