What Are the Licensing Requirements for a Venture Capital Fund Manager (VCFM)?

Because Singapore is well-regulated, anyone investing in local firms can feel secure, making it attractive to private equity and venture capital investors in Asia. In order to help startups gain access to innovation and funding, MAS has simplified the licensing requirements for a Venture Capital Fund Manager in Singapore.

While traditional fund managers are heavily regulated, VCFMs are allowed more leniency. Even so, they are expected to meet specific criteria and continue to obey SFA requirements. This paper discusses the MAS VCFM application process and documentation, outlining the eligibility criteria, application steps, and key responsibilities for fund managers seeking to operate in Singapore.

1. Understanding What a Venture Capital Fund Manager Is

1.1 Definition of VCFM

A VCFM is a fund manager who oversees investments in unlisted companies that have a strong chance of quick growth. You may find these businesses in sectors such as technology, fintech, biotech or sustainability.

To assist those who wish to initiate VC funds, MAS has introduced a basic set of regulations for VCFMs in 2017.

2. Key Features of the VCFM Regime

2.1 Exemptions from Full CMS Requirements

There are some requirements that VCFMs do not have to follow which LFMCs are required to meet. As a result, they are not required to have large amounts of capital for their base needs or to follow complicated guidelines for calculating their risk capital.

2.2 Streamlined Compliance Obligations

They enjoy several other useful functions as well:

• Reduced requirements to report
• No one should do a risk assessment separately from the others.
• Still, rules and regulations do not have to be as strict, so long as they remain honest and fair.

Even so, they are still required to obey anti-money laundering (AML) and countering the financing of terrorism (CFT) standards and regular fit and proper checks.

3. Who Is Eligible to Be Licensed as a VCFM?

MAS issues VCFM licenses only to people who meet certain requirements.

3.1 Fund Type Requirements

The manager must just oversee venture capital funds to be considered a VCFM. They are known as funds that:

• Most of your investments should be focused on unlisted businesses.
• Target startup or developing companies.
• Do not give your capital to investors when they request it.
• They do not accept new members all the time.

Money raised for the fund should be locked in for a specific period of time.

3.2 Investor Type Restrictions

Funds managed here are for families and friends provided their founders are investor types.

• Individuals who are accredited, include
• Institutional investors

This prevents them from working with the public and all their marketing and fundraising efforts must focus on investors meeting the requirements in Singapore regulations.

3.3 No Leverage or Hedge Funds

According to VCFM rules, it is not possible to manage certain types of funds.

• Strategies that make use of financial instruments
• Hedge funds
• Accounts that can be closed at any time

Short-selling, derivatives trading and leveraging are activities that should be avoided by VCFMs because they fit outside the realm of early-stage venture investing.

4. Application Process for a VCFM License

4.1 Submission via MAS e-Licensing System

To manage funds using the VCFM class, individuals should first apply for a CMS license through the CeL website.

4.2 Required Documentation

The applicant will have to provide:

• A description of the proposed strategy for the VC fund
• The layout of the organization and who owns it
• You will find details on the directors, CEO and other important staff members.
• Compliance and AML/CFT rules
• Financial strength and having the funds to cover the project

All people involved in supporting must also finish the MAS fit and proper declarations

4.3 Application Fee

Paying S$1,000 is required at the time you submit your VCFM application for MAS licensing.

5. Key Licensing Requirements for VCFMs

Once the application is approved, the VCFM is required to follow various regulations to avoid losing its license.

5.1 Capital Requirements

VCFMs, unlike LFMCs, are required to have a minimum base capital of S$250,000 which is still less than the S$500,000 capital needed by retail LFMCs.

5.2 Fit and Proper Criteria

Both the VCFM and its professionals should comply with the MAS Fit and Proper Guidelines that deal with:

• These traits are reflected by being honest and maintaining integrity.
• Ability and talent
• Financial soundness

MAS might disallow an application if any person linked to the company has been ruled guilty of illegal acts, unable to pay their debts or acted improperly.

5.3 Staffing and Local Presence

VCFMs should possess the following:

• Singapore-based directors must be present, with one of them acting as an executive director.
• A CEO who has managed funds effectively
• This officer is required by MAS, unless a VCFM is permitted to outsource this responsibility.

Senior management must be based in Singapore and still play an active role in managing the business.

5.4 Risk Management and Compliance

Despite not having to deal with every risk management issue, VCFMs must comply with many regulations.

• Ensure you follow AML/CFT policies.
• Check the details of those who wish to invest.
• Make sure that valuation and custody of fund assets are well arranged.

A company must create a compliance manual and establish proper records.

6. Ongoing Compliance Obligations

Once a VCFM is licensed, they are expected to continue to be supervised and provide updates to the Monetary Authority of Singapore (MAS).

6.1 Annual Notifications and Filings

VCFMs are required to give:

• All charities are required to declare every year that they still fulfill VCFM’s requirements.
• It lists on Form 25A the fund’s results, the funds it has under management and the investors accounted for
• Financial statements that have been audited and reports that ensure compliance

Failure to submit a return on schedule may lead to charges or, in some cases, the suspension of your license.

6.2 Notification of Changes

It is mandatory for a VCFM to inform MAS of the following:

• Transfer of shares or change in control
• Changing the officials who lead the company when appointing or resigning directors, CEO or representatives
• New directions in business activities or finance decisions

All changes in material facts should be reported ahead of time or within the set period.

7. Comparison Between VCFMs and LFMCs

VCFMs are ideal for fund managers focused solely on early-stage startups with sophisticated investors. If the business plans to expand to retail distribution, real estate funds, or hedge strategies, it must upgrade to a LFMC license.

8. Suspension or Revocation of VCFM License

A VCFM license given to a firm can be suspended or withdrawn if the following happens:

• During licensing, legal terms have been broken.
• Doesn’t qualify for the program anymore.
• Provides information that is not true or correct
• Neglects to behave truthfully and put clients’ interests before all else

Authorities from MAS often check and review banks to monitor if they follow the regulations.

9. Conclusion to What Are the Licensing Requirements

The Venture Capital Fund Manager’s licensing system in Singapore attracts fund managers focused on the growing venture capital area. It allows for more convenience in applying, less compliance to follow and lower start-up funds, without affecting measures such as assessing how fit and proper the applicant is and preventing money laundering, while also clarifying the difference between VCFM and LFMC licensing in Singapore.

Even so, fund managers must obey the boundaries of the allowed activities, not use loaned funds and target only qualified people. When the business gets larger, reviewing the option to obtain an Accredited or Retail license becomes necessary.