On March 16, 2016, Ms. Indranee Rajah, Senior Minister of State for Law and Finance of Singapore, announced at the Investment Management Association of Singapore’s (IMAS) annual conference that the Monetary Authority of Singapore (MAS) was working with the Accounting and Corporate Regulatory Authority of Singapore (ACRA) on introducing a “new regulatory framework for open-ended investment companies”. The rollout was targeted to be within the next 12 months.
A year later, on March 23, 2017, Mr. Lawrence Wong, Minister for National Development and Second Minister for Finance of Singapore, announced at IMAS’ 20th Anniversary Conference that MAS had launched a public consultation on a new corporate structure called the Singapore Variable Capital Company (S-VACC), essentially a Singapore-domiciled open-ended investment company. According to Mr. Wong, “the S-VACC will complement Singapore’s existing corporate structures as one that is tailored for investment funds,” and “will allow asset managers to further consolidate their operations in Singapore by domiciling more of their funds in Singapore alongside their fund management activities”.
The MAS Consultation Paper on the Proposed Framework for Singapore Variable Capital Companies (Consultation Paper) can be accessed here.
Key features of the proposed S-VACC include:
- S-VACCs will be governed by a new S-VACC Act to be administered by ACRA.
- The S-VACC structure can only be used as a vehicle for collective investment schemes1 (CIS) and can be structured as an open-ended or closed-ended fund.
- Sub-funds with segregated assets and liabilities can be created within the S-VACC. Incorporation will be required only for the S-VACC while sub-funds, each without a legal personality, will be constituted by registration with ACRA which in turn will provide each sub-fund with a unique identification number.
- S-VACCs will be allowed to issue debentures, including debentures relating to specific sub-funds.
- Foreign structures that are equivalent2 to an S-VACC will be permitted to re-domicile as an S-VACC in Singapore.
- An S-VACC will be allowed to redeem shares and pay dividends using its capital provided that shares are issued and redeemed at their net asset value3.
- An S-VACC will not be required to disclose its register of shareholders to the public. However, it must make the register available to supervisory and law enforcement agencies where necessary.
Governance and operations
- An S-VACC must be managed by a licensed fund management company4, a registered fund management company5 or an exempted entity6.
- An S-VACC must have at least one Singapore resident director and one director that is also a director of its appointed fund manager. To accord additional protection to retail investors, S-VACCs consisting of Authorised Schemes7 must have at least three directors, of which at least one director has to be independent of: (i) business relationships with the S-VACC; (ii) the fund manager of the S-VACC (and its related entities); and (iii) all substantial shareholders of the S-VACC. All directors of S-VACCs must be fit and proper8.
- An S-VACC must have its registered office in Singapore and must appoint a Singapore-based company secretary.
- Annual general meetings (AGMs) of an S-VACC may be dispensed with at the discretion of its directors, subject to certain safeguards9.
- An S-VACC must appoint an accounting entity to audit its accounts annually but does not require an audit committee. The audited financial statements of an S-VACC must be made available to its shareholders but need not be made publicly available.
- An S-VACC must comply with anti-money laundering and countering financing of terrorism (AML/CFT) requirements under the supervision of MAS. The S-VACC will be required to outsource the performance of AML/CFT duties to its appointed fund manager.
- An S-VACC consisting of an Authorised Scheme or Restricted Scheme10 must appoint an approved custodian.
- The Consultation Paper does not include proposals on the tax regime or regulations (if any) that apply to an S-VACC. However, MAS has stated that the tax treatment applicable to S-VACCs is a key consideration for fund managers in determining the optimal arrangement for the domicile of their fund management activities and jurisdiction of these funds. MAS is currently reviewing and considering the tax regime to be implemented for S-VACCs, including exploring the feasibility of including S-VACCs under the current fund vehicle tax schemes11.
Invitation for Comments
Please refer to the Consultation Paper for the complete set of proposals as well as the draft S-VACC Act. The deadline for comments and feedback to be submitted to the MAS is April 24, 2017. We are collating comments from clients and industry participants for submission to the MAS. If you have any comments on the proposals that you would like us to submit on your behalf, please contact Han Ming Ho (+65 6230 3966, email@example.com), Josephine Law (+65 6230 3916, firstname.lastname@example.org), or Joel Seow (+65 6230 3931, email@example.com).
1 As defined in Section 2(1) of the Securities and Futures Act of Singapore (Cap. 289) (the SFA). This definition will be amended slightly pursuant to the Securities and Futures (Amendment) Act 2017, which has yet to come into effect.
2 For example, the Irish Collective Asset-management Vehicles of the Republic of Ireland and the Open-Ended Investment Companies of the United Kingdom.
3 An exception to this requirement will be made for shares of closed-ended funds listed on a securities exchange. These shares will be issued and redeemed in accordance with applicable listing requirements.
4 A holder of a capital markets services license for fund management under Section 86 of the SFA.
5 A corporation which is exempted from holding a capital markets services license under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations of Singapore.
6 A financial institution exempted under Sections 99(1)(a), (b), (c), or (d) of the SFA from the requirement to hold a capital markets services license to carry on business in fund management, i.e. a bank licensed under the Banking Act of Singapore (Cap. 19), a merchant bank approved under the MAS Act of Singapore (Cap. 186), a finance company licensed under the Finance Companies Act of Singapore (Cap. 108), or a company or co-operative society licensed under the Insurance Act of Singapore (Cap. 142).
7 A CIS that is constituted in Singapore and authorized by MAS under Section 286(1) of the SFA.
8 The factors in determining whether a director of an S-VACC is fit and proper have yet to be prescribed. They will be prescribed under the new S-VACC Act or its subsidiary legislation and rules (if any).
9 For example, at least 60 days’ written notice must be given to the shareholders if the directors elect to dispense with the AGM.
10 A CIS that is offered only to accredited investors and certain other persons, or offered on terms that the units may only be acquired for consideration of at least S$200,000 (or equivalent in foreign currency) per transaction, and is exempted from authorization or recognition and prospectus requirements, subject to the conditions under Section 305(3) of the SFA.
11 Sections 13CA, 13R and 13X of the Income Tax Act of Singapore (Cap. 134).
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