The Monetary Authority of Singapore (MAS), the regulatory authority for the financial sector in the country, has recently implemented a set of changes to the regulatory framework governing fund management companies (FMCs) operating in Singapore.
Tightened rules pertaining to licensing, registration and operating requirements were effected through amendments made to the Securities and Futures (Licensing and Conduct of Business) Regulations, Securities and Futures (Financial and Margin Requirements) Regulations and Financial Advisers Regulations.
Welcoming the enhanced regulations, Mr. Satish Bakhda, Head of Operations at Rikvin, a Singapore company registration specialist, expressed optimism, saying, “The revised regulations will cement Singapore’s distinction as the leading Asian jurisdiction for fund management activities by boosting investors’ confidence and promoting greater transparency.”
The latest requirements pertaining to base capital requirements for FMCs will significantly impact the Registered FMCs (RFMCs), a new category of FMCs proposed in place of the current Exempt FMC (EFMC) that will be phased out in the next six months. The new base capital requirement of S$250,000 will considerably push up the startup cost of Registered FMCs that are incorporated in Singapore and also the fulfillment cost of the current EFMCs, when they subscribe for the RFMC status.
According to the revised framework, the newly introduced RFMCs may serve up to 30 Qualified Investors and manage up to S$250 million in assets under management. All other fund management companies will have to apply for a license. The FMCs thus licensed can either be a A/I licensed FMC or Retail Licensed FMC.
The revised regime requires FMC to follow some operational practices that are aimed at improving their transparency. Rules requiring independent custody and valuation of investor assets, as well as requirements for FMCs to undergo independent annual audits by external auditors are some of the measures in this direction. This will also escalate the compliance cost of FMCs, especially the current EFMCs.
The revised regulations will have severe cost impacts in the FMCs in Singapore; however it must be noted that in light of the post-financial crisis, the asset management industry globally is facing tighter regulations. The recent enhancements align the Singapore’s FMC regulatory regime more closely with the regulatory framework of other financial hubs, such as Hong Kong.
The region’s strong growth prospects in the long term continue to attract capital investments into Asia leading to wealth accumulation among individuals and corporate. The regional demographics also underscore the prospects of the fund management industry. Against this backdrop, Singapore, in order to sustain its position as a leading wealth management center, must streamline and enhance its regulatory framework to ensure the interest of the investors, while promoting the growth of FMCs. The objective of the recent revamp is to ensure transparency and competence of fund managers and thereby to augment investors’ confidence.
Commenting on the impact of the new regime Mr. Bakhda added, “Robust risk management practices, stronger corporate governance frameworks and enhanced transparency, and higher disclosure standards are the need of the hour. The recent enhancements will bolster the confidence of investors who are currently risk averse.”
“Besides the escalation of startup costs and compliance costs, there are distinct advantages as the tightened rules will act as a stimulant for managers to improve operational processes and governance and, as a result their productivity and marketability. The new regulations will undoubtedly improve the quality of new entrants and to some extent the resultant mergers and exits will consolidate the FM sector in Singapore. In turn, the regulations may also attract more FMs to opt for Singapore company formation.”