Singapore MAS Invites Comments on Proposed Enhancements for Fund Management Companies

April 27, 2010 - PRLog -- MAS Invites Comments on Proposed Enhancements to the Regulatory Regime for Fund Management Companies and Exempt Financial Intermediaries

The hedge funds industry has seen tremendous growth in Asia in the past few years. China continues to be a big magnet for investors around the globe, and Singapore has become the leading hedge fund hub for Asia Pacific.

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The Monetary Authority of Singapore (MAS) is reviewing the regulatory regime for financial intermediaries conducting fund management activities and the exemption regime for financial intermediaries engaged in leveraged foreign exchange trading.  A consultation paper (Click here to view the Consultation Paper and Appendix) has been issued to seek comments from the public on proposed enhancements and changes to the regulatory regime.

2.  This review is aimed at ensuring that the regulatory regime keeps pace with industry and regulatory developments globally, formalising existing industry best practices, as well as enhancing regulatory oversight over the respective industries.  The proposed enhancements also seek to raise the quality and standard of players to foster long term sustainable growth of the fund management industry.

3.  The proposals under the consultation paper represent an evolution of the existing regulatory regime for the fund management industry.  Fund Management Companies ["FMCs"] whose activities are limited in scale and impact may continue to operate under a notification regime and be subjected to certain conditions.   This is similar to the existing framework for exempt fund managers.  FMCs who serve retail investors and/or manage or advise on a larger portfolio of assets will have to be licensed.  MAS also intends to require all FMCs to meet business conduct as well as capital requirements.

4.  Under the proposed business conduct requirements, FMCs will need to maintain customers' monies and assets with independent custodians, ensuring segregation of duties between the functions of fund management and fund administration.  FMCs will also need to have compliance arrangements which are commensurate with the size and scale of the FMCs' business. These requirements aim to enhance safeguards against theft or misappropriation of customers' monies.

5.  MAS adopts an open and consultative approach with the industry, and remains committed to building Singapore as a fund management and alternative investment hub.  In developing this set of proposals, MAS has considered the views and comments from the public, investors, market practitioners and industry associations.

6.  MAS invites interested parties to give their views and comments on the proposals contained in the Consultation Paper. The consultation period will end on 31 May 2010.


Definition of a Hedge Fund

Monetary Authority of Singapore (MAS) which serves as the central bank in Singapore is also the regulatory body for the investments industry. The definition for a hedge fund in the Code on Collective Investment Schemes by MAS is “a hedge fund seeks to deliver an “absolute” return independent of the directional move of equity, fixed income or cash markets.” The MAS describes the characteristics of a hedge fund as one that:

■Involves financial strategies to leverage, short sell, arbitrage, trade derivatives, and
■Involves investment options other than bonds, listed equities and cash.

Hedge Fund Structure

The two principal hedge fund structures are the Onshore Funds and the Offshore Funds.

Onshore Funds are established in Singapore, and therefore subject to Singapore’s regulations and licensing requirements. The funds are largely targeted to domestic investors but can be marketed to foreign investors too.

Offshore funds, on the other hand, are formed in offshore jurisdictions, and therefore subject to regulations and licensing requirements in the respective jurisdictions. Offshore funds can be offered to domestic investors in Singapore only under certain conditions.

Onshore Hedge Fund Licensing Requirements

Fund managers with less than 30 qualified investors are not required to obtain licensing in Singapore. All other larger fund managers, be it individual or corporation, are required to obtain at least one of the two available licenses to conduct regulated financial services in Singapore.

The two licenses issued by MAS are:

1.Capital Markets Services License (CMS)
2.Financial Advisers License (FA)
Fund managers that conduct services under exemption have no capital requirements but will have to comply to the code of conduct and protocol in accordance with the Securities and Futures Act (SFA) and Financial Advisers Act (FAA).

Capital Markets License adheres to the SFA, and is designated for finance professionals involved in the following activities:

■Securities trading
■Futures contract trading
■Foreign currency trading
■Funds management
■Securities financing
■Real estate investment trust
■Corporate finance advising
Financial Advisers License adheres to the FAA, and is designated for finance professionals involved in the following activities:

■Marketing of unit trusts
■Offering of life insurance products
■Provision of advisement on investment products including life insurance policies, foreign exchange contracts, etc.
■Issuance of investment reports
Offshore Hedge Fund Licensing Requirements
Offshore fund managers must be licensed by their respective jurisdictions to offer Offshore Funds to Singapore investors.

Hedge Fund Marketing Regulations
The minimum regulations for Onshore Funds managers in Singapore are as follows:

■Disclosure requirements in all marketing materials to declare risks involved in hedge fund investments.
■Qualifications of fund managers to include at least 2 executives, of which each must have a minimum of 5 years of hedge fund management experience.
■The liability of investors is limited to the investment subscribed to the scheme.
■Initial subscription for each type of funds is as follows:
■Single Hedge Funds: S$100,000 per investor
■Fund of Hedge Funds (FoHF): S$20,000 per investor
■Capital protected/guaranteed hedge funds: No minimum subscription amount
■Diversification of FoHFs across at least 15 hedge fund managers.

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