Navigating the World of Fund Management Companies in Singapore: A Comprehensive Guide
Singapore is a country that continues to bring in foreign investors and entrepreneurs, all thanks to its strong policies against bureaucracy, impressive tax systems, strong regulatory environment and various incentives for local and foreign businesses. And because of its strong financial infrastructure, Singapore is fast becoming one of the leading fund management centres in Southeast Asia.
So it comes as no surprise that fund management is one of the most heavily regulated activities in Singapore is fund management. As of this writing, Reuters reported about 1,108 fund management companies in Singapore that are currently active.
But what exactly is a fund management company and what does it do? Why does it need regulation? We'll find out more about setting up a fund management company in Singapore and more in this article.
Inside this article:
- Overview of the Types of Fund Management Companies in Singapore
- What are the Benefits of Setting Up a Fund Management Company in Singapore?
- Admission Criteria and Requirements For Fund Management Licensing in Singapore
- How Long is the Processing Time?
- How Long is the Validity of the Fund Management License in Singapore?
Overview of the Types of Fund Management Companies in Singapore
When starting a fund management company in Singapore, It’s important to register with the Monetary Authority of Singapore (MAS) or hold a Capital Markets Services (CMS) License.
Under the Securities and Futures Act (SFA), companies who wish to engage in fund management activities in Singapore will need to register as one of four classifications:
Registered Fund Management Company (RFMC)
Licensed Fund Management Company (LFMC), e.g.
LFMC for Retail Investors (Retail LFMC)
LFMC for Accredited/Institutional Investors (LFMC A/I)
Venture Capital Fund Manager (VCFM)
Note that the type of license you’ll need will vary depending on your company’s classification.
Below are the brief introduction of each type of the fund management companies.
Registered Fund Management Company (RFMC)
RFMC is a company that is registered with the MAS to provide fund management services to qualified investors (e.g. accredited and institutional investors), and isn’t allowed to solicit investments from retail investors. It is exempted from licensing conditions in relation to the other fund management classifications.
To be eligible to become an RFMC, the company must have an asset under management (AUM) of less than SGD 250 million, have no more than 30 qualified investors, a minimum of SGD 250,000 base capital funds, and a minimum of 2 directors with at least 5 years of relevant experience.
RFMC does not have any risk-based capital (RBC) adequacy requirements.
Licensed Fund Management Company for Retail Investors (Retail LFMC)
While a RFMC is only allowed to provide fund management services to qualified investors, a Retail LFMC can provide services to all types of investors, including both retail and accredited investors. Furthermore, Retail LFMC is not restricted in terms of the types of investment products they can manage, nor are they subject to any limits on the amount of AUM it can handle.
However, to operate as an LFMC Retail, the company must meet higher regulatory standards and possess a Capital Markets Services (CMS) license. A Retail LFMC is also required to have a minimum base capital of SGD 500,000 or SGD 1 million if offering Collective Investment Scheme (CIS) products to retail investors, maintain Professional Indemnity Insurance (PII) and meet specific staffing requirements. Additionally, LFMCs are subject to Risk-based Capital Adequacy Requirement which is about maintaining financial resources at least 120% of operational risk requirements and must have an independent compliance function in the city-state.
Licensed Fund Management Company for Accredited/Institutional Investors (LFMC A/I)
An LFMC A/I is a licensed fund management company that provides fund management services to qualified investors, namely accredited and institutional investors. Retail investors are out of scope for LFMC A/I.
Same as LFMC Retail, LFMC A/I is not restricted in terms of the types of investment products they can manage, nor are they subject to any limits on the amount of AUM it can handle.
To operate as an A/I LFMC, it is also required to hold a Capital Markets Services (CMS) license. It has a lower minimum base capital requirement compared to LFMC Retail, which is at least SGD 250,000. The Risk-based Capital Adequacy Requirement is the same as Retail LFMC, which is maintaining financial resources at least 120% of operational risk requirements. Independent compliance is also required as long as the AUM exceeds SGD 1 billion. The staffing requirement is different from LFMC Retail.
Venture Capital VC Fund Manager (VCFM)
A VCFM is the most relaxed in terms of regulation by MAS compared to the other classifications. Although VCFM still requires a CMS license and can only manage venture capital funds, the company has no minimum base and risk-based capital needs. This allows VC funds to hasten their registration process, lesser barriers to market entry, and expedite fund management.
What Are Some of the Expected Changes Regarding Fund Management Companies This 2024?
Several changes might affect starting up or running a fund management company in Singapore in 2024:
Repeal of Registered Fund Management Companies (RFMC) Applications: The Monetary Authority of Singapore (MAS) will cease accepting RFMC applications as of January 1, 2024. This is part of the transition process from RFMCs to Accredited/Institutional Licensed Fund Management Companies (A/I LFMCs).
Technological Advancements: Some investment management firms are expected to integrate game-changing technologies, such as generative AI and quantum computing, into their digital strategies in 2024.
Growth of Singapore's Asset Management Sector: The MAS reported a 16% growth in total assets under management in Singapore in 2021, reaching S$5.4 trillion ($3.8 trillion). This growth trend might influence the operation of fund management companies in 2024.
Changes in Private Equity (PE): There are expectations for significant changes in the PE landscape in 2024, which could impact fund management companies.
New Fund Structures: Singapore and Hong Kong have established new fund structures to attract wealth away from traditional offshore financial centers.
What are the Benefits of Setting Up a Fund Management Company in Singapore?
Setting up a fund management company in Singapore allows you to enjoy the following benefits and tax incentives:
Transparent and competitive tax system
Territorial tax system
No capital gains tax
OECD white list
Industry-specific tax exemptions
Investor protection
English as main language
Skilled local workforce
Ease of doing business
Access to a multitude of financial institutions and service providers
Extensive tax treaty network
The government is also actively involved in making sure that the country becomes the leading fund management center of Asia. With that said, there are flexible business regulations, excellent infrastructure, and immense support from the government for the fund management industry.
Admission Criteria and Requirements For Fund Management Licensing in Singapore
For this section, we will cover the admission criteria for Retail LFMC, A/I LFMC, and RFMC in more detail.
To obtain a license as a Retail LFMC, A/I LFMC or RFMC, a fund management company must meet specific admission criteria, qualifications and requirements set by the Monetary Authority of Singapore (MAS). These criteria are in place to ensure that only qualified and reputable companies are licensed to provide fund management services in Singapore. Once a company is licensed, it must continue to meet these criteria and comply with ongoing requirements to maintain its license.
Individuals who wish to operate as a VCFM will have their own set of admission criteria, ongoing requirements, and application procedures.
Important Guidelines for Licensing, Registration, and Conduct of Business for Fund Management Companies in Singapore
Substantive Fund Management Activity
In order to qualify for licensing or registration, a person needs to conduct substantive fund management activities in Singapore. These activities include, but are not limited to:
Portfolio management
Trade execution
Investment research
Any person who acts as either an investment adviser, sub-adviser, or carries out research for other fund managers in Singapore or in other countries may also be considered as conducting substantive fund management activity, provided that the person controls or influences the management of the investment portfolio or is capable of providing input to the portfolio composition.
MAS may determine if a person is able to influence or control the investment portfolio through the following factors:
Whether the person has knowledge or access to the holdings of the portfolio beyond what's available to the public
Whether the person is named or referred to in the fund's prospectus, marketing materials, or offering documents.
A person will not qualify for fund management license or registration if the person is only a conduit or channel for their customers to structure assets in the form of fund units or investments. Additionally, a person will not qualify if they can't provide any input or influence over the assets or investments' sustainability, or if they don’t assume responsibility for portfolio performance.
Likewise, a person will not qualify for fund management licensing or registration if the person only sets up a fund structure for the sole purpose or raising capital for operating a business run by said person, or engages in marketing of funds and/or client servicing.
Fit and Proper
Fund management companies should prove to MAS that the directors, shareholders, representatives, and employees are fit and proper according to MAS's Guidelines on Fit and Proper Criteria [FSG-G01].
Competency of Key Individuals
For a fund management company (FMC) to qualify for licensing or registration, the company's CEO, directors, and relevant professionals need to have sufficient experience in relation to fund management activities.
The FMC's board of directors will also need to have collective experience in portfolio management and support functions such as risk management, operations, and compliance. Moreover, at least one of the Executive Directors should possess portfolio management experience in markets or asset classes that the FMC invests in, or intends to invest.
It is important to note that MAS will not consider investing one's own money as relevant experience in the context of fund management that require licensing or registration for carrying out third-party activities. The period of relevant experience will also be considered when assessing the competency of key individuals. As an example, an individual with multiple short stints that happened over a long time ago may not be considered as someone with many years of relevant experience together.
Appointment of Key Individuals
A fund management company needs to appoint individuals based on their responsibilities and level of involvement within the FMC. Simply put, appointing someone to meet minimum staffing requirements is not sufficient.
Concerning appointment, if a shareholder of an FMC can exert influence or can partake in the company's daily operations, then he or she may be required to be appointed as a director.
Legal Structure and Office Space
The FMC must be a company incorporated in Singapore and have a permanent physical office in the country.
In terms of office space, the FMC must ensure that the office is secure and accessible only to the FMC directors and staff. This means that appropriate measures must be taken to protect the confidentiality and security of information, including physical and electronic access controls.
Base Capital
FMCs are required to maintain a minimum base capital at all times as specified in the guidelines set by the Securities and Futures Act (SFA) for licensing. You may refer to the table below for specific thresholds:
In addition to meeting the minimum requirements, FMCs are advised to maintain an additional capital buffer over and above the base amount required. The amount of capital buffer required is determined through a reasonable assessment done by the FMC.
Risk-Based Capital Requirement
For both retail LFMCs and A/I LFMCs, financial resources should be at least 120% of operational risk requirements.
Compliance Arrangements
Fund management companies are expected to have compliance systems and arrangements in place in accordance to the nature, scale, and complexity of the business. The ultimate responsibility for compliance in terms of applicable laws and regulations rests in the hands of the FMC's CEOs and board of directors. Compliance support may even be provided by a foreign-related entity or service provider.
If an FMC has an in-house compliance officer, they need to have relevant experience in audit or risk management, regulatory compliance, and other rules and regulations as applicable. The compliance officer should have the necessary qualifications and be familiar with the relevant laws and regulations that apply to the FMC. The FMC should also ensure that the compliance officer is given sufficient resources and authority to carry out their duties effectively.
Risk Management Framework
FMCs are expected to implement a robust risk management framework in place that helps identify, monitor, and manage risks associated with customer assets under management. This framework should be in line with the principles set out in the MAS Guidelines on Risk Management Practices, which is applicable to all financial institutions.
Internal Audit
MAS also expects FMCs and their relevant business activities to be subject to internal auditing. Internal audit arrangements are made according to the business's scale, complexity, and nature.
The internal audit may be conducted internally by an in-house audit team from the head office of the FMC or by a third-party service provider.
Independent Annual Audits
Apart from internal audit, an FMC is expected to comply with annual audit requirements as set out by the SFA. MAS may also direct the FMC to appoint another auditor if the currently appointed auditor is unsuitable according to the scale and nature of the business.
Professional Indemnity Insurance (PII)
MAS may impose licensing conditions that will require a Retail LFMC to acquire Professional Indemnity Insurance (PII) according to the requirements found in the SFA. FMCs are also expected to disclose to their potential and existing customers about the PII arrangements or the absence of a PII.
Letter of Responsibility
MAS may require LFMCs to obtain a Letter of Responsibility from the LFMC's parent company when necessary.
Other Factors
MAS may also consider the following factors when applications for a CMS license are assessed:
Track record of the LFMC or its holding company when applicable. A retail LFMC should be able to showcase at least a 5-year track record of managing funds for retail investors in a jurisdiction with a regulatory framework comparable to Singapore. The FMC and its related companies should also manage assets totaling to at least S$1 billion
Determine whether the FMC or its related corporations are subject to supervision by a competent regulatory authority
The FMC's holding company's commitment to the FMC operations in Singapore
The commitment of the FMC's shareholders is demonstrated through seed investments in funds managed by the FMC
You can read more about the Securities and Futures Act and its coverage of licensing and registration for fund management companies.
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Ongoing Requirements for FMCs (other than VCFMs)
Even after an FMC acquires their license, it must continue to fulfil the ongoing requirements.
Business Conduct
FMCs are required to comply with all business conduct requirements mentioned in the Securities and Futures Act (SFA) and Securities and Futures (Licensing and Conduct of Business) Regulations (SF(LCB)R), as well as any MAS-issued notices that apply to the FMCs.
Furthermore, FMCs must ensure that assets under management (AUM) are subject to independent custody. Independent custodians include depositories, banks, and prime brokers duly licensed, authorized, or registered in their respective jurisdictions.
AML/CFT Requirements
FMCs will need to comply with requirements regarding anti-money laundering and countering the financing of terrorism (AML/CFT) as listed in the Notice to Capital Markets Service Licensees and Exempt Persons on Prevention of Money Laundering and Countering the Financing of Terrorism [SFA04-N02].
Reporting of Misconduct
LFMCs must comply with misconduct reporting requirements as listed in the Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt Financial institutions [SFA04-N11]. This notice requires FMCs to report any misconduct by their representatives, including breaches of any law or regulation, to MAS 21 calendar days after the misconduct is believed to be committed. Such reporting must be done in writing and should include all relevant details and supporting documents. The FMC must also conduct its own investigation and take appropriate disciplinary actions against the representative involved. Failure to comply with these requirements may result in regulatory action by MAS.
Use of Service Providers
FMCs are required to comply with the MAS Guidelines for outsourcing when engaging service providers. Before entering into contracts with service providers, FMCs should consider the guidelines and ensure that the service providers meet necessary requirements.
Admission Criteria for FMCs that Intend to Operate under the Venture Capital Fund Manager (VCFM) Regime
As mentioned earlier, FMCs that want to operate under the Venture Capital Fund Manager (VCFM) regime have their own admission and eligibility criteria.
Fund Eligibility
To operate under the VCFM regime, FMCs must ensure that the funds they manage meet the following eligibility criteria:
A minimum of 80% of committed capital is invested in specified products issued directly by an unlisted business venture that's been incorporated for no more than 10 years at the time of initial investment or qualifying investment.
A maximum of 20% of committed capital is invested into other unlisted business ventures that do not meet the above sub-criterion (i.e. they've not been incorporated for any more than 10 years at the time of initial investment).
Funds must not be continuously available for subscription and must not be redeemable at the investor's discretion. Funds are only offered to accredited investors as defined under the SFA.
Admission and Ongoing Requirements for VCFM
VCFMs will need to hold a CMS license before fund management can be carried out. VCFMs will need to meet the ongoing requirements to keep their license:
Fit and Proper
VCFMs are responsible for satisfying MAS that the shareholders, directors, employees, and their representatives are fit and proper according to the Guidelines on Fit and Proper Criteria issued by MAS [FSG-G01].
Place of Incorporation
The VCFM must be a Singapore incorporated company with a permanent office address. The office should be accessible only to the staff, directors, and other members of the management roster.
Key Personnel
VCFMs must have at least two directors, with one of them being a full time resident in Singapore. The VCFM must also have at least two full time professionals and representatives in Singapore. It is important to note that nominee directors and corporate secretaries do not count towards this requirement.
Disclosure
VCFMs are expected to disclose to investors that they are not subject to comply with specified requirements imposed on other FMCs.
Conflicts of Interest
VCFMs should avoid conflicts of interest at all times, and if conflicts do arise, they need to be resolved fairly.
AML/CFT Requirements
VCFMs are expected to comply with the requirements on anti-money laundering and countering the financing of terrorism (AML/CFT) as laid out in the Notice to Capital Markets Service Licensees and Exempt Persons on Prevention of Money Laundering and Countering the Financing of Terrorism [SFA04-N02].
Reporting of Misconduct
VCFMs should also comply with misconduct reporting requirements as laid out in the Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt Financial institutions [SFA04-N11].
Use of Service Providers
Before VCFMs can enter into arrangements with service providers, such as a fund administrator or compliance service provider, they must comply with the minimum requirements in the MAS Guidelines on Outsourcing.
Application Procedure for FMCs
FMCs shall submit their applications for licensing or registration to MAS, as seen in the table below.
Existing FMCs that want to apply for a change in status will need to contact the MAS officer-in-charge for guidance on application procedures.
Applicants will need to refer to the Corporate e-Lodgment or CeL for submissions.
Documents Required for License Application
Documents Required for Registration as an RFMC
Contact: Persons who are interested in applying for fund management license or in operating as an RFMC will need to contact MAS through the following information:
By Post: Capital Markets Intermediaries Department II 10 Shenton Way MAS Building, Singapore 079117
By Email: webmaster@mas.gov.sg
By Phone: (65) 6225 5577
What are the Financial and Staffing Requirements?
How Long is the Processing Time?
MAS is currently handling a high volume of applications., so expect to get your application reviewed within 6 months for LFMC and RFMC, and up to 4 months for VCFM applications.
If the application is approved, an in-principle approval will be issued at the end of the review process. Applicants will have 6 months to comply with requirements as listed in the in-principle approval. These requirements include provision of undertakings, formalizing appointments of key personnel, and topping up of share capital.
If applicants don't fully meet the admission criteria or have a complicated or unique business model, the review period may be longer. Additionally, an applicant may also experience delays in their application if they make significant changes after the initial application has been submitted to MAS, and MAS may require a fresh submission in such situations. It is important to note that submitting all necessary forms, information, and documents in the initial application can also help avoid delays in the review process.
How Long is the Validity of the Fund Management License in Singapore?
An FMC license or registration is valid until:
MAS has revoked the license or registration
The license lapses under section 95 of the SFA , or the registration stops under paragraph 5(2)(bb) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.
The fund manager stops conducting all regulated activities on the CMS license or MAS cancels the license or they cease to operate as an RFMC.
The Wrap Up
In conclusion, starting a fund management company in Singapore requires careful planning, due diligence, and regulatory compliance. To start a fund management company, you must obtain the necessary licenses and approvals from the Monetary Authority of Singapore (MAS), which regulates the fund management industry in Singapore. You must also develop a solid business plan, identify your target market, and establish a robust investment framework and risk management system.
It is important to seek professional advice from lawyers, accountants, and other experts to ensure you meet all legal and regulatory requirements and operate your fund management company sustainably and profitably. While it may be challenging to start a fund management company in Singapore, the country's stable political and economic environment, well-established regulatory framework, and strategic location make it an attractive destination for investment and business growth.