Singapore Investment Management Update (August 2023)

1. Consultation Paper on Proposed Fund Management Exemption Framework for Single Family Offices (SFOs)
2. Updates to Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies (FMCs)
3. Consultation Paper on Proposed Code of Conduct for Environmental, Social and Governance (ESG) Rating and Data Product Providers
4. Response to Consultation Paper on Proposed Amendments to the Securities and Futures (Reporting of Derivatives Contracts) Regulations (SFRDCR)
5. MAS Observations From Inspections of Licensed Venture Capital Fund Managers (VCFMs)
6. MAS Focus Areas to Strengthen Singapore’s Fund Industry

1. Consultation Paper on Proposed Fund Management Exemption Framework for Single Family Offices (SFOs)

On July 31, 2023, the Monetary Authority of Singapore (MAS) issued a consultation paper setting out a proposed new exemption framework for SFOs operating in Singapore.

Under the proposed framework, SFOs will need to meet harmonised qualifying criteria to be exempt from the fund management licensing requirement under the Securities and Futures Act 2001. The qualifying criteria are designed to ensure that SFOs will be subject to anti-money laundering checks by MAS regulated financial institutions as well as the beneficial ownership reporting regime under the Companies Act 1967.

Once the proposed exemption framework comes into effect, MAS will no longer issue case-by-case licensing exemptions. Existing SFOs operating in Singapore will have a transitional period of six months to comply with the proposed exemption framework.

For further information on the proposed exemption framework, please refer to our client update available here. A copy of the consultation paper is available here. Interested parties are invited to submit their comments by September 30, 2023.

2. Updates to Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies (FMCs)

On April 6, 2023, MAS revised the Guidelines on Licensing, Registration and Conduct of Business for FMCs (FMC Guidelines).

The key changes to the FMC Guidelines include the following:

• Fit and Proper: As part of an FMC’s assessment of the fitness and propriety of its prospective representatives and employees, the FMC should perform adequate due diligence checks, including reference checks with previous employers to verify the individual’s credentials, work experience and disciplinary record (if any). Where a prospective representative is hired to manage an investment strategy based on its track record, the track record should be validated before making the appointment, including back-testing the investment strategy with historical data.
  
  
• Competency of Key Individuals: The CEO, senior management and directors of a FMC who are responsible for exercising oversight of the FMC’s investment activities must collectively have relevant experience in all of the asset classes, markets and investment strategies that the FMC will invest in, and be able to properly manage the associated risks.
  
  
• Compliance officer: Where a FMC has an in-house compliance officer, the individual is expected to be regularly and appropriately trained on the rules and regulations applicable to the FMC.
  
  
• Cessation of Business: A FMC no longer conducting the activity of fund management should file for cessation of its regulatory status. If a FMC intends to wind down its business, it should ensure an orderly winding down of its business prior to cessation, including putting in place communication plans to ensure that sufficient notice has been given to its customers and other relevant stakeholders. All customer obligations should be discharged and all customer assets and moneys should be accounted for and returned to customers (or transferred to another FMC) before the cessation.
  
  
• Complaints Handling: A FMC should establish clear policies and procedures to handle customer complaints and feedback effectively and promptly. Senior management members responsible for handling customer complaints should be clearly identified, and the escalation and review process should be documented and communicated to all employees.
  
  
• Oversight of individuals who carry out activities for and on behalf of the FMC: A FMC should put in place an appropriate governance structure to ensure that it is able to effectively monitor, on an ongoing basis, the conduct of individuals who carry out activities for and on behalf of the FMC. Documented systems and controls should be put in place to demonstrate that the FMC has exercised oversight of these individuals’ activities, including the funds under their management, and addressed any conflicts posed by any outside business interests. A disciplinary action framework should be implemented to hold the individuals accountable for their actions and conduct.

A copy of the updated FMC Guidelines is available here.

3. Consultation Paper on Proposed Code of Conduct for Environmental, Social and Governance (ESG) Rating and Data Product Providers

 On June 28, 2023, MAS issued a consultation paper on a new code of conduct (CoC) for ESG rating and data product providers. The consultation paper sought feedback on proposals to elevate standards and disclosures of ESG ratings and data products in Singapore via a phased and proportionate regulatory approach, starting with the CoC.

Voluntary CoC

As a first step, MAS intends to introduce a voluntary industry CoC for ESG rating and data product providers, setting out baseline industry standards on providers through a set of industry best practices. The draft CoC is set out in Annex 1 of the consultation paper.

The proposed CoC was co-created by MAS and ESG rating and data product providers through a soft consultation exercise and is closely aligned with the recommendations of the International Organization of Securities Commissions. The CoC aims to improve market confidence in the use of ESG ratings and data products by setting minimum standards on governance, management of conflicts of interest, and transparency.

The proposed CoC is intended to apply to (i) Singapore-based product providers who provide ESG ratings and data products that relate to activities and institutions in the securities and derivatives industry, whether in Singapore or overseas markets, and (ii) overseas-based product providers that provide ESG ratings and data products that relate to activities and institutions in the securities and derivatives industry in Singapore.

The adoption of the CoC will be on a voluntary “Comply or Explain” basis. Product providers may complete and publish a self-attestation checklist that would indicate the posture of and progress on adopting the CoC’s best practices. Product providers may also choose to undergo third-party assurance or audit on a voluntary basis to demonstrate compliance with the CoC.

Longer-Term Regulatory Regime

MAS indicated in the consultation paper that it will monitor the implementation of the CoC and observe global regulatory developments before taking further action to formalize and develop a local regulatory regime. This approach would allow MAS to meet its objectives to instill confidence in the use of ESG ratings and data products, avoid stifling innovation and market development, and respond flexibly to global regulatory developments.

A copy of the consultation paper is available here. The consultation period closes on August 22, 2023.

4. Response to Consultation Paper on Proposed Amendments to the Securities and Futures (Reporting of Derivatives Contracts) Regulations (SFRDCR)

On May 16, 2023, MAS published its response to feedback received (Response) from a consultation paper on the reporting of the Unique Transaction Identifier (UTI) and other data fields for over-the-counter (OTC) derivatives contracts.

The consultation paper, issued on July 5, 2021, sought to adopt the technical guidance published by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions on the UTI (UTI Technical Guidance), Unique Product Identifier (UPI Technical Guidance), and critical data elements (other than the UTI and UPI) (CDE Technical Guidance) for OTC derivatives to facilitate international standardization and harmonization of data elements reported across international OTC derivatives reporting regimes.

MAS indicated in the Response that it will proceed to require UTI to be reported with the characteristics and approach that is aligned with the UTI Technical Guidance. MAS will amend the current UTI reporting requirement in the SFRDCR and will issue guidelines to provide clarity on its expectations on UTI generation.

In addition, MAS will include additional reporting data fields in the SFRDCR to facilitate MAS’ monitoring of risks in the OTC derivatives market as well as to align the definitions and allowable values of common data fields to the CDE Technical Guidance and other data fields required by other authorities to facilitate global reporting.

The revised requirements will commence in October 2024. To ensure that only one reporting format is adopted after the commencement date, all outstanding OTC derivatives contracts as at the commencement date will have to be re-reported to MAS, save for OTC derivatives contracts that have a maturity of less than six months from the commencement date. An exemption will be provided for the reporting of any information required under the revised SFRDCR that was not previously captured at the point of time when the OTC derivatives contract was executed.

A copy of the consultation paper and Response is available here.

5. MAS Observations From Inspections of Licensed Venture Capital Fund Managers (VCFMs)

On March 14, 2023, MAS issued a circular setting out its observations from the inspection of selected licensed VCFMs from March to November 2022.

While the inspections were focused on VCFMs, some of MAS’ observations and expectations similarly apply to other FMCs who hold a capital markets services licence for fund management or are registered fund management companies. All FMCs are expected to take note of the supervisory expectations and good practices stated in the circular and implement measures to address any gaps or issues that may be present in their own operations.

A copy of the circular is available here.

6. MAS Focus Areas to Strengthen Singapore’s Fund Industry

In July 2023, the Singapore Funds Industry Group (SFIG) issued its inaugural journal, which featured an in-depth interview with Gillian Tan, Assistant Managing Director of Development and International Group and Chief Sustainability Officer, MAS.

Tan indicated that MAS is focusing on three areas to strengthen Singapore’s proposition as a full-service funds domiciliation center. First, MAS is looking to improve and develop a comprehensive suite of fund structuring vehicles to meet fund managers and investors’ needs. This includes MAS’ consideration of possibly expanding the scope of permissible fund managers, with relevant safeguards, to potentially allow entities exempted from the fund management licensing requirement under the Securities and Futures Act 2001 to use the Singapore Variable Capital Companies framework. Further, building on earlier public consultations on the Singapore Limited Partnerships Act 2008, the Singapore limited partnership regime is expected to become more attractive for use as an investment fund structure by managers seeking to launch private market strategies.

Second, MAS is exploring opportunities to anchor new use cases for Singapore-domiciled funds and to participate in regional passporting arrangements beyond the Association of Southeast Asian Nations Collective Investment Scheme, such as the Asia Region Funds Passport. MAS is also seeking to work closely with key fund jurisdictions to explore partnership opportunities, including Mutual Recognition of Fund arrangements.

Last, MAS is actively monitoring digitalisation trends and opportunities to collaborate with industry players to identify industrywide problem statements and implement digital solutions to bring about market efficiencies.

SFIG was established in 2021 as a public-private collaboration between MAS and Singapore industry stakeholders to support the growth of the fund management ecosystem in Singapore. A copy of the SFIG journal is available here.