Being the hub of asset management in Asia, the nation is home to a well-diversified portfolio of assets totaling $3.4 trillion. Over 900 licensed and registered fund managers in Singapore are in charge of these billions of dollars in assets.
Financial institutions in the fund management, capital markets, banking, insurance, and payments sectors are subject to licenses and regulations from the Monetary Authority of Singapore (MAS) (amongst others).
The Venture Capital Fund Manager (VCFM) regime went into effect on October 20, 2017, according to a statement from the Monetary Authority of Singapore (MAS). The VCFM regime is a component of the MAS’s initiatives to aid startups and encourage capital for business development.
Singapore Fund Management License
The choice of Singapore as a base of operations is consistently appealing to fund managers worldwide. Financial institutions must demonstrate that they have the systems and controls required to manage risk as licensing procedures become more rigorous. The MAS may request to see your Compliance Manual, or certain sections of it, in addition to the completed forms and documentation that applicants must submit, including a business plan.
The Regulator nearly always has additional inquiries, and it is not unusual for them to request a face-to-face meeting. Fund management companies in Singapore are required by the Securities and Futures Act (SFA) to register with MAS. Otherwise, at the very least, the organization should possess a MAS CMS license (Capital Markets Service) to maintain operations. Singapore has different licenses for fund management.
Three types of fund management licenses include:
1. Licensed Fund Management Company (LFMC)
2. Registered Fund Management Company (RFMC)
3. Venture Capital Fund Manager (VCFM)
How to Set Up a Fund Management Company in Singapore
According to the Securities and Futures Act (SFA), businesses seeking to engage in the fund management industry in Singapore must either be registered with the MAS (RFMC) or licensed fund management companies (LFMC) with a Capital Markets Services (CMS) license in fund management. In the fund management industry, a company’s operations include selecting investments for a group of assets or money on behalf of its clients.
MAS License Application
SFA governs Singapore fund management firms (Cap. 289) and makes it mandatory for a Singapore Fund Manager license. A fund management company must get a MAS fund management license as one of the following to engage in the regulated activity of fund management:
- Registered Fund Management Company (RFMC),
- Capital Markets Services License (CMSL) as a Licensed Fund Management Company,
- Venture Capital Fund Manager (VCFM),
- Or be expressly exempted from holding a license.
While Licensed Fund Management Company would be considered a full license and have stricter preconditions before being issued to an applicant, RFMC and VCFM are subject to less harsh compliance standards and oversight.
Options for Singapore Fund Formation
Unit trusts, private limited companies, and limited partnerships are the three legal forms that can be used to set up funds in Singapore; each has its benefits and drawback.
Advantages of Creating a Registered Fund Management Company in Singapore
In the new global economic paradigm, Asia is where the money is. Singapore is ideally situated to serve as the continent’s financial center because of its robust financial infrastructure and advantageous position. The benefits are outlined below.
- Territorial low-tax environment that is competitive, transparent, and effective
- Global tax treaty network that is extensive (currently over 76 complete and eight limited treaties in place)
- Absence of capital gains tax
- Several tax exemption programs designed expressly for the fund management sector, including 13R, 13X, and 13CA (described below).
- Takes advantage of additional tax incentive programs
- A robust regulatory framework that protects investors
- Robust IP protection
- Efficient legal system
- World’s best business environment (continuous top rating in World Bank polls)
- A workforce trained in English locally
- Proximity to Asia’s growing markets
- Immigration policies with no restrictions for foreign professionals
- Has more than 125 financial institutions, five of which are among the strongest in the
HOW TO APPLY FOR MAS LICENSE IN SINGAPORE
The Exempt Fund Manager (EFM) regime was superseded by a new category called RFMC by the MAS in 2012. RFMCs may serve up to 30 qualifying investors; the most significant asset under management is S$250 million. All additional FMCs that fall outside this area must submit a license application.
There are three subcategories of LFMCs license:
- Singapore LFMC license
- Singapore A/I LFMC license and
Although there is no cap on the number of investors, there are standards to keep in LFMCs.
1. Initial Capital Required
FMCs are required to maintain the required basic capital levels at all times. Before accounting for the additional capital buffer, the base capital requirement falls within the range of $250,000 to $1,000,000 in Singapore.
- Fund managers must have S$1,000,000 in base capital before providing Collective Investment Scheme (CIS) to non-accredited or non-institutional
- Fund managers must have S$500,000 in base capital before offering non-CIS to non-accredited/non-institutional
- S$250,000 is the minimum base capital requirement for all other fund
The capital, as mentioned above, requirements, and other risk management obligations must be met by a qualified fund management organization. Retail and A/I LFMCs must retain at least 120% more risk than necessary.
2. Competency Criteria
A significant stakeholder’s competencies, such as those of shareholders, directors, and employees, to name a few, must be ensured by an FMC.
Stakeholders must establish their propriety and fitness while meeting morality and financial stability standards. All FMCs must appoint at least two directors with at least five years of relevant expertise, with the exception of VCFMs. At the same time, the CEO must have at least ten years of relevant knowledge and at least three Singapore-based representatives to function as a Retail LFMC.
3. Compliance Agreement
All FMCs are required to keep up with the necessary compliance procedures by the size, scope, and nature of the business operations. RFMCs may think about creating a separate compliance unit, outsourcing their compliance role, or receiving support from an overseas affiliate. A/I LFMCs (with AUM S$1b) and Retail LFMCs should appoint qualified people to create an impartial compliance function.
4. Auditing Conditions
By carrying out adequate internal audits, which are a necessary component of the yearly reporting obligations, FMCs must live up to the expectations of the MAS. The business must have an internal audit team, hire someone from the headquarters, or outsource the internal audits to a third-party service provider to comply with regulatory standards.
5. Other Conditions
FMCs are strongly encouraged to maintain their professional indemnity insurance coverage. If MAS determines it is essential, PII may also be needed as a license condition. The regulatory environment in which the holding company works, the track record of the FMC and its holding companies, and the level of interest expressed by the holding company and the FMC’s shareholders all factor into the decision about the FMC’s license acceptance.
VENTURE CAPITAL FUND MANAGEMENT(VCFM)
To make it simpler for startups to acquire financing, the Monetary Authority of Singapore (MAS) has simplified the regulations for venture capital fund managers (VC managers). This entails speeding up the authorization process for the VC manager. The simplified regulatory framework considers the extent of contractual safeguards already available in traditional contracts signed by the sophisticated investor clientele of VC managers.
The management of funds on behalf of sizable corporations or affluent individuals is permitted under the VCFM (Venture Capital Fund Management) license, held by registered or licensed managers. A registered and licensed VCFM Company under the MAS is required in Singapore to execute any fund management.
The following requirements must be met for a VC manager to be accepted into the program:
1. Forms for submission
A form is filed to MAS to apply for a capital markets services license (CMSL) to work as a venture capital fund manager. This form contains information on the company, the team, the type of investment, the funding sources, the company’s history, etc.
2. Amount of the assets managed
The quantity of assets under management for Venture Capital Fund Management Company does not have a minimum amount. This indicates that, in contrast to RFMCs (Registered Fund Management Companies), which can handle a maximum of $250 million in assets, VCFMs can manage small or even sizable assets.
3. Experience and the number of Directors
There should be at least two directors for VCFM. One of these two directors must be a resident of Singapore and have a full-time job.
4. Minimum Base Capital Requirements
The exact minimum base capital requirements for the Venture Capital Fund Management Company are unknown. This indicates that the business can function with very little or even very high base capital.
Contrary to RFMC, which has a minimum capital basis of $250,000, this does not exist.
5. Type of Investor
VCFM can handle only institutional and accredited businesses. Therefore, it is unable to accept Retail. This contrasts with RFMC, which is only open to accredited investors.
6. Investment Class
A venture capital fund management company should manage Venture Capital. This implies that 80 percent of this fund’s portfolio companies must be younger than ten years old. Regarding the kind of investment, RFMC has no restrictions.
7. Amount of investors
A venture capital fund management company can work with an unlimited number of qualified or certified investors. This contrasts with RFMC, which is limited to 30 investors. It may contain up to 15 funds. Additionally, the company would need a secure office space only accessible by the directors and staff of your business.