A person who intends to conduct fund management activity in Singapore is required to hold a Capital Markets Services ("CMS") Licence or be exempt from doing so. A corporation that intends to conduct the regulated activity of fund management either as a Licensed FMC (“LFMC”) or a Registered FMC (“RFMC”) will need to fulfil certain prescribed requirements.
For a LFMC, it can be further sub-divided into Retail LFMC (which permits the carrying on of the business of fund management with all types of investors) and A/I LFMC (which permits the carrying on of business of fund management with accredited/institutional investors only, without restriction on the number of investors). Managers managing venture capital funds may also qualify under a simplified regulatory regime and hold a CMS licence for fund management (VCFM Regime). We will not go into the details of the Retail LFMC requirements, which are geared towards licensing of persons who manage monies on behalf of retail investors.
For a RFMC, it is allowed to carry on business in fund management for no more than 30 qualified investors (of which no more than 15 may be funds), provided the total value of the assets under management does not exceed S$250 million. The leverage deployed in managing the monies can be excluded while calculating the assets under management.
Base Capital
A RFMC or an A/I LFMC is required to have a minimum of S$250,000 in base capital. There should also be a sufficient buffer to ensure that the base capital does not fall below the minimum threshold.
Staffing
A RFMC and A/I LFMC are required to have at least 2 relevant professionals and 2 representatives residing in Singapore. Relevant professionals refers to persons who have at least 5 years of work experience in the regulated activity of fund management, depending on the type of funds that are to be managed. Representatives are essentially front office employees who may have less than 5 years of relevant work experience. The entity is also required to have at least 2 directors who have 5 years of experience. If there are 2 senior professionals with sufficient skills and experience, the same 2 persons can qualify as the relevant professionals, representatives and directors.
Physical Office
The RFMC or A/I LFMC is required to operate from a physical office in Singapore. If the company wants to use a serviced office in the initial phases, the office should be segregated from the offices of other users of the serviced office, and the information and documents of the RFMC or A/I LFMC should be kept in a secured manner.
Compliance and Risk Management
If the RFMC or the A/I LFMC can employ a dedicated compliance officer to take care of all compliance and anti-money laundering requirements, that is ideal. However, in the initial stages, if there is no fulltime compliance officer, then the Chief Operations Officer or a senior employee who is independent of the front office can perform the functions of a compliance officer, and an external compliance consultant can be engaged to conduct regular checks and provide a report on the compliance issues at the FMC. An A/I LFMC that has assets under management of more than S$1 billion is however expected to have an independent compliance officer and other suitably trained staff to perform back office functions.
A RFMC and A/I LFMC are also required to have detailed compliance, risk management and KYC Manuals in place to ensure that all policies and procedures are properly documented. These documents would need to be customised based on the business and operations of each FMC and the risks that are associated with certain trading strategies etc.
Audit functions, Custodian and Administrator
A RFMC or A/I LFMC is required to appoint an external auditor who has sufficient experience in audit of FMCs. An internal audit function is also put in place to ensure that there are sufficient checks. The custodian and the administrator appointed by the FMC have to be reputable entities.
Professional Indemnity Insurance
While it is not compulsory for RFMCs or A/I LFMCs to have professional indemnity insurance, many procure the same as a matter of good practice and comfort to their investors. A disclosure is required to be made to the investors on the professional indemnity insurance arrangements or absence of the same.
VCFM REGIME
Managers managing venture capital funds may also qualify under a simplified regulatory regime and hold a CMS licence for fund management (VCFM Regime). To qualify under the VCFM Regime, venture capital fund managers must only manage funds that: (i) are only offered to accredited and/or institutional investors; (ii) are not continuously available for subscription, and must not be redeemable at the investor’s discretion; (iii) invest at least 80% of its committed capital in securities that are directly issued by an unlisted business venture, that has been incorporated for no more than 10 years at the time of the AIF’s initial investment; and (iv) invest not more than 20% of its committed capital in other unlisted businesses that do not meet the criteria in (iii) above.