Singapore's central bank is consulting hedge fund executives on ways to tighten the regulatory regime of the nation's growing alternative investment industry. Industry executives believe the talks will lead to legislation governing the exempt sector, which accounts for the vast majority of Singapore's hedge funds.

Hedge fund executives expect any changes to the exempt regime to be manageable and are likely to oppose any regulatory changes that greatly increase costs of operations, which some hedge funds put at about half the level of Hong Kong or a third that of London. Options being mentioned in the talks include the introduction of minimum requirements for asset size, professionally qualified staff, working capital and professional indemnity arrangements.

Singapore's exempt regime allows entities with 30 or fewer financially sophisticated clients to avoid regulation required by a Singapore Securities and Futures Act license. Exempt funds are, however, subject to money laundering regulations and rules that require them to ensure they understand the level of financial awareness of their clients.

Although Singapore has previously defended the exempt option by maintaining that light regulation is appropriate for funds with financially sophisticated clients, the talks reflect the Monetary Authority of Singapore's response to political concerns in Europe and the US about the role of hedge funds in the global financial crisis.

Story: Singapore Consults on Tighter Fund Rules, Financial Times (Sept. 17, 2009)