MAS clarifies fund manager licence expectations

The MAS has updated its guidelines on licensing, registration and conduct of business, which apply to all fund management companies. The updates give colour to the MAS’ expectations of both existing fund management companies and those wishing to be licenced.

Substantive fund management activity

The MAS has added further examples of business models that do not constitute substantive fund management activity, which will result in a licencing application being refused. This means that setting up fund structures merely as a channel for other fund managers to offer their funds or engaging only in marketing or client servicing will not pass muster.

Furthermore, the applicant must intend to invest in assets that are capital markets products – for instance, equities. Helpfully, the MAS reminds those planning to invest in non-capital market products on behalf of accredited or institutional investors that they may be able to rely on licensing exemptions in the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.

Once the licence has been obtained, fund management companies (FMCs) are expected to carry out substantive fund management activity for all fund / segregated mandate clients on an ongoing basis.

Competency around portfolio management

In assessing whether the CEO, directors and relevant professionals are sufficiently competent, the MAS has confirmed that experience in marketing, client servicing or advisory of financial services and products will not themselves be considered adequate. Such individuals must also have relevant portfolio management experience in asset classes or markets the FMC intends to invest in.

Anchoring of shareholders

As part of its continued endeavour to ensure that key individuals are sufficiently anchored to the FMC, the MAS confirms that the shareholdings of passive shareholders should be minimised. This includes those who aren’t involved in the day-to-day management of the business. The MAS doesn’t set out the maximum limit of such passive shareholdings. However, they do specify that the collective shareholding of the CEO and executive directors (i.e., active shareholders) should be at least 50%.

External involvement

An addition to the guidelines, and something we’ve seen play out for some time amongst our licencing clients, the MAS expects the FMC’s CEOs and executive directors to focus on managing the FMC’s business. This means that the MAS may require outside business interests to be divested if conflicts of interest (actual or perceived), or reputational risks posed to the FMC, cannot be adequately mitigated.

Digital asset disclosures

The requirement to make adequate disclosures to clients isn’t new. However, the MAS has now clarified the minimum disclosure in relation to digital assets – for instance, the heightened price, liquidity and volatility risks of such investments. These clarifications are consistent with recent policies introduced by the regulator to protect investors in relation to the investment of cryptocurrencies.

Ultimately, these streamlined guidelines aim to improve corporate governance in the sector and ensure a higher level of accountability from key senior stakeholders. They offer useful lessons learned worth taking into account if you’re looking to be licensed.

How we can help

Our team in Singapore provides regulatory and compliance support to FMCs looking to meet the MAS licensing and registration requirements.

Make sure your activities and business conduct are meeting the MAS expectations by getting in touch.