Setting Up Fund Manager Or Wealth Manager In Singapore.
Legal News & Analysis - Asia Pacific - Singapore - Tax
29 January, 2020
Fund/Asset or wealth management specialists who are serious and passionate about their profession want to thrive in an environment where the laws and regulations are clear, business friendly and progressive. They also want easy access to the full range of fund professionals in the industry for advice and support. An independent and efficient judiciary, a safe, stable and reputable international financial centre and conducive tax environment for the fund manager and the funds it manages (if any) are also very important. This bodes well for Singapore which meets all necessary criteria as an ideal venue for starting up an External Asset Manager (“EAM”) or Fund Manager.
Definition of Fund Management
“Fund Management” is defined under the Securities and Futures Act (Chapter 289 of Singapore) (“SFA”) as “managing the property of, or operating, a collective investment scheme, or undertaking on behalf of a customer (whether on a discretionary authority granted by the customer or otherwise), (a) the management of a portfolio of capital markets products, or (b) the entry into spot foreign exchange contracts for the purpose of managing the customer’s funds, but does not include real estate investment trust management.”.
Based on the prescribed application and registration forms, categories of fund management include traditional, hedge, private equity, venture capital and fund of fund managers. It also includes external asset managers and multi-family offices.
In short, regardless of the label one uses, any form of third party asset or wealth management involving any kind of investment strategy or investment products may be considered and regulated in Singapore as fund management.
Licensing and Registration
All fund managers operating in or from Singapore must apply for a Capital Markets Services (“CMS”) Licence for fund management or register as a Registered Fund Management Company. There are four (4) types of fund management companies (“FMCs”) in Singapore.
(a) Licensed Retail FMCs – FMCs which can serve all types of investors, including retail investors;
(b) Licensed A/I FMCs – FMCs which can serve only qualified investors, without restriction on the numbers;
(c) Licensed VC FMCs – FMCs that manage only venture capital funds offered only to qualified investors; and
(d) Registered FMCs – FMCs with assets under management of S$250 million or less and with no more than 30 qualified investors (of which no more than 15 may be funds or limited partnership fund structures).
All FMCs will have to comply with application and registration requirements as well as ongoing requirements. They will have to meet various enhanced business conduct, base capital and risk-based capital requirements.
There are other requirements like independent custody and valuation of investor assets, independent annual audits by external auditors, internal compliance and audits and adequate risk management framework. Greater care and commitment is required to institutionalise these requirements, document the procedures and actions and appoint the right people to drive the process. Greater concessions are given to VC FMCs as a lighter touch approach is taken by the MAS to support the vibrant VC investment scene.
The FMCs are ultimately made up of the people within the organisation. Important competency requirements are imposed on key individuals of the FMCs. All FMCs must have at least two (2) directors, each with at least five (5) years of relevant asset or wealth management experience (except for VC FMCs). At least one (1) of the directors must be an executive director who is resident in Singapore. The executive directors and employees of the FMCs must be full-time employees and handle the daily operations of the FMC. Licensed A/I FMCs, VC FMCs and Registered FMCs must also have at least two (2) fund management professionals who are resident in Singapore. Licensed Retail FMCs must have at least three (3) fund management professionals who are resident in Singapore. These requirements ensure that there is sufficient professional substance and presence in Singapore.
The Monetary Authority of Singapore (“MAS”) takes into consideration some key factors when granting a CMS licence or approving the registration of a Registered FMC. These factors include:
(a) The track record, management expertise and financial soundness of the applicant (where applicable, its parent company or major shareholders)
(b) How fit and proper each of the applicant’s shareholders, directors, Chief Executive Officer, professionals and employees are
(c) The relevant fund management experience of the key directors and professionals
(d) The business plans and financial projections of the applicant
(e) The applicant’s ability to meet the minimum financial requirements
(f) The strength of internal compliance
The MAS prescribes that the relevant application or registration forms must be used. There is a substantial amount of corporate, financial and personal information that will be submitted to the MAS. The MAS also conducts a thorough review of the forms and supporting documents, probity checks and due diligence on each applicant and registrant.
Certain statutory exemptions from licence and registration are available. It is highly dependent on the business structure, type of investors and intended investments.
There are also soft regulatory requirements which would include internal policies and expectations of, as well as conditions and requirements imposed by, the regulator. Some of these are articulated in the notices and guidelines, some are published in frequently-asked-questions while others are developed from experience through actual live applications, registrations and interactions with the regulator.
The onshore-offshore model (i.e. creating a virtual fund manager in an offshore tax haven and using a Singapore team to render investment advice, market and manage the assets as an adviser or consultant) is not permissible as it breaches the SFA. In fact, there is a real danger that the regulator may regard the offshore fund manager as conducting its business in Singapore because there are extra-territorial provisions in the SFA that allow such activities to be captured within the SFA. To make matters worse, questions of tax evasion for both the offshore entity and the Singapore entity could be raised. The economic substance requirements and additional compliance requirements are also ensuring that virtual fund managers can no longer operate in offshore jurisdictions.
One common question posed is whether aspirants can apply for the CMS licence or make a registration on their own. The short answer is yes. If one has the experience and time and wishes to trek through a dense Amazonian jungle full of exciting encounters coupled with life threatening dangers, one can and should do it alone in order to enjoy the journey. Alternatively, one can enlist the assistance of an experienced professional jungle guide for a safer and smoother passage.
Tan Woon Hum, Partner, Shook Lin & Bok