Singapore Venture Capital Fund Manager Regime was announced by the Monetary Authority of Singapore (MAS) on 20th October 2017.The activity of fund management is defined in the Second Schedule to the Securities and Futures Act (SFA). Previously, Venture Capital (“VC”) managers were subjected to the same regulatory framework as Licensed Fund Management Companies (“LFMCs”) or Registered Fund Management Companies (“RFMCs”). The new regulatory regime will simplify and shorten the authorisation process for VC managers. VC fund managers will need to apply to the MAS to hold a capital markets services licence as a VC fund manager in order to qualify or transit to the simplified regime.
To qualify for the Singapore Venture Capital Fund Manager Regime, a VC manager has to manage funds that meet the following characteristics:
(a) invest in business ventures that are not listed on a securities exchange;
(b) invest at least 80% of committed capital in securities that are directly issued by start-ups that are no more than ten years old;
(c) units of the funds are not available for new subscription after the close of fund-raising, and can only be redeemed at the end of the fund life (i.e. close-ended funds); and
(d) are offered only to accredited and/or institutional investors.
|Criteria for fund managers in general
|New qualifying criteria for Singapore Venture Capital Fund Managers
|Directors and representatives must have minimum 5 years of relevant experience in fund management.
|No minimum experience required.
|Ranging from S$250,000 to S$1,000,000.
|No minimum capital requirements.
|Onerous requirements in relation to custody, valuation, reporting, mitigating conflicts of interest, disclosure, etc.
|No business conduct requirements.
Note that although MAS has decided not to prescribe competency, capital and ongoing business conduct requirements on VC managers under the Singapore Venture Capital Fund Manager Regime at this point in time, investors may negotiate these requirements on the VC manager that they invest with. VC managers will be required to disclose to investors that they are not subject to all of the regulatory requirements imposed on other fund management companies. VC managers will also be separately listed on the financial institutions directory on the MAS website. VC managers under the Singapore Venture Capital Fund Manager Regime will continue to be subjected to fitness and propriety screening of its CEO, directors, shareholders and representatives, and MAS would retain existing regulatory powers to deal with errant managers.
VC managers are still required to comply with MAS AML/CFT Requirements [SFA04-N02], and submit regulatory returns on changes to key appointments, AUM, investor types and numbers, fund types, and deals by geography and sector, in the prescribed form.
Ongoing and Admission Requirements
(i) Fit and Proper – Satisfy MAS that its shareholders, directors, representatives and employees, as well as the VCFM itself, are fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by MAS [FSG-G01];
(ii) Place of Incorporation – Be a Singapore incorporated company that has a permanent physical office in Singapore;
(iii) Key personnel – Have at least two directors, at least one of whom should be full-time and resident in Singapore; and at least two full-time resident professionals and representatives, who may include the directors;
(iv) Disclosure – Disclose to investors that they are not subject to all of the regulatory requirements that are imposed on other fund management companies;
(v) Conflicts of interests – Avoid any conflicts of interest and, where such conflicts arise, ensure that they are resolved fairly and equitably. Guidelines on Licensing, Registration & Conduct of Business for FMCs;
(vi) AML/CFT Requirements – Comply with the requirements on anti-money laundering and countering the financing of terrorism [“AML/CFT”] requirements, as set out in the Notice to Capital Markets Service Licensees and Exempt Persons on Prevention of Money Laundering and Countering the Financing of Terrorism [SFA04-N02];
(vii) Periodic Returns – Submit periodic regulatory returns on changes to key appointments, AUM, investor types and numbers, fund types, and deals by geography and sector, etc.
The VC manager is allowed to invest up to 20% of committed capital in other unlisted business ventures that do not meet sub-criterion (b), i.e. they have been incorporated for more than ten years at the time of the initial investment, and/or the investment is made through acquisitions from other investors (e.g. other VC funds and existing owners) in the secondary market. The broadened criteria will provide greater flexibility to VC managers, while keeping within acceptable risk tolerance. In addition, the ten year criterion will apply to the operating portfolio company rather than an entity, trust or other vehicle that is set up to hold the investment. Managers should not circumvent this restriction by setting up new companies to buy over the assets of an existing portfolio company.
Although MAS will not be setting a cap on the fund size, or prescribe a minimum investment amount or the domicile of VC funds, investors should continue to negotiate safeguards that they require of the VC manager in their contractual agreements.
Existing LFMCs or RFMCs which seek to transit to the Singapore Venture Capital Fund Manager Regime need not undergo a new licensing process, or inform MAS of any capital reductions. They will only need to notify MAS of their intention to be a VC manager by indicating so in the “Application for a CMS licence to operate as a VCFM” Form (Form 1V)” .
New applicants would be required to apply to MAS through the submission of Form 1V, with the relevant supporting documents. Applications are to be submitted through the MAS’ Corporate Electronic Lodgment system.
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