On 20 October 2017, the Monetary Authority of Singapore (MAS) announced that the simplified regulatory regime for managers of venture capital funds (VCFM) will come into immediate effect. MAS previously consulted on the proposed regime in February 2017 (Initial Proposal).
The new regime demonstrates the Singapore financial regulator's effort in facilitating start ups' access to capital. This effort is timely as Southeast Asia sees more than US$ 7.8 billion in investments made by venture capitalists, private equity funds and strategic investors, in the first 8 months of 20171.
More generally, MAS is continuously rolling out measures to create a complete ecosystem for both financial institutions and new FinTech players to innovate, compete and collaborate. Other more recent proposals include the streamlining of anti-commingling framework applicable to licensed banks in Singapore to allow banks to undertake non-financial businesses that complement their core business2.
Summary of the simplified regulatory regime for VCFMs
1. Who will qualify under the simplified regulatory regime?
To qualify under the simplified regulatory regime, funds managed by fund managers must satisfy the following conditions:
- invest at least 80% of committed capital in securities that are directly issued by an unlisted business venture that has been incorporated for no more than ten years at the time of initial investment. The remaining 20% may be invested in other unlisted business ventures (e.g. unlisted companies that are more than ten years old or investments made through acquisitions from other venture capital ("VC") funds or existing owners in the secondary market). MAS also clarified that the ten years criterion will apply to the operating portfolio company rather than the holding vehicle. In the Initial Proposal, MAS had proposed that VC Managers seeking to qualify under the simplified regime may only manage funds that invest in unlisted business ventures for no more than five years;
- units of the funds are not available for new subscription after the final close of fund raising, and can only be redeemed at the end of the fund life;
- units of the funds are offered only to accredited and/or institutional investors. This condition extends to employees of the fund manager.
MAS has decided not to set a cap on the fund size, prescribe minimum investment amount or the domicile of VC funds or impose any restriction on leverage. That said, MAS will continue to monitor developments in the VC industry, and consider additional safeguards to preserve the integrity of the market where necessary.
2. What admission and ongoing requirements apply to VCFMs operating under the simplified regime?
All VCFMs must meet the following requirements:
- be a Singapore incorporated company that has a permanent physical office in Singapore;
- satisfy MAS that the VCFM itself and its shareholders, directors, representatives and employees are fit and proper;
- disclose to investors that they are not subject to all the regulatory requirements imposed on other fund management companies;
- comply with anti-money laundering and countering the financing of terrorism requirements (including investor due diligence, monitoring and screening); and
- submit periodic regulatory returns changes to key appointments, assets under management, investor types and numbers, fund types and deals by geography and sector.
VCFMS will not be subject to any competency and capital requirements. Other than general record keeping duty, the other ongoing business conduct rules (e.g. independent custody and valuation, providing customers with statement of accounts, audits and risk management) will not apply to VCFMs.
Representatives of VCFMs do not need to be registered with the MAS.
3. How to qualify under or transit to the simplified regime?
New fund managers will need to apply to the MAS to hold a capital markets services licence as a VCFM using Form 1V.
Existing licensed fund managers or registered fund management companies which seek to transit to the VCFM regime need not undergo a new licensing process or inform MAS of any capital reductions. They will only need to notify MAS of their intention to be a VCFM through the submission of Form 1V. Applications are to be submitted through the MAS' Corporate Electronic Lodgement System.
The new rules are reflected in the Securities and Futures (Licensing and Conduct of Business) Regulations, Financial Advisers Regulations and Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies, among others.
A copy of the consultation paper on the Initial Proposal, MAS' response to public feedback received on the Initial Proposal and changes to the regulations and guidelines mentioned above can be accessed here.