Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies [SFA 04-G05]

The Monetary Authority of Singapore (MAS) has published a revised version of its guidelines on the „licensing, registration and conduct of business for Fund Management Companies“. The guidelines outline the criteria which need to be met in order to register as a licensed fund management company, registered fund management company, and as venture capital fund managers. They also specify the registration process and set out the requirements to conduct business including reporting, disclosure, or valuation requirements.
This latest revised version contains five key modifications apart from numerous editorial and technical changes, namely:
(1) The fit and proper criteria under Part 3 of the document pertaining to the „Criteria for Licensing or Registration“ have been revised to read as follows – as quoted (page 6):
*3.7 Fit and Proper* – An FMC should satisfy MAS that its shareholders, directors, representatives and employees, as well as the FMC itself, are fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by MAS [FSG-G01]. As part of the FMC’s assessment of the fitness and propriety of its prospective representatives and employees, the FMC should perform adequate due diligence checks on them. Such checks should include reference checks with previous employers to verify the individual’s credentials, work experience and disciplinary record (if any). Where prospective representatives are hired to manage an investment strategy based on their track record, FMCs should also validate that track record, before making the appointment. Such validation checks could include back-testing the investment strategy with historical data.
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(2) The competency requirements under Part 3 of the document pertaining to the „Criteria for Licensing or Registration“ have been revised to read as follows – as quoted (page 7):
3.8 Competency of Key Individuals – To qualify for licensing or registration, the CEO, directors and relevant professionals of the FMC must have adequate experience that is relevant to the fund management activities of the FMC (see Appendix 1 for more information). The CEO and directors of the FMC should collectively have experience in portfolio management, as well as in support functions such as risk management, operations and compliance. In particular, the CEO, senior management and directors who are responsible for exercising oversight of the FMC’s investment activities must collectively have relevant experience in all of the asset classes, markets and investment strategies that the FMC will invest in, and be able to properly manage the risks associated with these asset classes, markets and strategies. Minimally, at least one of Executive Directors should have portfolio management experience in asset classes or markets that the FMC intends to invest. For instance:
3.8.1 Traditional and hedge funds – Relevant experience may include investment management experience in markets or asset classes which the fund(s) will invest in;
3.8.2 External asset management – Relevant experience may include experience managing or advising on wealth management portfolios for clients focused on markets or asset classes which the FMC will target; and
3.8.3 Private equity and venture capital funds – Relevant experience may include experience in industry segments that are within the fund’s investment mandate.
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(3) The obligations in connection with business terminations under Part 4 of the document pertaining to „Ongoing Requirements for FMCs (other than VCFMs)“ have been revised to read as follows – as quoted (page 13):
4.1.5 Termination of Fund and Cessation of FMC – An FMC should ensure that the decision to terminate a fund and the process of termination is in the
interests of investors in the fund, and that all investors are treated fairly and equitably. The FMC should:
(i) maintain appropriate governance and oversight of the termination process;
(ii) establish written policies for handling the termination process, covering areas such as the allocation of the costs of termination, investor communications, and treatment of unclaimed proceeds (where relevant); and
(iii) provide timely information to all investors so that they are kept updated on the progress of the termination.
An FMC who is itself no longer conducting the activity of fund management should file for cessation of its regulatory status. If the FMC intends to wind down its business, the FMC should ensure an orderly winding down of its business prior to cessation. This includes but is not limited to: (i) putting in place communication plans to ensure sufficient notice period has been given to its customers, business partners and other relevant stakeholders regarding its cessation; and (ii) discharging all customer obligations and ensuring that customer assets and/or moneys have been accounted for and returned to customers before it ceases.
The FMC should also ensure that all funds and managed accounts managed or advised by the FMC have been (i) transferred to another fund management company; or (ii) liquidated and all underlying assets and moneys returned to their beneficial owners or customers. Where the investment management of any fund is to be transferred to another manager, the FMC should ensure an orderly transition of its fiduciary responsibility. This may include providing investors with timely information and the opportunity to redeem their investments.
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(4) The obligations in connection with complaints handling under Part 4 of the document pertaining to „Ongoing Requirements for FMCs (other than VCFMs)“ have been revised to read as follows – as quoted (page 13):
4.1.6 Complaints Handling – An FMC should establish clear policies and procedures to handle customer complaints and feedback effectively and promptly. Senior management members who are responsible for handling customer complaints should be clearly identified, and the escalation and review process documented and communicated to all employees of the FMC.
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(5) The obligations in connection with the oversight of activities under Part 4 of the document pertaining to „Ongoing Requirements for FMCs (other than VCFMs)“ have been revised** to read as follows – as quoted (page 13):
4.1.7 Oversight of individuals who carry out activities for and on behalf of the FMC – An FMC should put in place an appropriate governance structure to ensure that it is able to effectively monitor the conduct of individuals who carry out activities for and on behalf of the FMC, on an ongoing basis. Such individuals include the FMC’s CEO, directors, representatives and employees. The FMC shall put in place documented systems and controls to demonstrate that it has exercised oversight of these individuals’ activities, including the funds under their management, and addressed conflicts posed by any outside business interests that they are involved in. The FMC should also establish and implement a disciplinary action framework to hold the individuals accountable for their actions and conduct.
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Several minor modifications have also been made to point 3.16 pertaining to risk management and to several footnotes.