Fund management companies are becoming progressively sought-after as investors turn to fund managers, and capital markets services to handle their portfolios. Investors pool in money through floating collective investment schemes, which fund managers make decisions to acquire optimal positive returns on these investments.
Setting up a Singapore fund management company is the first step in owning and operating an asset management company. There are a number of requirements and regulations that companies must meet in order to start the venture. This guide will show you how to start a fund management company in Singapore.
How to Open a Fund Management Company
Over the last decade, the Singapore government has taken a proactive approach to make it become an important centre of fund management in Asia. The economic ascendancy, along with an increase in investments from Western countries, has made this form of business more popular.
More importantly, the ideal tax environment in the country also reinforced its stronghold in this region. Singapore is considered a tax haven around the world, and has some of the most enticing tax incentives for business owners and investors alike.
Opening a fund management company can be lucrative, especially with taking on institutional investors and high net worth individual investors as clients. Whether your company deals with mutual funds or hedge funds is up to your discretion, but it is essential to follow proper incorporation processes to manage your company well.
Overview of the Asset Management Industry in Singapore
After the financial crisis in 2008, the Singapore government took many new measures to improve the regulatory framework for its fund management industry. In 2010, the Money Authority of Singapore or MAS released a proposal and the conclusion of the consultation to restructure this field. The new regulatory regime took effect in August 2012.
According to the revised framework, there will be 3 types of fund management companies (FMCs), depending on the nature and size of the businesses. These include:
- Registered Fund Management Company: This type can carry on businesses with all kinds of investors. The total assets under management must be less than S$250 million. The company can’t serve at best 30 qualified investors.
- Licensed Fund Management Company: A/IFMCA/IFMCs can only do business with institutional or accredited investors. The total assets under management can be more than S$250 million.
- Retail Fund Management Company: Retail FMCs can do business with all kinds of investors. The total assets under management can be more than S$250 million.
Registration and licensing requirements
1. Competency Requirements
A fund management company should meet the minimum competency requirements for all key personnel. Also, it needs to satisfy the Money Authority of Singapore that its employees, representatives, directors, and shareholders are proper and fit. For instance, a venture capital fund manager will need a CMS licence to conduct business on investment funds.
The company should have at least two directors who have more than five years of relevant experience. Nominee directors won’t be counted. The CEO of retail FMCs should have at least ten years of experience.
Retail FMCs are required to hire at least 3 full-time representatives who are living in Singapore. Those are people who implement regulated activities like portfolio allocation and construction, advisory and research, client servicing or business marketing and development.
2. Capital Requirements
At times, all fund management companies must meet the base thresholds of capital before incorporating such business. The specific amounts are as follows:
- Implement fund management concerning any Collective Investment Scheme to any investors other than institutional or accredited investors: S$1,000,000
- Implement non-CIS fund management on behalf of any customers other than institutional or certified investors: S$500,000
- Other activities: S$250,000
3. Compliance Arrangements
All FMCs must ensure that they have sufficient compliance arrangements which commensurate with the complexity, nature and scale of operation. The directors and CEO are directly responsible for these regulatory and compliance matters.
All FMCs must also abide by the Securities and Futures Act in Singapore, which governs the securities and derivatives industry, and regulates the activities of groups or individuals such as fund managers, capital markets services, and asset management firms. Specific requirements for each type of company are as follows:
- Registered FMC: It requires a compliance individual, but this person doesn’t need to be independent or dedicated. The senior staff or CEO can carry out those duties.
- Retail FMC: The compliance function of retail FMCs should be independent of the portfolio management, which should be carried out by qualified personnel.
- Licensed A/I LFMC: Depending on the scale and size of the company, licensed A/I LFMCs must designate a senior employee independent from its front office to ensure adequate compliance support and oversight or hold responsibility for compliance.
4. Risk Management Requirements
Fund management companies should ensure a sufficient framework for risk management to identify, monitor, and address risks related to customers’ assets which they are managing. This function should have sufficient oversight by the senior management and board of directors.
Appropriate metrics and tools must be developed or acquired to ensure timely and precise assessment and tracking of risks associated with customers’ assets. Also, all reports, procedures, and policies relating to risk management must be recorded and maintained properly.
5. Auditing Requirements
All fund management companies in Singapore are subjected to reasonable internal audit, which might be implemented by an internal function or a third-party service provider.
If the chosen auditors are deemed to be inappropriate, the Monetary Authority of Singapore might request the companies to appoint others until they meet audit requirements. In most cases, this will depend on the complexity, nature, and scale of the business.
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