By Low Kah Keong and Elaine Chan

On 27 September 2011, the Monetary Authority of Singapore ("MAS") issued a Consultation Paper on Proposed Enhancements and Draft Legislative Amendments to Give Effect to the Regulatory Regime for Fund Management Companies ("Consultation Paper"). It sets out draft amendments to the Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licenses) Regulations 2011 that encapsulate the changes earlier proposed by the MAS to the regulatory regime for Fund Management Companies ("FMCs"), under which FMCs will be divided into three categories: "Notified FMCs', "Licensed Accredited/Institutional FMCs" and "Licensed Retail FMCs" (please see our update. " MAS Responds to Feedback or Proposed New Fund Management Licensing Regime"). The Consultation Paper also proposes further changes to the business conduct requirement for FMCs. This Update takes a look at these proposed business conduct requirements. The last day for feedback is 26 October 2011. The MAS has noted that it intends to issue the legislative amendments and implement the new regime in early 2012.

Risk management
framework for all FMCs

The MAS has in practice required fund managers to have a formalised risk management framework for their fund management operations. This framework has to be suited to the size and scale of the FMCs operations, and be able to effectively identify, manage and monitor risks.

The MAS proposes codifying this requirement. In addition, FMCs should, in implementing their risk management framework, take into account the key principles set out in the MAS Guidelines on Risk Management Practices and other relevant industry best practices.
Independent annual
audits for Notified FMCs

The MAS proposes to require Notified FMCs to appoint an independent auditor to audit their financial statements and provide to the MAS an audit report on their compliance with the criteria and requirements applicable to their regulatory status. The auditor will be required to report on the FMCs compliance as to the following requirements:

  • Restrictions in clientele and assets under management;
  • Minimum base capital requirement;
  • Key business conduct rules such as independent custody, valuation of clients' assets and client reporting; and
  • Implementation of a risk management framework.
Examination
requirements for
representatives of
Licensed Retail FMCs

The MAS has recently required certain investment products to be subject to stringent restrictions on sale (see our update, " New Obligatons to Conduct Product Due Diligence, Customer Assessments and to Advise on Product Suitability"). Representatives, both new and existing, who handle or transact in such "Specified Investment Products" as part of their fund management activities, will be required to pass a new CMFAS examination module. Exemption from the new CMFAS examination module will be provided for representatives with relevant finance-related academic qualifications.

Miscellaneous

Other changes proposed in the Consultation Paper are as follows:

  • The renaming of "Notified FMCs" to "Registered FMCs";
  • An online submission system for the registration and licensing of FMCs; and
  • The levying of annual administrative fees for Registered FMCs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.