Update of the Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies
On 29 November 2023, the Monetary Authority of Singapore (MAS) published an updated version of the Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies (SFA 04-G05). In its updates, the MAS reinforced clarification on the licencing requirements of fund management companies (“FMCs”).
An FMC must conduct substantive fund management activity for all its segregated mandates and funds and retain appropriate documentation of its fund management activity. A company does namely not qualify for a fund management licence or registration if the company
- executes trades purely based on customers’ instructions;
- sets up fund structures that merely serve as a conduit for the offer of funds managed by other fund managers (e.g. feeder funds for collective investment schemes managed by foreign fund managers); or
- ultimately invests in assets that are not capital markets products (e.g., digital payment tokens such as cryptocurrencies).
A newly licenced or registered FMC must commence fund management within six months after being issued the licence or registration. Otherwise, the licence or registration will lapse.
The CEO and directors of the FMC should collectively have experience in both portfolio management and support functions such as risk management, operations and compliance. It is not sufficient that all of them have experience in one part of these activities. Experience in marketing, client servicing and advisory of financial services and products may be considered relevant but is not sufficient on its own. At least one executive director must have five years of experience in portfolio management that is relevant to the investment activities of the FMC and the asset classes and markets that it invests in.
An FMC must have at least two full-time representatives residing in Singapore. Representatives are individuals who conduct regulated fund management activity such as portfolio construction and allocation, investment decision making, deal sourcing/origination, trade execution, research and advisory, business development and marketing or client servicing. In contrast, individuals who are responsible for, or involved in, control functions or middle or back-office functions such as risk management, compliance, operations and finance should not be appointed representatives of the FMC as a matter of good internal control and for proper segregation of duties.
Experience in investing/the management of one’s own money or monies belonging to family members is not considered relevant experience in the context of a fund management licence or registration. Also, where an individual’s past experience in investment management was gained at unregulated entities, the relevance of this experience must be demonstrated.
FMCs should carry out substantive fund management activity in Singapore and have their representatives based in Singapore. An FMC should only have representatives overseas in case of exceptional reasons and should not have a disproportionate number of their representatives based overseas. The FMC must have adequate compliance oversight over the overseas representatives.
The CEO and executive directors are expected to focus on the management of the FMC’s business and may be required to divest outside business interests if they are unable to adequately mitigate the conflicts of interest (whether actual or perceived) or reputational risks posed to the FMC.
The CEO and executive directors must be able to exercise effective control over the FMC’s operations, for which they are held accountable. For this purpose, the FMC’s CEO and executive directors are expected to collectively hold and maintain a controlling stake (>50% effective voting interest) in the FMC (unless the FMC is part of a financial services group). Moreover, FMCs should minimise the shareholding held by passive shareholders (whether direct, intermediate or ultimate) who are not involved in the management of the FMC’s business or do not have relevant experience in fund management.
In addition to these general reminders regarding licencing requirements, the MAS imposes special disclosures for funds that invest in digital assets. For these funds, the FMC should, in addition to the common disclosures, minimally disclose
- the heightened price, liquidity and volatility risks associated with digital assets;
- the risks associated with the use of intermediaries such as trading platforms and custodians. FMCs should segregate customers’ assets and store the bulk of the assets in cold wallets and only keep assets in hot wallets for the purpose of liquidity and operational needs. Disclosure of the custody arrangements should include the jurisdiction in which the custodians are suitably licensed, registered or authorised; and
- any other regulatory and legal risks that are associated with investments in digital assets.
For any further information, please contact:
Rolf Haudenschild
Co-founder
Ingenia Consultants Pte. Ltd.