On 24 October 2023, the Monetary Authority of Singapore (the “MAS”) published a consultation paper (the “Consultation Paper”)1 aimed at streamlining the regulatory framework governing fund management companies in Singapore. The proposal would phase out the current registered fund management companies (“RFMCs”) regime. Existing RFMCs would be required to undergo a transition process to be granted a capital markets services (“CMS”) license and become licensed fund management companies (“LFMCs”) if they wish to sustain their fund management operations.
Current RFMC Regime
RFMCs are restricted to carrying out fund management for not more than 30 accredited or institutional (“A/I”) investors and managing not more than S$250 million of assets. RFMCs seeking to grow their fund management businesses beyond these limits may apply to become A/I LFMCs.
Proposed Transition Arrangement
We do not know when the RFMC regime will be repealed. Under the proposed transition arrangement:
Application to be A/I LFMC
An existing RFMC will be required to apply for, and be granted, a CMS licence for fund management prior to the repeal of the RFMC regime by submitting the prescribed application form (the “Form”)2 to the MAS. The Form is not yet available. The RFMC will be required to provide latest available information on its business activity and confirm that it will be able to comply with the requirements specified in the Form. The CMS licence will be granted to RFMCs that have carried on business in fund management activities in the six months immediately preceding the submission of the Form and have submitted an application via the Form within the stipulated timeline.
The MAS will respond to all applications from RFMCs within a month of submission.3 Successful applicants will be issued a CMS licence upon the repeal of the RFMC regime. Their exempt representatives will be transitioned to appointed representatives. Where there are known concerns with an RFMC’s regulatory history or the fitness and propriety of the RFMC, its directors, shareholders or staff, MAS will review its licensing status and may impose additional restrictions or conditions.
RFMCs applying to become A/I LFMCs during the prescribed application window will not have to pay any application fee for the corporate entity applying for the license, nor any fee for the notification of their existing representatives. Upon being licensed, the prevailing CMS annual corporate licence fee and representative fees will apply on a pro-rated basis4, to such A/I LFMCs and their representatives. Currently, the annual corporate licence and representative fees for CMS licence holders are S$4,000 and S$200 per representative respectively.
RFMCs that do not submit applications by the stipulated deadline will be considered to have opted to cease fund management activities upon the repeal of the RFMC regime.
Specific Restrictions and Requirements on A/I LFMCs Transitioned from RFMCs
RFMCs that transition to A/I LFMCs can retain their managed assets to S$250 million and there will be no cap on the number of investors or funds managed. Transitioned A/I LFMCs may engage MAS to review the licence condition, should they plan to manage more than this amount of assets.
Transitioned A/I LFMCs will have to comply with the reporting requirements applicable to A/I LFMCs today. They will have to seek MAS’ prior approval for certain changes, such as their shareholders and key appointment holders.
Transitioned A/I LFMCs will be subject to the following reporting requirements:
(a) Changes in particulars that occur before the repeal date
Should there be a change in particulars before the repeal date, the FMC must comply with existing RFMC requirements by submitting Form 23A within 14 days of the change, even if the 14-day period crosses the repeal date. For changes in particulars occurring after the repeal date, requirements applicable to A/I LFMCs will apply, which include seeking prior approval for director appointments.
(b) Submission of annual regulatory returns for financial year ending before repeal date
The FMC must comply with existing RFMC requirements by submitting (i) an annual declaration via Form 25A within one month from financial year end, and (ii) an auditor’s report via Form 25B no later than 5 months from financial year end, even if the respective submission periods cross the repeal date. Having submitted Forms 25A and 25B, the FMC does not have to additionally submit regulatory returns required of an A/I LFMC for the same financial year already covered by the two forms.
Differences Between RFMCs and LFMCs
Below is an extract from the Consultation Paper that sets forth the key differences between the requirements for RFMCs and A/I LFMCs (the “Comparison Table”):
Are Business Conduct, Risk Management and Compliance Obligations Higher for LFMCs than RFMCs?
On multiple occasions, we have been asked what practical steps an RFMC should take to prepare for the transition to an LFMC. This is a more difficult question to answer than one might initially believe.
The Comparison Table set forth above indicates that the business conduct and audit requirements for RFMCs and A/I LFMCs are the same. Nevertheless, (1) the Comparison Table highlights that compliance and internal audit arrangements should be commensurate with the nature and scale of the fund manager’s activities and (2) in other guidance the MAS has written:
- “the sophistication of processes, systems and internal controls for risk management is expected to vary according to the nature, size and complexity of the business activities of an institution;”5
- “the extent and degree to which an institution adopts [the Guidelines on Risk Management Practices – Internal Controls] should be commensurate with the institution’s risk and business profile”.6
We are unaware of any specific guidance that compares the inherent complexities of operating a LFMC vs operating a RFMC. We can imagine that some RFMCs may operate a business model that require more risk and compliance controls than other models operated by a LFMC.
Still, as a general and practical matter we believe that the governance and risk management expectations for operating as a LFMC are higher as compared to the expectations of a RFMC. As a result, RFMCs should be prepared to set aside more financial resources for compliance and risk management in order to operate as a LFMC. Potential areas of enhancement include reviewing:
- a RFMC’s enterprise-wide risk assessment to address a great number of clients potentially services, assets under management or other changes that may result in the RFMC’s business;
- a RFMC’s internal controls,7 particularly considering whether there is a need for additional policies and procedures, or for additional granularity and examples in existing policies and procedures; and
- the scope of a RFMC’s internal audit and any historical findings that may require further remediation;
- the scope of a RFMC’s internal training program, including director training;
- the RFMC’s due diligence practices, including pursuant to the Guidelines on Outsourcing and the Information Paper on Management of Third Party Arrangements.
How HM Can Help
The repeal of RFMC regime is intended by the MAS to streamline the application process and establish uniform requirements for fund managers Nonetheless, transitioning to an LFMC licence may pose challenges for RFMCs unprepared for the heightened regulatory standards.
HM has extensive experience resolving typical compliance issues including regulatory inspections, satisfying regulatory requirements, and maintaining best practices in corporate governance to navigate the rapidly changing regulatory landscape. Our team includes a former regulator as well as former senior compliance professionals at LFMCs. Most importantly, we help clients by not merely restating the rules but also by offering practical guidance and suggestions for priorities to facilitate fund managers complying with applicable laws and regulations commensurate with their risk profile and business complexity.
Please contact us if you would like to explore how HM can assist your fund management company on compliance matters.
Michelle Goh: Consultant | HM | 201802481R 7 Straits View, Marina One East Tower, #05- 01 Singapore 018936
Disclaimer: The material in this post represents general information only and should not be relied upon as legal advice. Holland & Marie Pte. Ltd. is not a law firm and may not act as an advocate or solicitor for purposes of the Singapore Legal Profession Act.
1 See “Consultation Paper on Repeal of Regulatory Regime for Registered Fund Management Companies”, MAS, October 24, 2023.
2 See Annex A of the Consultation Paper.
3 See para 4.3 of the Consultation Paper.
4 From the date of licensing till 31 December.
5 See para 4 of Objectives and Scope Risk Guidelines.
6 See para 1.1.1 of Internal Control Guidelines.
7 We define internal controls as the policies, procedures and processes established by the Board of Directors and senior management to provide reasonable assurance on the safety, effectiveness and efficiency of a financial institution’s operations, the reliability of financial and managerial reporting and compliance with regulatory requirements.
