Rules came into effect in Singapore yesterday to tighten the licensing requirements for asset managers, but many exempt firms may still apply for a full licence under the new regime*, say compliance specialists.
The chief changes include a base capital requirement of S$250,000 ($201,000), which is “a bit higher than in some jurisdictions, but most fund managers recognise the need for a stronger capital base now", reflects Philippa Allen, chief executive of ComplianceAsia, a consulting firm with offices in Hong Kong and Singapore.
Another new requirement is for at least two representatives with experience of the financial services industry to reside in Singapore. That's tighter than in Hong Kong, where one of the two can be based elsewhere.
The other main element of the rules is the need to have a risk management framework appropriate to the scale of the firm’s operations. Auditors will be involved with ensuring compliance with this requirement. “There is a wariness both among the auditors and the industry about how much this will add to the cost of the audit,” says Allen.
She notes there are 578 exempt fund management companies in Singapore now. "But I suspect probably one-third to one-half will move to be fully licensed, if not in the first six months, then probably in the longer term.
“We’re hearing that many will opt to be licensed even if they don’t need to be [due to the benefits this will confer],” she says. For example, she notes that to invest in certain jurisdictions, such as India, firms need to be licensed, while the same is required to market to wholesalers in Australia.
Others make the point that in the past Singapore may have suffered from making it too easy for fund managers to obtain a licence. They say this may encourage firms to push for the higher standard to meet investors’ rising demands for a more substantial fund manager platform.
Some alternatives investors have argued that a fund manager licensed in the Lion City was not as credible as one licensed in Hong Kong, notes Stuart Somer, founder and principal of compliance consultancy Corporate Support in Hong Kong.
From 2004 to 2006, many fund executives felt they wouldn’t meet Hong Kong’s tougher requirements and so set up in Singapore, he says.
“Others started off in Hong Kong but ended up decamping to the Lion City due to the easier regime there,” he adds. Others still initially set up in Singapore, gathered some experience and later moved their operations to Hong Kong.
Somer suggests the MAS will be looking more closely at a fund firm’s compliance function now.
“If you have S$1 billion or more in AUM, you are required to have a dedicated senior compliance officer with many years’ experience,” he says. “But if you have $100 million in AUM – like in Hong Kong, you don’t need full-time staff that you’re paying $150,000 a year. You’d be more likely to outsource to compliance consultants.”
Meanwhile, smaller independent wealth managers – such as family offices – are likely to benefit from the MAS changes, says ComplianceAsia's Allen.
Previously such firms had to service less than 30 clients to ensure they remained exempt, which artificially constrained their client base. Obtaining a full capital markets and services licence was very difficult, she says, but they can now take on a bigger base of clients. “So this new category works really well for independent wealth managers.”
"It’s positive [the MAS has] finally moved ahead with this,” she adds. “The industry has been waiting two-and-a-half years for it to come in. These are broadly quite sensible rules and the industry has had some time to get used to them.”
Exempt fund managers will have six months to apply for a licence or register with the MAS under the new regime.
* The new licensing categories are:
- Registered FMCs – those with AUM of less than S$250 million and 30 or fewer qualified investors, of which not more than 15 are funds (including feeder funds) with accredited or institutional investors as underlying investors. No formal licence approval will be required, but FMCs must be registered with the MAS.
- Licensed FMCs – firms with AUM of over S$250 million and solely accredited or institutional investors, or firms serving more than 30 qualified investors or managing more than 15 funds (where the underlying investors are accredited or institutional investors). These must have formal MAS licensing.