On Feb. 15, 2017, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on the Proposed Regulatory Regime for Managers of Venture Capital Funds (the Consultation Paper).
On Oct. 20, the MAS issued its response to the feedback received on the Consultation Paper (the MAS Response).
On or around the same date as the issuance of the MAS Response, consequential legislative amendments were made to various regulations and notices, giving effect to the new regulatory regime for venture capital fund managers (VCFM). This was accompanied by the updating of MAS’ “Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies,” as well as its “FAQs on the Licensing and Registration of Fund Management Companies” to reflect the new VCFM regime.
This briefing provides a summary of the key features of the new VCFM regime.
Summary of the Key Features
- Eligibility for the VCFM regime
- A fund manager may operate under the VCFM regime if and only if all of the funds that it manages meet all of the following criteria:
- Invest at least 80 percent of committed capital in securities that are directly issued by an unlisted business venture that has been incorporated for no more than 10 years at the time of initial investment.
- Invest up to 20 percent of committed capital in other unlisted business ventures that do not meet the criterion above, that is, they have been incorporated for more than 10 years at the time of the initial investment and/or the investment is made through acquisitions from other investors in the secondary market.
- Must not be continuously available for subscription and must not be redeemable at the discretion of the investor.
- Offered only to accredited and/or institutional investors.1
- There is no cap on the fund size. Further, there is no prescribed minimum investment amount by the venture capital (VC) fund, nor is there a prescribed domicile for the VC fund.
- Employees of VCFMs who are not accredited investors will not be permitted to invest in VC funds.
- There are no restrictions on the use of leverage by a VC fund managed by a VCFM.
- Admission and ongoing requirements
- A VCFM would need to hold a capital markets services license (CMSL) for fund management.
- The application for a CMSL to operate as a VCFM may be done by submitting a Form 1V and other supporting documents, including the VCFM’s shareholding chart showing all immediate, intermediate and ultimate shareholders.
- All VCFMs must meet the following requirements at all times:
- Fit and proper: They must satisfy MAS that their shareholders, directors, representatives and employees, as well as the VCFMs themselves, are fit and proper in accordance with MAS Guidelines No. FSG-G01, “Guidelines on Fit and Proper Criteria.”2
- Place of incorporation: They must be Singapore-incorporated companies that have permanent physical office space in Singapore.
- Disclosure: They must disclose to investors that they are not subject to all of the regulatory requirements imposed on other licensed/registered fund managers (LFMCs/RFMCs).
- Anti-money laundering and countering the financing of terrorism (AML/CFT) requirements: They must comply with the requirements on AML/CFT as set out in MAS Notice No. SFA04-N02, “Notice to Capital Markets Service Licensees and Exempt Persons on Prevention of Money Laundering and Countering the Financing of Terrorism.”
- Periodic returns: They must submit periodic regulatory returns on changes to key appointments, assets under management, investor types and numbers, fund types and deals by geography and sector.
- There are no competency requirements for the key individuals of the VCFM, no base capital requirements or other ongoing business conduct requirements.
- MAS retains existing regulatory powers to deal with errant VCFMs, including the power to revoke their regulatory status and issue prohibition orders against their CEOs, directors and representatives.
- VCFMs will be separately listed on MAS’ financial institutions directory.3
- Transitional arrangements
- An existing LFMC/RFMC that intends to transition into the VCFM regime should first ascertain that all of the funds it manages meet the eligibility criteria as set forth under “Eligibility for the VCFM regime” above.
- After which, the LFMC/RFMC should submit Form 1V to MAS.4
- The LFMC/RFMC must continue to comply with all existing business conduct and other regulatory requirements until MAS informs it that it can operate under the VCFM regime.
1 As defined in Section 4A(a) and 4A(c) of the Securities and Futures Act (Cap. 289) (SFA), respectively.
2 These guidelines generally assess the (i) honesty, integrity and reputation; (ii) competence and capability; and (iii) financial soundness of the fund manager itself, as well as its shareholders, directors, representatives etc.
4 Unlike new entrants, existing LFMCs/RFMCs would not be required to re-submit supporting documents.