A few months have passed since our last SG regulatory update corresponding to the repeal of the RFMC regime in August 2024.

Several developments have occurred across various areas.  We will highlight key trends and topics relevant to licensed fund managers and prospective new managers in Singapore.

In this post, we focus on updates regarding Licensing and Conduct of Business.

The Guidelines On Licensing And Conduct Of Business For Fund Management Companies (‘GLCB – FMC’) were amended several times.

We note in particular the updates of 10 December 2024 containing:

• updates on application procedures in its section 6; and
• the addition of an Appendix 5 providing examples of scenarios giving rise to conflicts of interest (‘COI’) and other COI provisions in section 4.1.3, mirrored in section 4.2 of its Appendix 4 dedicated to VCFMs.

Focus on Conflicts of Interest

As COIs are an increasingly important topic, we have a few comments here:

• Broadly speaking, COIs arise when a person’s personal life or interests could get in the way of them doing their job fairly. It’s like having divided loyalties.
• In the context of asset management, COIs are mainly a concern where the fund management company’s (‘FMC’) team has interests that could conflict with its customers’ interests.
• In summary the regulatory framework applicable to FMCs in Singapore in respect of COIs is as follows:
  • • COIs and potential COIs should be identified and disclosed to MAS when applying for a licence;
    • putting in place policies and processes allowing the prevention, mitigation and (where applicable) disclosure of COIs is an ongoing obligation for licensed managers – as is generally clearly spelled out in the licence terms issued by MAS;
    • such policies and processes should be subject to an adequate review process; and
    • are subject to MAS review upon its request.

• The examples of COIs provided in Appendix 5 cover the following circumstances:
  • • Inadequate disclosure of fees charged to customers
    • The procurement of services from service providers related to the FMC (not at arm’s length)
    • Co-investments with FMC related persons (with preferential terms)
    • The FMC manages funds/mandates with competing / overlapping strategies
    • The FMC team has interests in the FMC’s portfolio companies
    • Extension of fund’s life or conversion of a fund’s interests into interests in a new fund managed by the same FMC
    • The organs in charge of reviewing COIs are not adequate (lack of independence and /or qualifications)

The necessary companion to the GLCB – FMC, i.e. the FAQs on the Licensing of Fund Management Companies (‘FAQ – LR – FMC’) were also updated several times.

We note in particular:

• update of January 2025: clarifications re. FMC acquisition processes i.e. the acquirer should get MAS’s prior approval when there is a change of effective control as defined in the (new) section 97B (6) of the Securities and Futures Act. Formerly, reference was made to a 20% ownership/ voting rights threshold, which now constitutes only one of the scenarios where a change of effective control occurs. MAS has notified licensed fund managers in February that license conditions will be amended accordingly, and existing licenses will be re-issued.
• updates of September 2024: relaxation of 50% ownership rule by management team, even if FMC is not part of an established business group.

Focus on the relaxation of FMC 50% ownership by its management team

Until recently, the ownership of a Singapore FMC was to be structured as follows:

• If the FMC was not part of an established business group (i.e. generally where the FMC is purported to be owned by individuals or non-financial companies) the management team (i.e. the CEO and the executive directors) were required to own at least 50% of the shares and voting rights.
• If the FMC was part of an established business group, the above 50% rule would be relaxed, and MAS would review the application taking into consideration the ‘umbrella’ provided by the existing group on a case-by-case basis.

This framework was somewhat rigid: for instance, a wealthy businessman couldn’t own 80% of the FMC’s capital and leave 20% to the management team.

The relaxation of the 50% ownership rule even in the absence of an established business group is set out in FAQ #20, and is very much welcome.

To be kept in mind for such applications:

• The FMC should propose alternative measures in lieu of having the management team collectively holding a controlling stake in the FMC.
• In particular, the FMC shall elaborate on how its proposed alternative measures would help (i) stabilise the FMC’s management team and (ii) support the alignment of interests of the management team with that of ‘third-party investors’.
• The proposal should also reinforce the management team’s ability to exercise effective control over the FMC’s operations, for which they are accountable.

3. How can we help?

Exocap assists with FMC setup in Singapore, including licence application and compliance manual and policies drafting or review.

We also act as outsource regulatory compliance adviser for our clients on an ongoing basis.