The Monetary Authority of Singapore (MAS), in its efforts to facilitate easier access to capital by start-ups and newly-incorporated companies, has implemented a simplified regulatory regime for managers of venture capital funds (VCFM).
The new regime, which took effect last 20 October 2017, is in direct compliance with the Singapore Government’s Committee on the Future Economy (CFE).
The revised rules for simplified VC regulation will not only boost growth capital access but will also streamline the whole process and will also encourage investments made by both local and foreign venture capitalists, strategic investors, and private equity funds.
The Pre-Existing Regulatory Regime
Under the old MAS regime, VC managers and other fund managers are treated the same:
- Must be fit and proper
- Must have at least 2 experienced directors and representatives
- Directors and representatives must possess minimum 5 years of relevant experience
- Must present a S$250,000 base capital
- Must pass the risk-based capital requirements
Furthermore, if the VC Manager is either a Licensed FMC or a RFMC, he or she must also comply with the following:
- Business conduct rules
- Internal audit
- Specific compliance arrangements
- Independent valuation and reporting of the VC Funds
- Submission of financial statements and reports
Why the Need for Simplified Rules for Managers of VC Funds
The old MAS regime treats VC fund managers as investment fund managers, which makes for a slow and tedious authorisation process.
Soon enough, it became clear that there is a distinction between the kind of investors involved, the type of company the investments go to, and the investment activities being carried out.
Under the new MAS regime, VC managers are not required anymore to employ directors and representatives with no less than five years of relevant experience in fund management. Moreover, VC managers are also not mandated to certain capital requirements and business conduct rules that are set for other fund managers.
Eligibility under the Simplified Regulatory Regime
Fund managers must meet the eligibility rules if they want to qualify under the simplified regulatory regime. These are the following conditions:
- Only unlisted business ventures on a securities exchange are direct recipients of the investment
- At least 80% of committed capital are exclusively for investment in securities directly issued by start-ups or newly-incorporated companies that are 10 years old or below
- Accessibility of fund units for a new subscription will cease after final fund-raising efforts
- Availability of fund units are towards accredited and/or institutional investors as well as to employees of the fund manager
Note: There are no prescribed minimum investment amount, no imposed restriction on leverage, and no specific cap on fund size. However, the MAS will still use its evaluation guidelines to monitor all developments and to preserve the integrity of the market where necessary.
Admission and Ongoing Requirements for VCFMs Application
VCFMs must take note of the following requirements in order to secure application approval:
- Must be an already existing incorporated company in Singapore with a permanent and registered local address
- Must prove to the MAS the physical health and mental capacity of the VCFM together with its shareholders, directors, representatives and employees
- Must provide full disclosure to investors and capitalists that they are not bound by regulatory requirements like other fund management companies
- Must strictly adhere to the anti-money laundering regulations and anti-terrorist financing requirements
- Must provide regular and updated regulatory return reports on fund types, investor numbers, key appointments, deals by geography and sector, among other subjects
Aside from general record keeping duty, there are no other mandatory competency and capital requirements for VCFMs. Things such as provision of SOA (statement of accounts) to customers, independent custody and valuation, and other ongoing business conduct rules do not apply to VCFMs.
Transition Process to the Simplified Regime
For new fund managers interested in acquiring a capital markets services licence as a VCFM, you need to fill up and submit Form 1V to the MAS.
For registered fund management companies or existing licensed fund managers, there is no need to go through the new licensing process. Transiting to the simplified regime is done by submission of an accomplished Form 1V through the MAS’ Corporate Electronic Lodgement System.
Implications for New VCFM
The simplified regulatory regime for existing Singapore-based VCFM and non-Singapore, Asia-focused VCFMs means:
- The minimum number of years of experience (for directors and representatives) becomes irrelevant
- The initial capital outlay can be much lower
- The removal of capital requirements as well as ongoing conduct requirements can reduce operational costs
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