The Monetary Authority of Singapore (MAS) has recently announced the implementation of an enhanced regulatory regime for fund management companies (FMCs) which took effect from 7 August 2012.
We set out below some of the key highlights of this enhanced regulatory regime.
Corporations that carry on business in fund management in Singapore will now need to have either a capital markets services licence in fund management (LFMC), or be registered with the MAS as a registered FMC (RFMC).
RFMCs are a new category of FMCs that will replace the current exempt fund manager (EFM) regime. RFMCs may only serve up to a maximum of 30 qualified investors (of which no more than 15 may be funds or limited partnership fund structures), and manage up to S$250 million in assets under management.
LFMCs comprise of 2 categories: (i) Retail LFMCs, which are permitted to serve all types of investors; and (ii) A/I LFMCs, which may only serve qualified investors, but without restriction on the number of qualified investors or the amount of assets under management.
Competency of Key Individuals
Minimum competency requirements have been prescribed for a FMC’s directors, relevant professionals and representatives, such as residency and experience qualifications.
FMCs must at all times have a base capital of at least S$250,000. The MAS has also stated that it would be prudent for an FMC to maintain an additional capital buffer, bearing in mind the scale and scope of its operations.
Risk-based Capital Requirements
LFMCs must at all times have financial resources which are at least 120% of their operational risk requirement. This requirement does not apply to RFMCs.
Compliance, Risk Management and Audit
The MAS expects all FMCS to put in place compliance arrangements that are commensurate with the nature, scale and complexity of their businesses.
FMCs are also required to put in place a risk management framework to identify, address and monitor the risks associated with customers’ assets that they manage. At a minimum, such a risk management framework should address: (i) the governance, independence and competency of the risk management function; (ii) the identification and measurement of risks associated with customer assets; (iii) the timely monitoring and reporting of risks to management; and (iv) the documentation of risk management policies, procedures and reports.
The MAS also expects the business activities of FMCs to be subject to adequate internal audits, as well as independent annual audit requirements.
Professional Indemnity Insurance
The MAS may impose a licence condition requiring a Retail LFMC to obtain professional indemnity insurance. Where appropriate, the MAS may also require a LFMC to procure a letter of responsibility from its parent company. The MAS has also stated that A/I LFMCs and RFMCs are strongly encouraged to maintain adequate professional indemnity insurance coverage, and should disclose such arrangements or the absence thereof to customers.
Independent Custody and Valuation
FMCs must ensure that their assets under management are subject to independent custody, and independent valuation and customer reporting. The requirement for independent valuation may be satisfied by having a third party service provider or an in-house fund valuation function which is segregated from the investment management function.
The MAS has prescribed certain minimum disclosure requirements that FMCs must abide by to ensure that there is adequate disclosure to an FMC’s customers in respect of each fund or account that it manages.
To facilitate a smooth transition for EFMs and FMCs to apply for a licence or to register with the MAS, the MAS has put in place the following measures:
- Current EFMs have 6 months to apply for a licence or to register with the MAS as a RFMC.
- FMCs can submit their licence applications or register online via the Corporate e-Lodgment system, which is a new online system that also allow FMCs to submit their regulatory returns.
- The MAS has published a set of guidelines and FAQs to enable FMCs to gain a better understanding of the requirements relating to application criteria and business conduct.
In conjunction with the implementation of the enhanced regulatory regime for FMCs, amendments have also been made to the Securities and Futures (Licensing and Conduct of Business) Regulations, Securities and Futures (Financial and Margin Requirements) Regulations and the Financial Advisers Regulations.