Fund management in Singapore under the new regulatory framework


Nov 18, 2013 (3 years and 6 months ago)


Fund management in Singapore under the new regulatory framework

The asset management industry has been facing tighter regulations

. Singapore’s
anticipated enhanced regulatory framework for fund management companies (FMCs) was
finally implemen
ted by the Monetary Authority of Singapore (MAS) in August. This move will
help to align Singapore’s fund management regulatory framework more closely with those
adopted in other international financial hubs.

Broadly speaking, the revised licensing and r
egulatory requirements vary depending
largely on the categories that the FMC fall into. There are three categories of FMCs, namely
Retail Licenced FMCs (Retail LFMCs), Accredited Investor Licenced FMCs (A/L LMFMCs), and
Registered FMCs (RFMCs). The RFMCs
will replace the Exempt Fund Managers (EFMs) under the
old regulatory framework. As a result, the existing EFMs that manage funds for not more than
30 qualified investors will have to either apply for a licence to conduct fund management, or
register with
the MAS under the RFMCs regime. RFMCs are allowed to serve up to 30 qualified
investors and manage up to S$250 million ($203 million) in assets under management. If any of
these thresholds are exceeded, the FMC must apply for a licence either as Retail LFM
Cs or A/I
LFMCs. A transition period of six months is given to affected FMCs .

All FMCs must meet the enhanced business conduct and capital requirements. These
include rules in relation to custody, valuation and reporting, competency of key individuals,
onflicts of interest, disclosure, and requirement for the implementation of risk management
policies corresponding to the size and operations of the FMCs.

The additional requirements will result in the escalation of operating cost structure. For
the new base capital requirement of S$250,000 will considerably increase the start
cost of RFMCs as well as the fulfillment cost of the existing EFMs, when they subscribed for the
RFMCs status. The rules requiring independent custody and valuation of in
vestor assets and
independent annual audits by external auditors will further increase the compliance costs.

The FMCs, especially under the existing EFMs status may have to revisit their business
strategies such as forming business alliances with other pla
yers. There will also be a need for
FMCs to identify the key implications of the requirements to their business strategy, business
model, cost and profitability and allocation of resources.

Despite these challenges faced by the industry players, the revam
p of the regulatory framework
is necessary to sustain Singapore’s position as a leading wealth management center.It will do
this by safeguarding investors’ interests, while promoting the growth of the fund management
industry. Besides, the tightening of ru
les can be a catalyst for FMCs to improve operational
processes and governance, which will in turn increase their overall level of productivity and
marketability. The improved industry standards are expected to raise the quality of new
entrants and to a ce
rtain extent, resulting industry consolidation in the forms of mergers and
exits of existing FMCs in Singapore.