Jurisdiction - Singapore
Reports and Analysis
Singapore – 2nd Consultation on Regulatory Regime for Fund Management Companies.


5 October, 2011
The Monetary Authority of Singapore (“MAS”) has issued a consultation paper (“CP”) containing several regulatory enhancements and the draft legislative amendments which will give effect to the new regulatory regime for fund management companies (“FMCs”). The draft legislative amendments reflect the proposals set out in MAS’s first consultation on the FMC regulatory regime conducted in April 2010 (“CP 2010”) and MAS’s response to feedback received, which was published in September 2010 (“Response”). Closing date for feedback on the CP is 26 October 2011.
According to CP 2010 and the Response, the revised regulatory framework for FMCs will feature three categories of FMC: 
  • ƒNotified FMCs, which would be exempt from the equirement to hold a capital markets services (“CMS”) licence, although they have to notify MAS before they commence business; 
  • Licensed Accredited/Institutional FMCs, which would be licensed but restricted to serving accredited and institutional investors only; and 
  • Licensed Retail FMCs, which would be licensed and are able to serve all classes of investors including non-accredited investors. 
Further to its proposals in CP 2010 and the Response, MAS has now set out, in the present CP, further details on the actual changes that will be made to the FMC regulatory regime, as well as some fine-tuning of the policy position previously announced in CP 2010.   
These comprise: 
  • new business conduct requirements; ƒ
  • renaming of Notified FMCs to Registered FMCs; and ƒ
  • administrative measures 
New business conduct requirements 
Risk management framework for all FMCs 
In order to formalise the expectation that all FMCs should exercise risk management over their fund management operations, MAS now proposes to require all FMCs to set up a risk management framework to identify, monitor and manage risks associated with their management of customer assets.  
In implementing this framework, FMCs should take into account the key principles set out in the MAS Guidelines on Risk Management Practices and other relevant industry best practices. 
Independent annual audits for Notified FMCs 
Currently, only licensed FMCs are required to appoint an independent auditor to audit their financial statements and to provide an auditor’s report on compliance with key licensing and business conduct requirements.  
It is proposed that going forward, Notified FMCs (or Registered FMCs, as they would henceforth be known) will be required to appoint an independent auditor to audit their financial statements, similar to the current requirement for licensed fund managers.
They will also be required to provide MAS with an audit report. The report should comment on the FMC’s level of compliance with the following: 
(a) restrictions on clientele and assets under management (“AUM”); 
(b)  its minimum base capital requirement; 
(c)  key business conduct rules such as independent custody, valuation of clients’ assets and client reporting; and 
(d) implementation of a risk management framework. 
Examination requirements for representatives of Licensed Retail FMCs 
In line with the recently announced regime on certain types of investment products sold to retail investors, MAS proposes to introduce a new Capital Markets and Financial Advisory Services (“CMFAS”) examination module on specified investment products (“SIPs”, as defined in the MAS Notice on Recommendations on Investment Products).   
SIPs are investment products which are considered more difficult for laymen to understand, and include exchange-traded funds, investment linked insurance policies and structured notes.
Representatives who handle or transact in SIPs as part of their fund management activities will have to sit for and pass this examination. The requirement to pass this new CMFAS examination module will apply to both new and existing representatives of Licensed Retail FMCs. However, representatives with relevant financerelated academic qualifications will be exempted. 
Renaming of Notified FMCs to Registered FMCs 
MAS intends to rename “Notified FMCs” to “Registered FMCs” to better reflect their regulatory status. There will be no change to the AUM threshold of $250 million or to the clientele restriction of serving not more than 30 qualified investors, of which not more than 15 are funds. 
MAS will maintain an online directory of Registered FMCs on the MAS website. FMCs wishing to operate as Registered FMCs must register with MAS by lodging a notice of commencement with MAS.
A Registered FMC will not be allowed to represent itself as being registered with MAS until its name is put up on the online directory. It will also not be allowed to enter into any investment management agreement, nor accept client monies prior to the publication of its name in the directory.  
Administrative measures for FMCs 
Online submission system for FMCs 
In line with streamlining both the registration and licensing processes, MAS will implement a new online submission system for all FMCs.  
This online system will enable existing exempt fund managers and new FMC applicants to submit an online application for a CMS licence in fund management, or to register as a Registered FMC.
It will also allow FMCs to make other ongoing regulatory submissions, such as notifying MAS of changes in particulars and making annual declarations (in the case of Registered FMCs) or submitting applications for appointment of directors (in the case of licensed FMCs). 
Annual administrative fees
MAS proposes to charge Registered FMCs an annual administrative fee of $1,000 with effect from 1 January 2013. The fee is to enable MAS to defray the costs of maintaining its online FMC registration and reporting system, as well as the costs in processing notifications for Registered FMCs.   
There will be no change to the application fees and licence fees for licensed FMCs and their representatives.
The draft documents in the CP comprise amendments to the: 
  • Securities and Futures (Licensing and Conduct of usiness) Regulations (“LCB Regulations”); ƒ
  • Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licences) Regulations (“FMR Regulations”); and  ƒ
  • Financial Advisers Regulations (“FA Regulations”).  
The key amendments are highlighted below. 
LCB Regulations 
This set of regulations contains the licensing and business conduct requirements for CMS license holders and also sets out certain exemptions from the licensing requirement, including those for Registered FMCs. 
Proposed new Regulations 13A and 13B for Registered FMCs mirror the compliance requirements for CMS licensees in Regulation 13. They provide that the chief executive officer and the directors of the Registered FMC must, among other things, implement written policies on operations, put into place compliance functions, identify, address and monitor business risks, and ensure effective controls and segregation of duties to mitigate conflicts of interest. The details of how these are to be done are not reflected in the legislation; presumably these will be indicated at a later stage in MAS’s notices or guidelines. 
Proposed new Regulation 54A provides that Registered FMCs have to comply with certain provisions of the Securities and Futures Act and the LCB Regulations despite the fact that they are exempted from holding a CMS licence. The provisions include those relating to handling customers’ money and assets, bookkeeping, audit and lodgement of annual accounts. New Paragraph 5(1)(i) of the Second Schedule to the LCB Regulations contains the requirements for a corporation to qualify as a Registered FMC, namely:
  • it must carry on business in Singapore in fund management on behalf of not more than 30 qualified investors, of which not more than 15 are collective investment schemes, closedend funds, or limited partnerships; ƒ
  • it must register with MAS as a Registered FMC; and 
  • it manages assets which do not exceed $250 million in aggregate. 
The definition of “qualified investor” in Paragraph 5(3) of the Second Schedule has been expanded in scope to include:
(a) institutional investors;  
(b)  closed end funds offered only to accredited investors or investors in an equivalent class under the laws of the country or territory in which the offer was made;   
(c)  collective investment schemes offered only to institutional investors or accredited investors or investors in an equivalent class or classes under the laws of the country or territory in which the offer was made; or  
(d) a limited partnership where its limited partners are accredited investors or institutional investors or both, and which has only one general partner which is accustomed or under an obligation to act in accordance with the directions of the fund management company that is contracted to manage the limited partnership. 
The procedures for a Registered FMC to notify MAS of its commencement of business are found in Paragraph 5(7) of the Second Schedule. 
FMR Regulations 
These regulations stipulate the financial and margin requirements for CMS licence holders. Going forward, this will include Licensed Accredited/Institutional FMCs and Licensed Retail FMCs.
Proposed new Paragraph 2(2) of the Sixth Schedule provide for the new operational risk requirement for licensed FMCs. Licensed FMCs will be subject to an operational risk requirement which is the highest of: 
(a) 10% of the average annual adjusted gross income of the licensee for the last 3 preceding financial years; 
(b) 5% of the average annual gross income of the licensee for the last 3 preceding financial years; and 
(c) $100,000. 
FA Regulations 
Consequential amendments are proposed to these regulations to take into account the differences 4 between the current regulatory regime for exempt fund managers and the new regime for Registered FMCs. 
Please click here to access MAS’s Consultation Paper on Proposed Enhancements and Draft Legislative Amendments to Give Effect to the Regulatory Regime for Fund Management Companies. 
For further information, please contact:
Petrus Huang, Drew & Napier
Eric Chan, Drew & Napier


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