What Are the Regulations Around Cross-Border Fund Management Activities?

Since global asset management is getting larger, cross-border fund management has gained greater importance to investors, fund managers and financial markets. Managing or marketing investment funds in several regions requires following rules that are constantly being updated. Such activities in Singapore are governed by the Monetary Authority of Singapore (MAS) using the Securities and Futures Act (SFA) and relevant rules, always prioritizing investor safety, stability in the financial system and cooperation with regulators.

The focus of this document is on the aspects of regulation critical for fund management companies (FMCs) acting in cross-border fund management such as licenses, what can and cannot be done, mechanisms for cooperation with other regulators and the steps needed for staying in compliance.

Understanding Cross-Border Fund Management

Cross-border fund management describes giving fund management services or offering funds beyond a single nation. There are examples where:

• A Singapore-based FMC is responsible for managing funds belonging to people abroad.
• Investors in Singapore can find information on a foreign fund.
• Fund managers based in countries outside Singapore support Singaporean funds with their asset management.
• The central location assigns and oversees a global firm’s investment in various countries.

As these activities are global in nature, regulators have to find the right amount of control over products from other countries. The MAS makes clear rules for Singapore-based foreign multinational companies (FMCs) working in foreign countries and for foreign firms entering the Singapore market.

Licensing and Permissible Activities for Singapore-Based FMCs

FMCs based in Singapore seeking to do cross-border fund management activities must first obtain the necessary license from MAS. The business model and who a business serves can lead to an entity being licensed as a:

• You can choose a Licensed Fund Management Company (LFMC) that is retail or accredited.
• A Registered Fund Management Company (RFMC) usually needs to look after no more than 30 qualified investors and their total sum of assets must not go beyond SGD 250 million.

They allow foreign management companies to manage assets for overseas clients and to give portfolio management roles to their affiliates as long as proper systems and rules are in place. Even so, MAS wants the Singapore entity to oversee and approve investment decisions made abroad, especially when applying for MAS fund management licenses available under MAS for hedge funds Singapore, ensuring compliance and oversight.

It also checks if the FMC has enough backbone in Singapore by looking at its main staff, decision-making roles and infrastructure. That way, no company can use overseas management as a way to avoid local rules or regulations.

Offering and Marketing Foreign Funds in Singapore

Marketing foreign funds to people in Singapore is one of the activities most heavily monitored by regulations. Any time a fund sends out an offer or invitation to people wishing to invest, it is assumed by default to be a regulated activity, unless otherwise exempted. Certain conditions apply if foreign funds want to be promoted in Singapore, depending on who the investors are.

Institutional and Accredited Investors

High-net-worth individuals (with more than SGD2 million in net personal assets) and banks or insurers are able to invest in funds offered by foreign fund managers through the restricted scheme regime. This framework lets members skip prospectus registration and licensing needs as long as:

• The fund is available from a licensed or exempt financial adviser.
• All investors are placed into the appropriate class and told what they need to know.
• There is no active public advertising done of the investments.

MAS does not require permission before these offers are made, but it does expect firms to follow all the rules about disclosure and conduct, including using straightforward documents like an Information Memorandum.

Retail Investors

Advertising foreign funds to retail investors is generally much more strict. For these situations, the fund has to be registered with MAS as a Recognized Scheme under section 287 of the SFA. Those funds regulated in Luxembourg, Ireland and the UK, with reliable investor protection laws, are among the only ones receiving recognition from MAS and they need to meet similar rules as Singapore-domiciled funds.

• Control and valuation matters.
• Risk management and making sure the company stays compliant are important functions.
• The country’s choice of a representative in Singapore.
• Approval by the Monetary Authority of Singapore (MAS) after filing the prospectus needs to be secured.

To be recognized, schemes are required to follow Singapore’s Code on Collective Investment Schemes (CIS Code), especially when it comes to handling liquidity, redemption rights and fees.

Regulatory Cooperation and Supervision Across Jurisdictions

Because of the UN’s cross-border activities, MAS focuses majorly on relationships and cooperation with regulators all over the world. This is necessary to make sure firms managing or marketing funds internationally are watched and held responsible.

Memoranda of Understanding (MOUs)

Memoranda of Understanding (MOUs) have been established by MAS with many regulators globally such as the SEC, FCA and SFC in the United States, the United Kingdom and Hong Kong respectively. Such Memorandums of Understanding aid collaboration on:

• Getting licenses and registering your business;
• Sharing of information about supervisory practices.
• Taking actions and inspecting goods and places across borders.
• Policies and measures to protect consumers who are investors.

Because of this cooperation, MAS can partner with other regulators to enforce rules when Singapore-based foreign funds or managers violate foreign laws.

ASEAN Collective Investment Scheme Framework

MAS is involved in the ASEAN Collective Investment Scheme (CIS) Framework, helping to make it easier for funds to be offered across ASEAN borders. Here, firms in Singapore can offer their funds to investors in Malaysia and Thailand more easily by registering under a common set of standards.

Thanks to this scheme, ASEAN investors have more investment options and better regional fund passporting, but the important security of regulations is still maintained.

Compliance, Conduct and Ongoing Obligations

FMCs involved in activities that cross borders are bound by severe compliance requirements to guarantee proper risk control, fair dealing and investor protection everywhere.

Due Diligence and Suitability

To market a foreign fund in Singapore, firms must carefully check the suitability of its structure, strategy and risks for the targeted investors. Offerings to retail investors bring extra responsibilities, which is why many professionals benefit from attending six types of due diligence in Singapore training to strengthen their assessment and compliance skills.

• Assessing customers’ knowledge with the Customer Knowledge Assessment (CKA) and reviewing their accounts using the Customer Account Review (CAR).
• Preparing product highlight sheets (PHS) for clients;
• Checking the conduct and performance of products including compliance with relevant disclosures.

Record-Keeping and Audit Trails

FMCs are required by MAS to manage accurate records of all cross-border dealings, like conversations, offered materials, forms and types of investors. Records need to be checked and reviewed, mainly when concerns about selling products incorrectly or not complying with regulations appear.

Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF)

Money and assets moving between nations can increase chances of money laundering and financing terrorism. FMCs must obey Singapore’s AML/CTF laws such as:

• Checking the background of clients from other countries.
• Regularly checking the number of people subscribing to or withdrawing funds;
• When appropriate, filing of Suspicious Transaction Reports (STRs) should take place.

If a financial conglomerate uses third-party distributors or offshore affiliates, the FMC is responsible for ensuring that policies and controls are there to address financial crime risks in all the areas it operates.

Conclusion: What Are the Regulations Around Cross-Border Fund Management Activities

With cross-border fund management, companies can experience strong growth and diversify their funds, but they have to handle some very complex regulations. With the help of MAS, Singapore allows fund managers to do business internationally, while ensuring high transparency, proper compliance and investor protection.

Any FMC that wishes to do business overseas must know and follow the specific licensing, conduct and disclosure rules for their industry and chosen markets. They have to keep stable rules internally, team up with other agencies across different jurisdictions and stay clear with investors and regulators.

Since finance is now connected worldwide, compliance for different countries is key to establishing trust, looking after investors and continuing success across the world’s asset management industry.