What Are the Ongoing Obligations of a Licensed Fund Management Company (LFMC)?

Introduction to What Are the Ongoing Obligations of a LFMC

MAS supervises all activities of Licensed Fund Management Companies (LFMCs) in Singapore. A CMS license in Singapore is required, but financial institutions also need to meet ongoing standards to maintain investors’ safety, as well as the accountability and stability of the financial market. The MAS LFMC compliance requirements in Singapore are designed to uphold these high standards consistently.

This article discusses the main continuing duties for an LFMC, including compliance, risk management, reporting, record-keeping, how they should behave and requirements for audit procedures. Not fulfilling these requirements can result in receiving serious penalties, suffering damage to the organization’s reputation or losing the Center for Medicare and Medicaid Services (CMS) license.

1. Regulatory Framework Governing LFMCs

1.1 Role of MAS

The Monetary Authority of Singapore is responsible for safeguarding the operations of LFMCs. SFC is governed by the Securities and Futures Act (SFA) and its relevant regulations, notices and guidelines. It is expected by MAS that LFMCs keep their governance, compliance and professional standards high all during the time they are involved in business. The licensed fund management company obligations under MAS regulations cover transparency, ethics, and financial stability across all operations.

1.2 Types of LFMCs

LFMCs can be separated into two types:

• Retail LFMCs have a license that allows them to oversee funds from both retail, accredited and institutional clients.
• Accredited/Institutional LFMCs (A/I LFMCs): Operation for managing money is limited to accredited and institutional investors.

The key responsibilities for all LFMCs are almost identical, but retail LFMCs are required to do more since their investors might require greater protection.

2. Corporate Governance and Internal Controls

2.1 Compliance Arrangements

All LFMCs are required to put in place a reliable compliance framework. This includes:

• An individual is assigned to make sure internal policies are followed and that they comply with regulations.
• Having written manuals, codes of conduct and rules for addressing conflicts of interest.

MAS believes that LFMCs should make certain that adhering to laws becomes an ongoing aspect of the culture in their organization.

2.2 Independent Risk Management

LFMCs must put in place a system that manages the risks they may face.

• Spotlights, reviews and manages investment, operational and counterparty risks.
• Certain risk controls are not affected by what the front office does.
• Often makes sure that employees do not get exposed to more stress than what is accepted and safe.

The organization’s structure needs to be designed for the firm’s degree of operations and revisited regularly.

3. Fit and Proper Standards

3.1 Key Individuals

The LFMC must ensure that directors, representatives and key executives stay ‘fit and proper’ during their time in the role. This includes:

• Ensuring that your organization is professionally skilled and sound financially.
• Seeking balance in yielding outcomes with strong integrity and honesty.
• Ensuring there are no criminal or regulatory irregularities with the company.

Any new changes in the field of directorship, shareholding or to major officials at the bank must be promptly notified to MAS.

3.2 Annual Declaration

All LFMC members have to submit an annual statement stating that all key individuals are still appropriate according to the rules.

4. Business Conduct and Fair Dealing

4.1 Duty to Act in Client’s Best Interests

It is always necessary for LFMCs to look after their clients’ best interests.

• Explaining things without hiding information.
• Preventing the wrong information being given and avoiding personal gains.
• Doing trades in a timely fashion and without delays.

4.2 Conflicts of Interest Management

Each firm should have certain procedures for discovering, revealing and keeping under control conflicts of interest. For instance:

• Separate accounts used by employees for trading should be approved internally.
• Trading among clients should always be done by using fair and consistent policies.

5. Financial and Capital Requirements

5.1 Base Capital and Financial Resources

Requirements for a minimum financial base for LFMCs are determined by the license they have:

• The cost of A/I LFMCs is SGD 250,000.
• The business is required to have 500,000 Singapore Dollars in cash.

Furthermore, the firm should hold financial assets over and above the total amount of risk capital required by MAS.

5.2 Liquidity Management

These companies are required to watch their cash and liquidity to ensure they can settle their short-term debt and function as a business. Stress testing should be done regularly.

6. Reporting and Notification Requirements

6.1 Regulatory Filings

LFMCs must regularly submit different types of reports to the MD&A.

• Yearly financial statements that are audited are made available within five months from the end of the financial year.
• Reports are provided quarterly or twice a year that cover assets managed, who the clients are and a summary of the portfolios.
• Peaceful Group must provide annual statements indicating that they comply with MAS requirements.

6.2 Notifications to MAS

You must tell MAS as soon as possible about certain changes or incidents.

• Alterations within the company’s key employees, directors or group of shareholders.
• Disregarding practices or laws that are important within the company.
• Changes that affect many aspects of how the business is run or invests its funds.

A delay in informing MAS may cause the agency to take action or observe your business more carefully.

7. Record-Keeping Obligations

7.1 Transaction and Client Records

All client transactions, fund balances, trades and decisions taken must be detailed and retained by LFMCs for at least 5 years. Your records ought to be:

• Regulators can monitor them any time they wish
• Records are kept either on paper or as electronic files.
• Not accessible to unauthorized individuals or modifying forces

This documentation also helps maintain consistency with ongoing compliance duties for fund management companies in Singapore required by MAS.

7.2 Internal Documentation

Various reports like these should be kept and accessible if a regulatory audit is required.

8. Outsourcing and Third-Party Vendor Oversight

Since they outsource important functions, LFMCs are ultimately accountable for them. They must:

• Make sure you do your research before selecting someone for the job.
• Ensure contracts are signed that clearly state each person’s duties and rules of confidentiality.
• Regularly keep an eye on your vendors’ performance.
• Before seeking outsourcing help, you need to let MAS know.

MAS requires that outsourcing contracts contain strategies for emergencies and information security procedures.

9. Cybersecurity and Technology Risk Management

9.1 Technology Risk Management Guidelines

MAS released new Technology Risk Management (TRM) Guidelines that all LFMCs must follow. Firms must:

• Put in place strong IT controls.
• Safeguard the information and data of your customers and your finances.
• Have policies in place to ensure your business can recover from cyber incidents.

9.2 Incident Reporting

When a cybersecurity breach or major IT incident is found, it should be reported to MAS immediately and an analysis and plan for fixing the problem should follow.

10. Audit and Independent Reviews

10.1 External Audits

All LFMCs are required to engage a separate external qualified firm to review:

• Financial statements
• Adherence to the requirements set by MAS
• Internal controls are very important for retail LFMCs.

The findings made by the auditor are provided to MAS every year during the regulatory reporting process.

10.2 Internal Audit Function

It is recommended by MAS that LFMCs with extensive operations set up an internal audit team to revise and strengthen governance and risk management processes within the businesses.

11. Marketing and Fund Offering Compliance

Any marketing or offering materials put out by LFMCs must be ensured to comply with requirements.

• Simple, reasonable and honest
• MAS’s standards for advertising and prospectus have been observed.
• Sold only to certain groups of qualified investors (e.g., accredited investors, depending on the situation)

Promoting funds to those who are not authorized could have severe legal consequences and result in losing the broker license.

12. Consequences of Non-Compliance

12.1 Enforcement Actions by MAS

MAS can use various tools to ensure compliance.

• Handing out guidance or casting reprimands
• Fines placed on banks
• The government can choose to suspend or revoke the license granted to a CMS.
• Restricting people from performing activities that require a licence

12.2 Reputational and Legal Risks

Other than being regulated, failure to fulfill obligations can mean that LFMCs encounter:

• Lack of trust in the company by investors
• Filing a case for damages in court
• Halting the association with counterparties

It is essential to strictly follow the rules for a company to survive over time.

Conclusion

A Licensed Fund Management Company in Singapore must handle many tasks and responsibilities. LFMCs are required to be attentive and transparent regarding their governance, compliance, reporting, how they handle clients and technology risks.

If LFMCs invest in reinforcing their internal controls, educate their staff and put better risk frameworks in place, they can both steer clear of rules and establish a strong reputation trusted by investors over time in the Singapore financial market.