Requirements for the Compliance Function of Fund Management Companies
The Monetary Authority of Singapore (“MAS”) published an amendment to its Guidelines on Licencing, Registration and Conduct of Business for Fund Management Companies (SFA04-G05) on 23 February 2024. In this amendment, the MAS emphasised its expectations of the competency of the compliance function of fund management companies (“FMCs”).
General Requirements, namely Competence
A holder of a capital markets services licence, including FMCs, including registered fund management companies (“RFMCs”), “shall put in place a compliance function and arrangements, including specifying the roles and responsibilities of officers and employees of the holder in helping to ensure its compliance with all applicable laws, codes of conduct and standards of good practice in order to protect investors and reduce the holder’s risk of incurring legal or regulatory sanctions that may be imposed by the [MAS] or any other public authority, financial loss, and reputational damage.” (sec. 13(b)(ii) SF(LCB)R).
Venture capital fund managers (“VCFMs”) are exempt from this requirement (reg. 14(5) SF(LCB)R read in conjunction with reg. 14(8) SF(LCB)R). Accordingly, any reference to FMCs in this article will exclude VCFMs. Nonetheless, VCFMs are also encouraged to maintain compliance arrangements to ensure compliance with the regulations that apply to them.
While the MAS expects and accepts every FMC “to have in place compliance arrangements that are commensurate with the nature, scale and complexity of its business” (para. 3.15 SFA04-G05), i.e. the FMC can determine itself what compliance arrangements are adequate for its business and operations, the MAS expects a certain level of competency from the compliance function of all FMCs.
The individual(s) managing and performing the compliance activities are “expected to have relevant experience, for example, in regulatory compliance, audit or risk management[,] and be familiar with and regularly and appropriately trained on the rules and regulations applicable to the FMC.” (para. 3.15 SFA04-G05).
For example, as highlighted by the MAS, the compliance officer should be aware of the various regulations applicable to the FMC and be capable of assessing the application of specific regulations (para. 3.15 SFA04-G05).
Where the FMC does not have an officer with the required capabilities, the FMC may and is encouraged “to engage professional compliance service providers to assist them in complying with the applicable regulatory requirements.” (para. 4.8 Consultation Paper on Repeal of Regulatory Regime for Registered Fund Management Companies) This assistance by a compliance service provider can range from occasional support, e.g., to answer a specific question, to the full outsourcing of the compliance function for smaller FMCs.
In any case, “the FMC should ensure that the service provider is competent and familiar with the requirements for FMCs under the [Securities and Futures Act 2001] and other regulations in Singapore. FMCs are encouraged to use service providers who are members of relevant professional bodies in Singapore […]” (Appendix 2 to SFA04-G05). Moreover, in particular where the FMC outsources its compliance function, it is encouraged to use a service provider who is able to provide [a] meaningful onsite presence at the FMC.” (Appendix 2 to SFA04-G05). The CEO and directors of the FMC remain ultimately responsible for all compliance and regulatory matters (Appendix 2 to SFA04-G05).
Requirements for Specific Types of Fund Management Companies
Although it is for the FMC to determine its compliance arrangements, the MAS sets minimum standards for the different types of FMCs. Generally, the MAS requires larger FMCs to have their own in-house compliance officers. Smaller FMCs are allowed to outsource their compliance within the group or even to independent third-party service providers.
Retail LFMC and A/I LFMC with AuM > SGD 1bn
An FMC authorised to service all types of investors, namely, including retail investors, or an A/I LFMC that has assets under management of more than SGD 1bn, must have an independent and dedicated compliance function in Singapore with staff who are suitably qualified and independent from the front office. However, compliance staff may perform other non-conflicting and complementary roles, such as that of an in-house legal counsel (Appendix 2 to SFA04-G05).
As an exemption, an A/I LFMC with AUM exceeding SGD 1bn but carrying out only research and advisory activities is not required to have such an in-house compliance officer. Such an LFMC may obtain compliance support from an independent and dedicated compliance team at its holding company or at an overseas related entity (Appendix 2 to SFA04-G05).
A/I LFMC (AuM < SGD 1bn)
An A/I LFMC with assets under management of less than SGD 1bn must also ensure that it has a compliance function that is independent of its front office. However, they are not required to have an officer who is exclusively or primarily dedicated to compliance.
- The A/I LFMC can designate a senior staff independent from the front office (e.g. COO or CFO) to be responsible for compliance. Hereby, the A/I LFMC must, nonetheless, ensure that this staff has the required knowledge and experience to manage and carry out its compliance duties competently.
- The A/I LFMC can demonstrate that there is adequate compliance oversight and support from an independent and dedicated compliance team at its holding company or an overseas related entity. This compliance team must, however, be sufficiently familiar with the financial regulations applicable to the FMC in Singapore.
- The A/I LFMC may engage an external service provider to support its compliance arrangements. As mentioned above, this service provider must be competent and familiar with the regulatory requirements for the FMC and should be able to provide meaningful onsite presence (Appendix 2 to SFA04-G05).
RFMC
“An RFMC should ensure that it has adequate compliance arrangements commensurate with the scale, nature and complexity of its operations. This may take the form of an independent compliance function, compliance support from overseas affiliates and/or use of external service providers that meet the requirements set out previously.” (Appendix 2 to SFA04-G05).
It goes without saying, that the RFMC could also designate a senior staff who is independent of the front office and has the required capabilities to be responsible for compliance.
Please note that the MAS targets to repeal the RFMC regime on 1 August 2024 (para. 2.4 Response to Consultation on Repeal of Regulatory Regime for Registered Fund Management Companies). All existing RFMCs will need to transition to become an A/I LFMC and will need to meet the requirements and expectations of their compliance function for an A/I LFMC.
Ingenia Consultants Pte. Ltd. has extensive experience in providing compliance assistance to FMCs in Singapore. Based on the needs of the specific company, we carry out the compliance duties of the FMC as its outsourced compliance function or assist with specific questions.
Reach out to us if you would like to discuss the suitable support for your company.
For any further information, please contact:
Rolf Haudenschild
Co-founder
Ingenia Consultants Pte. Ltd.