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Plans to relinquish the ‘lighter touch’ RFMC regime in Singapore could have a major impact on fund managers. The MAS consultation is due to close at the end of December and it’s crucial for organisations that may be affected to understand the likely implications and plan their response.
Since 2012, when the MAS repealed its Exempt Fund Manager Regime, firms wishing to carry out fund management in Singapore have needed to apply to the MAS to either be a Registered Fund Management Company (RFMC) or a Licenced Fund Management Company (LFMC). The former is a lighter touch framework available only to those with AUM of less than S$250million and serving a limited number of customers.
In the decade since, the gap in regulatory requirements applying to the two types of FMC has narrowed, leaving very few differences. Together with the fact that many RFMCs have “upgraded” their licence to enable them to surpass the AUM threshold, the MAS is of the view that the RFMC regime has run its course.
On 24th October, the MAS issued its Consultation Paper on Repeal of Regulatory Regime for Registered Fund Management Companies. If the proposals are enacted, existing RFMCs will need to upgrade to be a LFMC – and in doing so meet any additional compliance requirements. Industry participants have until 31st December to provide feedback to the MAS.
What does this mean for existing RFMCs?
Existing RFMCs will be required to seek the Capital Markets Services Licence (CMSL) to be a LFMC – the MAS won’t levy any licencing fees for this upgrade. A draft version of the application form to be submitted to the regulator has been included in the consultation paper for comment. It requires few details to be provided, and the MAS has promised to respond to applications within one month, and so the upgrade process should be straightforward for those where there aren’t any known concerns. Successful applicants will become LFMCs effective the date, to be confirmed, that the RFMC regime is repealed.
Crucially, firms that become LFMCs using the above route will continue to be restricted to AUM of S$250million. Those wishing to exceed this threshold will need to engage further with the MAS – the consultation doesn’t embellish on this process, although it seems likely the MAS will wish to seek comfort that the FMC is equipped to manage a larger pool of capital.
Preparing to be a LFMC
Whilst the requirements applying to LFMCs aren’t entirely dissimilar to those RFMCs are subject to, there will be work to do to bridge the gaps.
- Capital requirements – the base capital requirement remains the same (S$250,000), although new LFMCs will become subject also to a risk-based capital requirement. They will require sufficient Financial Resources to cover 120% of their Total Risk Requirement (TRR). The TRR is often based on the Operational Risk Requirement (a product of audited income over the last 3 years), although those LFMCs with Average Adjusted Assets exceeding the threshold will need to compute their TRR with reference to other risk requirements too.
- Notifications and pre-approvals – many changes to a RFMC’s business are subject only to a post-event notification to the MAS. Under the LFMC regime, a number of these will be subject to the MAS’s pre-approval – for example, changes in controllers, and the appointment of Representatives.
- Annual MAS fees – these fees will increase from S$1,000 to S$4,000. And in addition there’ll be S$200 per Representative to pay.
Worthy of note is that many RFMCs benefit from the MAS’ view (set out in the FAQs on Licencing and Registration of FMCs) that if there are regular internal reviews of the effectiveness of internal systems and controls, a separate internal audit is not required. The MAS has not called this out in the consultation paper, and so it remains to be seen whether new LFMCs will be required to put in place internal audit arrangements.
What about those wishing to apply to be a RFMC?
New players who are keen to seek the RFMC status must submit their applications to the MAS by the end of 2023. They will then be subject to the same ‘upgrade’ requirements as their fellow RFMCs. Some may choose instead to seek the CMSL from the get go.
We can help
As you prepare to be a CMSL holder, we can work with you to:
• Update your Compliance Framework so that it meets the MAS’ expectations of a RFMC
• Provide training to your Directors and Representatives
• Help you to prepare for the new capital requirements
Get in touch
