The introduction of the Variable Capital Companies legislation – known as VCC – in Singapore is a game-changer for the fund management industry. The MAS have now issued the third part of their proposed framework for Variable Capital Companies. This development in Singapore looks set to usher in a new era of options for fund and wealth managers from all over APAC and the Globe.
While this scheme has seen a couple of incarnations during the past few years from what was known then as S-VACC to VCC, Singapore looks set to be an attractive business destination and to keep investors hoping to re-domicile locally. The three parts of the framework cover the operational aspects of the VCC set up, its AML/CFT requirements and finally the winding down process for the vehicle.
It’s important for any firm affected by this to revisit and act on each part of the VCC framework. We outline the key points below.
Part 1: Consultation Paper on the Proposed Framework for Variable Capital Companies
The Variable Capital Companies Act was passed in Parliament on 1 October 2018. The Act provides the framework for the incorporation, operation, and regulation of a new corporate structure that is tailored for collective schemes, known as the variable capital company.
Key points in the consultation include the following:
- Re-domiciliation of foreign entities to Singapore as VCCs must provide the documents set out in the regulations to the Registrar at the time of registration.
- Registration of sub-funds.
- Fit and Proper criteria of Directors.
- Authorizations / Recognition of a CIS constituted as a VCC or sub-fund in Singapore.
- Amendments to the Securities and Futures Regulation (Collective Investment Scheme) – known as SFR(CIS).
- Amendments to the CIS Code.
What are the requirements to set up this fund?
- Audit requirement: VCC will need to be subjected to an annual audit by a Singapore-licenced auditor and audited financial statements must be made available to all shareholders custodians.
- Fund manager: the VCC must appoint a Fund Manager that is based in Singapore and is licenced or registered with the MAS.
- Board of Directors: At least one Director who is also a Representative. This applies to fund managers of restricted schemes or at least three Directors for a VCC which is under an authorised scheme.
What are the benefits of setting up this structure?
- The ease of payment of dividends from capital.
- Redemption of shares made easy at a given NAV.
- It is seen to be cost effective by setting-up an umbrella structure with a number of sub-funds.
- There is a level of privacy as the shareholders will not be made public.
- Assets and liabilities of each sub-fund will be and should be clearly defined and separated.
- The sub-funds can share a Board of Directors and have mutual service providers which will allow the company to make substantial operational efficiencies, thus save on costs.
Not to mention Tax Exemption awarded to the fund vehicle, S13R and S13X which removes the requirement to file more than one tax returns for sub-funds.
Part 2: Consultation Paper on the Proposed AMLCFT Notice for Variable Capital Companies
On April the same year, the MAS issued a consultation paper on the proposed notice on prevention of money laundering and countering the financing of terrorism (AML/CFT) for VCCs. The consultation paper sets out the AML/CFT requirements for VCCs and draws reference from international best practices and the standards set by the Financial Action Task Force. Though it is safe to note, these requirements do not stray very far from the existing Notices and Guidelines.
What are the main highlights?
VCCs are required to engage a MAS-regulated financial institution, for example banks or CMSL holders to conduct checks and perform measures to comply with AML/CFT requirements. They are also required to put in place internal policies and procedures, and appropriate compliance, audit, and training procedures. A register of beneficial owners and nominee directors needs to be maintained and made available to law enforcement authorities.
A VCC which acquires another VCC can rely on the customer due diligence measures already performed by the acquired entity on its customers, provided that the VCC has no doubts or concerns about the veracity of the adequacy of the information acquired.
Equally, the VCC must have policies and procedures in place to address compliance, audit and training for all staff including directors of the VCC on its AML/CT obligations.
Part 3: Consultation Paper on the Proposed Framework for Variable Capital Companies
In July, 2019, the MAS issued the Consultation Paper on the Proposed Framework for Variable Capital Companies Part 3, which sets out MAS’ proposed subsidiary legislation relating to the insolvency and winding up of a variable capital company and its sub-funds.
The VCC Act 2018 essentially applies the existing insolvency and winding up regime for companies under the Companies Act and the Bankruptcy Act, with specific modifications for a VCC and its sub-funds. These specific modifications are now elaborated in the proposed VCC Insolvency Regulations.
It should be noted that the existing insolvency and winding up regime for non-VCC companies will be replaced by a new Insolvency, Restructuring and Dissolution Act 2018 (IRDA), which has been passed by Parliament but has not yet come into effect. When the IRDA comes into effect, the MAS intends for the insolvency and winding up regime for a VCC and its sub-funds to be aligned with that of the insolvency and winding up regime for other corporate structures in Singapore under the IRDA.
Bovill can provide advice on any element of the VCC framework as well as the broader regulatory regime in Singapore. Let us know how we can help.