MAS Compliance Toolkit For Venture Capital Fund Managers
On October 20, 2017, the Monetary Authority of Singapore (MAS) declared that a streamlined regulatory framework (VCFM Regime) for venture capital fund managers (VC managers) would take place immediately. This comes during a public consultation on the controversial draft regulations earlier this year.
Simplified Regulatory Regime
The VCFM (Venture Capital Fund Manager) Regime is designed to make the authorization procedure for VC managers easier and faster. Under this VCFM Regime:
- VC managers would not be mandated to have directors as well as representatives with a minimum of five years of appropriate experience in investment management and,
- VC fund managers would be exempt from the capital standards and corporate ethics regulations that relate to all fund managers.
Both VC managers would, however, be required to follow the MAS’ fit and proper standards in terms of financial soundness, fairness and integrity, and credibility. In accepting and supervising VC management, the MAS will rely primarily on current fit and proper as well as anti-money laundering protections under the Securities and Futures Act (Cap 289) of Singapore (SFA), as these safeguards are critical to maintaining high levels of ethics in the sector. The MAS will hold regulatory authority over rogue VC managers.
Under the VFCM Regime, VC managers are only permitted to control funds that:
- Put at least 80% of invested funds into shares explicitly offered by unlisted business ventures that have been in existence for no longer than 10 years at the initial investment period.
- spend up to 20% of invested capital in the unlisted business projects that do not follow the criteria in item (a) above (i.e., they have each been in operation for over ten years at the period of the initial purchase, and/or the investment is made by secondary market acquisitions).
- must not be eligible for subscription continuously and should not be redeemable at investor’s discretion; and
- is only available to licensed and/or institutional investors (every one of them as defined under SFA).
According to the public consultation earlier in the month of February, the permitted funds were those that specifically invested in the unlisted business projects that had been formed or incorporated for not a period of over five years at the period of the initial investment.
The extension of this requirement is intended to give VC managers more versatility. The MAS also explained that the ten-year criterion applies to the operating portfolio firm, not an entity, trust, or even any other vehicle set up to retain the fund.
Although the MAS did not wish to recommend the fund-raising duration or the number of closings that could occur during that period, the components of the finances may not be eligible for a new subscription until the fundraising period has ended and should only be recycled at the conclusion of the fund’s existence.
Application
As the venture capital fund manager, a new applicant can apply for the capital markets services license. Until transitioning into the (Venture Capital Fund Manager) Regime, a current holder of the capital markets services license for investment management or a listed fund management firm can ensure that any of the funds it oversees follow the eligibility requirements (as described above). It will not be needed to go through a new certification procedure or alert the MAS of any capital declines if it satisfies the qualifying requirements. Still, it will be necessary to inform the MAS of its plan to be a VC manager by stating so.
