Singapore seeks to enhance Hedge Fund regulations

On April 28, 2010, in Doing Business in Singapore,

Singapore’s central bank, the Monetary Authority of Singapore (MAS), is reviewing the regulatory regime of its hedge fund industry in line with global industry and regulatory measures. In this regard, the MAS has launched a consultation paper on proposed enhancements to regulatory policies for the fund management industry.

This is big news given that Singapore’s hedge fund industry is the second largest in Asia, predominantly due to its light regulatory regime including licensing exemptions and tax incentives for certain fund managers. Here is a quick look at the proposal:

  • Hedge fund managers with less than S$250 million and with less than 30 qualified investors are exempt from the licensing requirement. However, they are required to maintain a base capital of at least S$250,000. Additionally, they will have to notify MAS about their business.
  • Hedge-fund firms in Singapore that manage more than S$250 million (US$183 million) will need to be licensed.
  • Fund management companies that serve accredited or institutional investors must be licensed. They are required to maintain a base capital of at least S$250,000.
  • Fund-management firms that serve retail investors and/or manage a larger portfolio of assets must be licensed. The base capital requirement varies from S$500,000 to S$1,000,000.
  • Fund-management firms must maintain customers’ monies and assets with independent custodians, ensuring segregation of duties between the functions of fund management and fund administration.
  • All fund mangers will be subject to the same requirements for business conduct.

    • The MAS is of the opinion that the proposals will not only enhance the “supervisory oversight” of hedge fund managers but will also raise the quality of the hedge fund industry in Singapore. Singapore’s fund management industry is maturing and it’s perhaps a good time to introduce regulatory enhancements. However, the base capital requirement that is proposed for small or boutique fund mangers may raise concerns amongst industry players. According to the consultancy paper issued by the MAS,

    The Authority understands the industry s concern over increases in start-up costs, especially for smaller FMCs (Fund Management Companies). Nevertheless, the Authority s view is that maintaining a minimum BCR (Base Capital Requirement) is consistent with sound business practice, and improves the viability of new FMCs by acting as a buffer for unexpected costs, especially during adverse market conditions.

    The hallmark of Singapore’s hedge fund industry is the ease of setting up a hedge fund in Singapore and moderate compliance costs. While the newly introduced base capital requirement might seem unappealing to small players at first, the good news is that the licensing exemption continues. By realigning its hedge fund industry regulations with international best practices, Singapore definitely enhances its reputation as a trusted financial center.

    Thinking about setting up a business in Singapore? Learn more about how to register a Singapore company.

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