MAS Fund Management: What Activities Are Covered?
Because of strong financial laws run by the Monetary Authority of Singapore (MAS), Singapore is now recognized worldwide as an important place to manage assets and wealth. Managing funds is one of the main areas regulated by Singapore, even though it may not seem specific like other areas.
Since the rules set by MAS can change, all fund managers and financial experts should be clear on what MAS defines as fund management. It analyzes these activities, with reference to MAS standards, the need for licenses, exemptions, and examples.
Overview: MAS and the Regulation of Fund Management
Under the SFA, the Capital Markets Services (CMS) regime is used by MAS to oversee activities in capital markets. Handling funds is essential and requires a CMS license except when given an exemption. In MAS terms, fund management covers activities related to managing capital markets products for people outside the investment manager.
This includes:
- Portfolio management
- Discretionary account management
- Management of collective investment schemes
- Guidance on making investments through fund management
We should look into these to discover what “fund management” actually means according to MAS rules.
Key Fund Management Activities Recognised by MAS
1. Discretionary Management of Investment Portfolios
One of the clearest examples of fund management is when a company or person takes care of investments for someone and makes decisions about what to buy or sell at their own judgement. This means the fund manager can decide to buy or sell stocks or bonds for the clients, without having to get approval each time.
Typical examples include:
- Managing private wealth portfolios for people who have a lot of money.
- Running asset allocation strategies for institutions means working with large groups of people, trying to find the best mix of investments to suit their needs.
- Managing separate investment plans for companies that deal with pensions or insurance.
If a firm looks after these types of portfolios in Singapore or provides these services to Singapore customers, it’s probably following the rules set by the Monetary Authority of Singapore.
2. Management of Collective Investment Schemes (CIS)
Management of Collective Investment Schemes (CIS) means that investment managers are responsible for making sure all the money people put into the fund is used in a good way, so they can get a better return on their investment.
MAS also thinks that taking care of group investments, which is sometimes called a CIS, is one of the key things a fund manager does. A CIS is a type of investment where people put in their money together, and someone takes care of investing it based on a plan they have decided on.
Examples of CIS include:
- Unit trusts
- Mutual funds
- Real estate investment trusts (REITs)
- Private equity or hedge funds usually set up their business as limited partnerships.
Whether the fund is open to regular people, big investors, or institutions, if someone is running it, they need a license or registration to do so.
3. Managing Capital Markets Products on Behalf of Clients
According to MAS, using fund management includes the control of capital markets products for someone else. These products include:
- Shares and other equity securities
- Bonds and debentures
- Futures, options, and contracts for differences are derivatives.
- Units in a CIS
- Certain structured products also deal with foreign exchange.
When a firm is allowed by its clients to trade or invest in these products as its main activity, it is regarded as a fund management company.
4. Providing Investment Advice as Part of Portfolio Management
Advisors often share their recommendations along with discretionary or non-discretionary management of clients’ portfolios. Should the advice be about managing products from capital markets, MAS might still see it as acting as a fund manager.
For example:
- An adviser prepares a strategy to buy certain investments and constantly watches its progress.
- A family office gives advice about a client’s investment setup and allocation, and executes trades.
- Giving advice that shifts and adjusts assets within a portfolio
Unlike just providing financial advice, this means you should use a specific type of CMS license. The main point is that advice should either be an aspect of the adviser’s or manager’s investment strategy or be suggested as part of a strategy the person has chosen
Fund Management Activities That Require Licensing
The activity of fund management is monitored and regulated in Singapore. So, if any of these activities are carried out as a business, it is necessary to have a CMS license or registration, again based on the scale and type of clients.
Within MAS, there are three primary types of fund managers.
1. Retail Licensed Fund Management Companies (Retail LFMCs)
They deal with funds belonging to the general public and are forced to abide by the highest rules related to rules, capital, and risk management.
2. Accredited/Institutional LFMCs (A/I LFMCs)
They offer fund management services to investors who are deemed to be accredited or institutional. The rules that apply to the business are less strict than those for retail companies.
3. Registered Fund Management Companies (RFMCs)
RFMCs can take care of up to 30 qualified investors (capping the funds at 15) and have a maximum fund size of SGD 250 million. Although not licensed under the CMS, RFMCs should still inform the MAS and adhere to the rules set by the agency.
Factors That Help Determine if an Activity Is Fund Management
MAS looks at a range of factors when determining if a business is involved in fund management.
A. Control Over Investment Decisions
If an entity or person can select investments for a client’s portfolio, it is most likely providing fund management services.
B. Client Mandates and Agreements
When the client authorizes the manager to handle their investments, it clearly shows that fund management is being done.
C. Commercial Intent and Compensation
If people pay the firm for investment management services and the firm claims it is an investment management service, then it is very likely acting as a fund manager.
D. Marketing of Investment Services
A company can be seen as under MAS’s control if it plans to provide portfolio or CIS management services to third parties, even if it has not yet put these services into practice.
Exemptions: What Is Not Considered Fund Management?
While some activities share traits with fund management, MAS determines that they are not fund management under the rules.
1. Single-Family Office Management
Those offices that solely manage assets for a single family may not be required to register. If a family office is managed in a businesslike manner, evaluations by the MAS are carefully carried out.
2. Intra-Group Investment Management
A corporation may not need to be licensed to manage investments if it only does so for companies within its group, as long as no marketing to outside clients is involved.
3. Passive Investment Vehicles
If funding comes from inside the firm or its groups instead of coming from client money, then this may not be regulated fund management.
Yet, you have to be careful, as these exemptions do not happen automatically. Where needed, firms should ask for advice from the Monetary Authority of Singapore and/or their legal team.
Implications of Misclassifying Fund Management Activities
Doing fund management activities without the right CMS license or registration can bring serious penalties. These include:
- Fines up to SGD 250,000
- Imprisonment up to 7 years
- Cease-and-desist orders from MAS
- Damage to a company’s reputation and clients not trusting them
Besides, companies that are not licensed are not allowed to raise money, launch funds, or work in the capital markets of Singapore.
Final Thoughts: Ensure Clarity on Fund Management Definitions
The MAS rules expand the meaning of “fund management” when compared to the expectations of many. It provides many portfolio and asset management services, serving both private and corporate customers as well as various pooled funds. To comply and avoid any issues, you should make sure your business is not part of this regulated area.
Firms trying to manage clients’ assets ought to:
- Review the way their services are designed and offered.
- Determine if the clients fall into the categories of retail, accredited, or institutional.
- Talk to a lawyer or consultant about what licensing you need.
- Apply for the right CMS license or RFMC registration at the MAS.
Following the requirements set by MAS allows fund managers to build a successful and respected operation in Singapore’s growing asset management industry.
