MAS Issues Additional Consultation Papers on the Proposed Framework for Variable Capital Companies

Jul 29 2019 | by OrionW

The Variable Capital Companies Act (VCC Act), which was passed on 1 October 2018,[1] provides the legislative framework for the incorporation, operation and regulation of variable capital companies (VCCs) – companies formed for the sole purpose of embodying one or more collective investment schemes (CIS).  Please see our article on the VCC Act here for a more in-depth discussion on the attractive attributes of VCCs.

To further the objectives of the VCC Act, the Monetary Authority of Singapore (MAS) proposed subsidiary legislation in Parts 2 and 3 of the Consultation Papers on the Proposed Framework for Variable Capital Companies (CP Part 2 and CP Part 3, respectively).[2]

Some of the proposed key regulations and intended amendments under CP Part 2 are as follows:

  1. Variable Capital Companies (Fit and Proper) Regulations 2019, which specify the factors in determining whether a VCC director applicant is a ‘fit and proper’ person, including (a) their application and compliance history as a director of a VCC or financial institution and (b) their past conduct, particularly with respect to professional negligence, breach of fiduciary duty or ML/FT obligations or serious negligence.
  2. Variable Capital Companies Regulations 2019, which amongst others (a) authorise a Court to order the winding up of a VCC for failing to have a manager for three months or more, (b) set out the qualifications which a VCC secretary must possess, (c) specify when a VCC auditor’s remuneration may be reviewed and (d) prescribe certain forms to be used under the VCC Act.
  3. Variable Capital Companies (Transfer of Registration) Regulations 2019, which specify the requirements for the transfer of registration of foreign corporate entities that wish to be registered as VCCs under the VCC Act, including that a foreign corporate entity has assets which are not less than the value of its liabilities (including contingent liabilities) and is able to pay its debts within 12 months from its application for registration under the VCC Act.
  4. Amendments to the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005, which prescribe:
    • operational requirements for such custodians, including requiring a custodian to inform MAS if they become aware that the VCC or the VCC manager contravenes any legal or regulatory requirement and ensuring that all property of the CIS is properly accounted for and kept distinct from its and its other clients’ property;
    • required provisions for VCC constitutions, including particulars disclosing the structure and investment objectives of the CIS and information relating to the vesting of property in a custodian (if applicable); and
    • required contractual arrangements between a VCC or sub-fund and a VCC director, manager or custodian, including provisions requiring a director to exercise due diligence in performing their functions, requiring a manager to ensure that the CIS is carried in a proper and efficient manner and setting out a custodian’s duties and obligations towards CIS participants.
  5. Amendments to the Code on Collective Investment Scheme (“CIS Code”), which (a) specify the functions and operational obligations of VCCs and their directors and custodians and (b) extend the application of core investment guidelines, accounts reporting requirements and dealing and valuation obligations to VCCs.

Other proposed regulations under CP Part 2 include those specifying the regulatory requirements for the registration of a sub-fund under an umbrella VCC, the accounting standards VCCs must use to prepare their financial statements, the requirements applicable to VCCs’ revised financial statements, the grounds and conditions for striking off a VCC or a sub-fund, the offences that may be compounded, when fees and late lodgement penalties may be charged or imposed and when a VCC name is deemed identical to another name.

The proposed regulations under CP Part 3 will govern the insolvency and winding up of a VCC and its sub-funds and are aligned with regulations for insolvency and winding up of a company under the Companies Act (CA).  The key regulations include:

  1. Variable Capital Companies (Application of Bankruptcy Act Provisions) Regulations 2019, which modify certain Bankruptcy Act provisions to apply to a VCC or sub-fund being wound up and set out who are deemed ‘connected persons’ to a VCC or sub-fund being wound up.  Although sub-funds are not legal entities in themselves, they are treated as separate legal persons for the purposes of winding up.
  2. Variable Capital Companies (Maximum Amount Payable in Priority in Winding Up) Order 2019, which states that the maximum amount payable to an employee of a VCC or sub-fund being wound up.
  3. Variable Capital Companies (Winding Up) Rules, which set out the procedural rules applicable to the winding up of a VCC or sub-fund, including provisions on the appointment of a liquidator or special manager, manner of proving debt, payment of dividends to creditors and return of capital to contributories.

Ultimately, the intention is to amend the VCC Act to align the insolvency and winding up regime for VCCs with the Insolvency, Restructuring and Dissolution Act 2018 (IRDA)[3] and to issue adapted IRDA regulations which will apply to VCC and sub-funds.  Thus, after the IRDA takes effect, the adapted IRDA regulations will replace the regulations proposed in CP Part 3.

Submission for comments on CP Part 2 ended on 30 May 2019 and for CP Part 3 will end on 24 August 2019.


[1] As of the date of this article, the VCC Act is yet to take effect.

[2] Part 1 of the Consultation Paper on the Proposed Framework for Variable Capital Companies was issued on 23 March 2017, before the VCC Act was passed, and discussed the then-proposed new law permitting the incorporation of VCCs in Singapore.

[3] As of the date of this article, the IRDA is yet to take effect.