On 23 March 2017, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on the Proposed Framework for the Singapore Variable Capital Companies to introduce a new corporate structure for collective investment schemes, known as the Singapore Variable Capital Company (S-VACC). The S-VACC is intended to address some of the restrictions in the use of a company structure for collective investment schemes (CIS). In particular, unlike a Singapore-incorporated company, the S-VACC will provide greater flexibility for the return of capital to shareholders in order to facilitate redemption rights of investors; and will cater to the creation of sub-funds with segregated assets and liabilities within a single S-VACC.
The key features of a S-VACC are as follows:
- May only be used for collective investment schemes: the S-VACC structure can only be used as a vehicle for CIS which can be either closed or open-ended funds;
- Sub-funds can be created within a S-VACC: sub-funds operating as separate cells with segregated assets and liabilities may be created within a S-VACC, subject to disclosure and registration requirements. Each sub-fund may also be wound up separately. To accord further protection to retail investors, MAS proposes to allow S-VACCs that are authorised by the MAS under section 286(1) of the Securities and Futures Act (Cap. 289) (Authorised Schemes) to invest in assets located in a jurisdiction that does not have cellular company structure only if risk of cross contagion between the sub-funds has been reasonably mitigated;
- Redemption of shares and capital reduction: a S-VACC will be allowed to freely redeem shares and pay dividends using its capital, provided that shares are issued and redeemed at their net asset values (with certain exceptions for listed closed-end funds);
- Accounts must be audited annually: a S-VACC must audit their accounts on an annual basis, and financial information of each-sub-fund must be kept separately, but prepared in accordance with a single accounting standard across all sub-funds of the S-VACC. Audited financial statements must be made available to shareholders;
- Register of shareholders need not be public: information on shareholders need not be disclosed to the public, but must be made available to relevant public authorities for regulatory, supervisory and law enforcement purposes;
- Board of directors must be fit and proper: the Board must comprise of directors who are fit and proper, at least one person who is also a director of the fund manager, and at least one person who is resident in Singapore. S-VAACs that are Authorised Schemes must have at least three directors, of which at least one director has to be independent;
- Only certain fund managers permitted: the fund manager must be a holder of a capital markets services licence, a registered fund management company, or certain specified exempt fund managers (banks, merchant banks, finance companies or insurers licensed or approved in Singapore). The fund manager will be subject to the oversight of the S-VACC's board of directors;
- Subject to AML/CFT requirements: the MAS will impose anti-money laundering / countering financing of terrorism (AML/CFT) requirements (e.g. customer due diligence requirements) on S-VACCs, which are to be outsourced to the fund manager;
- Must appoint approved custodian: a S-VACC that is an Authorised Scheme or registered with the MAS as a restricted scheme must appoint a trustee approved under section 289 of the SFA to take custody of its assets. For Authorised Schemes, the approved custodian must be independent of the S-VACC's fund manager and is required to monitor the fund manager's compliance with the CIS Code; and
- May issue debentures: a S-VACC will be allowed to issue debentures, including debentures relating to specific sub-funds.
The S-VACC framework will also share certain features with other corporate entities as provided for in the Companies Act (Cap. 50), eg, in relation to inward re-domiciliation (to allow foreign corporate entities to transfer registration to Singapore), winding-up proceedings and director duties and disqualification.
The MAS is also studying the tax regime for S-VACCs including the feasibility of extending the current fund vehicle tax schemes to S-VACCs.
The MAS invites interested parties to submit their views and comments on the proposed S-VACC framework by 24 April 2017.