The Monetary Authority of Singapore (MAS) announced on 20 October 2017 that a simplified regulatory regime (VCFM Regime) for managers of venture capital funds (VC managers) will come into immediate effect. This follows on from the public consultation earlier this year on the proposed new rules.
The MAS’ response to the public consultation can be found here at this link:
Simplified regulatory regime
The VCFM Regime is intended to simply and shorten the authorisation process for VC managers. Under the VCFM Regime:
(a) VC managers will not be required to have directors and representatives with at least 5 years of relevant experience in fund management; and
(b) VC managers will also not be subjected to the capital requirements and business conduct rules that currently apply to other fund managers.
However, the MAS will still require all VC managers to meet the MAS’ fit and proper criteria relating to financial soundness, honesty and integrity and reputation.
The MAS will focus primarily on existing fit and proper and anti-money laundering safeguards under the Securities and Futures Act (Cap. 289) of Singapore (SFA) in admitting and supervising VC managers as these safeguards are important to uphold high standards of integrity in the industry.
The MAS will also retain regulatory powers to deal with errant VC managers.
VC managers operating under the VFCM Regime are only allowed to manage funds that:
(a) invest at least 80% of committed capital in securities that are directly issued by unlisted business ventures that have each been incorporated for no more than 10 years at the time of initial investment;
(b) invest up to 20% of committed capital in other unlisted business ventures that do not meet the requirements in item (a) above (i.e. they have each been incorporated for more than 10 years at the time of the initial investment, and/or the investment is made through acquisitions from other investors in the secondary market);
(c) must not be continuously available for subscription, and must not be redeemable at the discretion of the investor; and
(d) are offered to accredited investors and/or institutional investors (each as defined under the SFA).
In the public consultation earlier in February, the permissible funds were those which directly invested in unlisted business ventures that have been established or incorporated for no more than 5 years at the time of initial investment. The expansion of this criterion is intended to provide greater flexibility to VC managers. The MAS has clarified that the 10 year criterion will apply to the operating portfolio company rather than an entity, trust or other vehicle that is set up to hold the investment.
The MAS also clarified that while they did not intend to prescribe the fund raising period or the number of closings that may take place during the fund raising period, the units of the funds should not be available for new subscription after the close of fund-raising, and can only be redeemed at the end of the fund life.
A new applicant may apply for a capital markets services licence as a venture capital fund manager via a Form 1V.
An existing holder of a capital markets services licence for fund management or a registered fund management company that intends to transition into the VC Manager Regime should first ascertain that all of the funds that it manages meet the eligibility criteria (as described above). If it meets the eligibility criteria, it will not be required to undergo a new licensing process, or inform the MAS of any capital reductions but will need to notify the MAS of its intention to be a VC manager by indicating so in the Form 1V.
Further guidance may be found in the revised Guidelines on Licensing, Registration & Conduct of Business for FMCs, and the FAQs on the Licensing and Registration of Fund Management Companies.