By Philippa Allen, Managing Director, Regulatory Compliance, APAC, and Yishan Lee, Managing Director, Regulatory Compliance, Singapore
On 29 November 2023, the Monetary Authority of Singapore (MAS) published updates to its Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies. The main effect of the changes is to implement, by way of further written guidance, practices in relation to the approval of fund management company (FMC) license applications that the MAS has already adopted informally. In summary, the changes impact:
- The definition under s3.2 and s4.7 of what constitutes substantive fund management activity
- What is considered appropriate levels of competency of key individuals under s3.7
- The rules for external involvement of key individuals under s3.9
- The rules in s3.11 on anchoring of key individuals
- Appendix 1 dealing with minimum staffing and competency requirements
- Disclosures relating to the risks of digital assets in portfolios
What this means for fund managers
With this tightening of the licensing rules in Singapore, it must be assumed that processing successful MAS licensing applications is going to be more rigorous, requiring full adherence to these new requirements. These changes will impact both new fund manager entrants to Singapore as well as existing Registered Fund Management Companies (RFMC) seeking to upgrade to become Licensed Fund Management Companies (LFMC).
Substantive fund management activities
An FMC must conduct substantive fund management activity for all its segregated mandates and funds.
All new licensing applicants must provide credible plans to manage third party monies as part of their application. The licence or registration status of FMCs will lapse if they do not commence fund management within six months of being issued a licence or registration.
FMCs must also be able to demonstrate that they are conducting substantive fund management activity for each segregated mandate/fund by retaining appropriate documentation.
The MAS does not consider a company would qualify for fund manager licensing in situations where a company:
- Merely provides a conduit or channel for its customer to structure its investments or assets in the form of fund units, without providing any substantive input or influence over the merits or suitability of the investment or assets, or assuming responsibility for their investment performance. This includes cases where an FMC executes trades purely based on customers’ instructions
- Sets up fund structures solely to raise capital for operating businesses that are run or managed by the person
- Sets up fund structures that merely serve as a conduit for the offer of funds managed by other fund managers
- Purely engages in marketing of funds and/or client servicing
- Ultimately invests in assets that are not capital market products (non-CMPs). Persons investing in non-CMPs on behalf of accredited or institutional investors may consider if they are able to rely on licensing exemptions in the Second Schedule to the SF(LCB)R
A person that manages their own assets or monies both in form and substance, does not require a fund management licence or registration. MAS will not grant a licence or registration to allow such a person to qualify for tax incentives or to make use of fund structures that require the manager to be licensed.
Experience of key individuals
The MAS has clarified a number of points it will take into consideration when assessing the competency of key individuals to be appointed by a new licensing applicant:
- In the case of a proposed external asset manager, relevant experience may include experience managing wealth management portfolios for clients focused on markets or asset classes that the FMC will target. It is not sufficient to merely have advised on such portfolios
- Experience in investing your own or family members’ monies is not relevant experience for an FMC that is seeking to manage monies for third parties
- Where an individual’s past experience in investment management was gained at unregulated entities, the FMC must substantiate the individual’s experience
- The period of relevant experience will be considered in assessing the competency of key individuals (e.g. an individual with multiple short stints, or with experience gained more than 10 years ago, may not be considered to possess the relevant experience)
External interests and anchoring
CEOs and executive directors are expected to focus on the management of the FMC’s business and may be required to divest outside business interests if they are unable to adequately mitigate actual or perceived conflicts of interest or reputational risks posed to the FMC.
As part of the requirements for the anchoring of key individuals (via tenure and majority shareholding requirements), the MAS has further clarified that FMCs should minimise the shareholding held by passive shareholders (whether direct, intermediate or ultimate) who are not involved in the management of the FMC’s business and/or do not have relevant experience in fund management.
Minimum staffing requirements
The MAS has added new minimum staffing requirements for FCM license applicants:
- There must be at least one executive director who has five years of experience in portfolio management that is relevant to the investment activities of the FMC and the asset classes and markets that it will invest in
- Individuals who are appointed representatives of the FMC (regardless of whether they work full-time for the FMC) must be employed by the FMC or by another entity that is affiliated with or related to the FMC
- As a matter of good internal control and for proper segregation of duties, individuals who are responsible for, or involved in control functions, or middle- or back-office functions such as risk management, compliance, operations and finance cannot be appointed representatives of the FMC
- As FMCs are required to carry out substantive fund management activity in Singapore, they are expected to have their representatives based in Singapore. In exceptional cases an FMC may base a representative overseas, but the FMC must have adequate compliance oversight over the overseas representative
- FMCs must not have a disproportionate number of their representatives based overseas
How IQ-EQ can help you
IQ-EQ’s Regulatory Compliance team in Asia has a 20-year track record in processing MAS licensing applications on behalf of fund management firms, including both locally-established fund managers as well as large international groups. Our team is the biggest compliance consulting group in APAC with dedicated licensing teams in Singapore and Hong Kong and a developed process for ensuring our clients have the greatest chance of success in securing their regulatory licences wherever they operate.
Our licensing experts would be happy to take your call to discuss your licensing options in APAC and where may be the best jurisdiction in which to base your fund management activities.
Whether you’re an RFMC looking for advice on upgrading to an LFMC or you’re considering other ways to restructure your business and operations, we have a wide variety of solutions we can offer you. Please contact us to discuss how we can help you to continue to run your business: