By Yishan Lee, Managing Director, Regulatory Compliance, Asia
Singapore’s reputation as Asia’s premier financial hub continues to attract fund managers looking to establish operations in the region, but there are licensing requirements to consider.
Any company wishing to conduct fund management activity for third-party investors must apply to the Monetary Authority of Singapore (MAS) to obtain a capital markets services (CMS) licence, as set out under the Securities and Futures Act 2001 (SFA).
Although the evolving regulatory landscape and heightened scrutiny from the MAS has made securing a CMS licence more complex, it’s also an increasingly strategic move for firms positioning themselves in Asia’s financial ecosystem.
Decoding the licensing process: what is the MAS looking for?
In the wake of higher application volumes in recent years, the average duration for the MAS to process a licence application has gradually increased from four months in 2020 to five months in 2022, then to 6.5 months in 2024. The main drivers for the increase in applications have been the launch of the popular variable capital company (VCC) investment vehicle, the availability of attractive fund tax incentive schemes, growing preference for Singapore as financial services headquarters in Asia, as well as one-off factors such as the repeal of the regulatory regime for registered fund management companies (RFMCs) in October 2023 that resulted in a surge in RFMC registrations before January 2024.
To maximise the efficiency of the licensing process for your firm, it’s important to understand the key components and what the MAS is looking for.
1. Investment strategies and asset classes
The SFA mandates that fund managers should ensure that the asset portfolios they propose to manage/advise primarily involve capital markets products (CMPs). This includes securities, units in a collective investment scheme, over-the-counter derivatives, and exchange-traded derivatives.
For those targeting non-CMPs such as immovable assets or digital assets, applicants need to be prepared for potential licensing restrictions in advising or managing such asset classes.
2. Technology-driven fund management
For technology-driven trading strategies such as quantitative trading and artificial intelligence, applicants are generally expected to house the intellectual property and technology critical to the investment strategies within their entity or the group (if it is a global player) as it is deemed integral to the applicant’s business model.
3. Oversight of conflicts of interest
As part of Singapore’s strong stance against financial services misconduct to protect investors and maintain market confidence, there is increasingly rigorous scrutiny of the effective management and mitigation of any actual or potential conflicts of interest among key appointment holders and shareholders. This has translated into pre-approval licensing conditions such as ceasing or prohibition of external business interests where such conflicts are assessed not to be adequately mitigated.
Applicants can refer to Appendix 5 of the updated Guidelines on Licensing and Conduct of Business for Fund Management Companies that set out examples of conflicts of interest and good industry practices for mitigating them.
4. Shareholding structure scrutiny
Independent fund managers must demonstrate anchored leadership in their shareholding structure, particularly among their CEOs and executive directors. Where applicants are not part of an established financial services group (in which one or more group entities are regulated, whether in Singapore or another jurisdiction), MAS raises concerns on passive shareholders who are not involved in the applicant’s proposed business in any manner.
5. Evolving pre-approval licensing requirements
Recent observations indicate more onerous pre-approval licensing conditions. These include prohibitions on certain investment strategies, instruments or products, which may restrict operational flexibility. Furthermore, any material changes – such as changes to key individuals or submitted information – during the application process will inevitably result in a considerably longer processing time.
The role of service providers
According to the MAS’ annual Licensing Report for Capital Markets Intermediaries, there were a total of over 800 applications submitted throughout 2022-2024. MAS has highlighted that service providers play a key role in the licence application process and these applications tend to be more complete with fewer errors, leading to more successful outcomes and reduced processing time. The rate of such applications being approved is more than 10% higher with the use of service providers – 54.6% without a service provider; 66.7% with one.
We observed that applicants with clear business plans, which provide comprehensive information and have put forth key appointment holders with strong credentials and relevant experience for the proposed business model, have experienced shorter processing times (e.g. under four months) as well as fewer queries from the MAS.
Strategies to expedite your licensing application
- Fund managers looking to expand into non-CMP asset classes should consult regulatory specialists early to anticipate approval challenges
- If leveraging quantitative or AI-driven trading models, ensure the proprietary technology remains within the applicant’s firm’s operational framework
- Before applying, review MAS’ updated Guidelines on Licensing and Conduct of Business for Fund Management Companies (Appendix 5) to align governance frameworks with industry best practices
- Strengthen the firm’s leadership team and ensure shareholders have strategic involvement in the fund’s business model
- Considering partnering with a compliance advisory firm to accelerate the licensing timeline and enhance submission accuracy
How IQ-EQ can help
IQ-EQ, winner of ‘Best Advisory Firm – Regulation and Compliance’ in the 2024 HFM Asia Services Awards, represents the largest domain specialist in the regulatory compliance sector in Asia-Pacific. Our team of 100+ regulatory compliance specialists works closely with firms, including fund managers, across the region.
In Singapore alone, our team have processed the largest number of licence applications out of all service providers in the past three years. We have an experienced licensing team that specialises in MAS licensing application services as well as an established ongoing support team to assist fund management companies in their regulatory obligations post-licensing.
To learn more about how IQ-EQ can support your regulatory compliance needs in Asia, please reach out to our team:
