Singapore, with its user-friendly regulatory framework and attractive tax incentives, has been attracting fund managers to set up shop on the island. Of particular attraction is the exempt fund manager (“EFM”) regime.

In the wake of the Bernie Madoff saga and in line with current market developments and global initiatives of regulators (particularly in the United States and the European Union) in seeking to tighten their supervision of hedge funds, the Monetary Authority of Singapore (“MAS”) is expected to similarly tighten its supervision of fund management activities in Singapore. The MAS is likely to issue draft guidelines for public comment soon and industry players are waiting with bated breath to see how the proposed changes would affect the current EFM regime. As a prelude to the consultation paper on the draft guidelines, the MAS recently updated its list of Frequently Asked Questions (“FAQs”) on Exempt Persons (revised on 26 January 2010)1 and added certain new pre-requisites.

Exempt Fund Manager Regime

At present, a fund manager seeking to operate in Singapore may be exempted from obtaining a capital markets services license if it carries on its fund management activities in Singapore on behalf of not more than 30 qualified investors2. To invoke the exemption, fund managers need only lodge a prescribed form (Form 22 of the Securities and Futures (Licensing and Conduct of Business) Regulations) to notify the MAS that it has commenced business as an EFM in Singapore. The MAS’ prior approval is not required before commencing business. It is the EFM’s own responsibility to ensure that it operates within the confines of the EFM regime. Nevertheless, an applicant should be aware that the MAS has the powers under the Securities and Futures Act, Chapter 289 to withdraw the exemption granted to an EFM at any time if the EFM fails to satisfy the MAS that it is a fit and proper person.

In order to qualify as an EFM in Singapore, apart from ensuring that its clientele does not exceed 30 qualified investors, an applicant also has to ensure that the entity, as well as its directors or equivalent persons, its substantial shareholders or equivalent persons and persons who have decision-making power in the EFM are fit and proper. Guidance on the “fit and proper” criteria are found in the MAS Guidelines on Fit and Proper Criteria [Guidelines No. FSG-G01]3, the list of questions set out in the prescribed Form 22 and the FAQs on Exempt Persons. Under the MAS Guidelines on Fit and Proper Criteria, the three key areas of focus are honesty, integrity and reputation; competence and capability; and financial soundness.

An EFM is also required to maintain operations in Singapore and comply with the MAS notices relating to the prevention of money laundering and the countering of financial terrorism. An EFM is prohibited by law from representing itself, or causing itself to be represented, as being licensed, regulated, supervised or registered by the MAS.

New Pre-requisites  

In the updated FAQs, the MAS elaborates further on the pre-requisites that would be considered in determining if an applicant is fit and proper. In particular, the MAS prescribes the following:  

(A) To demonstrate that an applicant has the necessary competence and capability and has meaningful operations in Singapore, the MAS strongly encourages an applicant to satisfy the following:

  1. that it operates from an office premise in Singapore;  
  2. that it employs a minimum of 2 professionals, each with at least 5 years of relevant working experience in reputable jurisdictions;  
  3. that it has at least one resident CEO or executive director who exercises management oversight of its operations;  

(B) To demonstrate minimum financial viability, the MAS expects an applicant to maintain paid up capital that is sufficient to cover its set-up cost and at least 6 months of operational costs. It is also expected to maintain positive shareholders’ equity at all times.

With regards to criteria (A)(ii) above, the updated FAQs further provide that a person would be considered to have relevant experience if he or she has previously performed similar roles or carried out activities similar to what he or she proposes to undertake on behalf of the EFM and as a professional, such experience is expected to be in an area that forms an essential part of the fund management value chain e.g., experience in business development and marketing, portfolio construction and allocation, investment research and advisory activities, trade execution and portfolio reconciliation and valuation.

Prior to the updated FAQs, it was possible for an applicant to operate out of a residential address in Singapore and for the Singapore fund management company to have a paid-up capital of only S$1 (the minimum amount required of a Singapore company). Whilst it is uncommon for an EFM to be a one-man show, there was previously also no express requirement that the EFM had to employ a minimum of 2 professionals.  


Whilst the updated FAQs give better guidance to new fund managers on the MAS’ current expectations of an EFM, the fate of existing EFMs operating in Singapore who do not meet these requirements remains an open issue.