On 6 April 2023, the Monetary Authority of Singapore (MAS) issued updated Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies [SFA 04-G05] (FMC Guidelines).  The FMC Guidelines set out the minimum requirements for the licensing or registration of fund management companies (FMCs)and the conduct of their business.

This article briefly discusses the key changes in the latest version of the FMC Guidelines.

Due Diligence Checks on Representatives and Employees

FMCs have always been required to ensure that they and each of their shareholders, directors, representative and employees meet the fit and proper criteria set out in MAS’s Guidelines on Fit and Proper Criteria [FSG-G01].  The updated FMC Guidelines now specifically require FMCs to carry out adequate pre-employment due diligence checks on their representatives and employees, including performing reference checks with previous employers and verifying investment strategy track records, where applicable.

Competency Requirements for FMC’s CEO, Senior Management and Directors

FMCs have also always been required to ensure that their CEO, directors and relevant professionals have sufficient experience which is relevant to their fund management activities.  The updated FMC Guidelines expand on this requirement further by specifying that the CEO, senior management and directors with oversight of an FMC’s investment activities must collectively have relevant experience to invest in, and manage the risks associated with, its intended asset classes, markets and investment strategies.

Compliance Arrangements

Under the FMC Guidelines, an FMC’s in-house compliance officer must have relevant experience and be familiar with the rules and regulations applicable to the FMC.  The updated FMC Guidelines now also require in-house compliance officers to undergo regular and appropriate training on such rules and regulations.

Risk Management Measures and Oversight

In addition to developing a risk management framework to identify, address and monitor risks associated with customer assets under its management, an FMC is now required to show that it has implemented measures to manage such risks.  The measures must be appropriate to the nature and size of the FMC’s operations and the assets it manages.

The updated FMC Guidelines now also provide that the CEO, directors and senior management are ultimately responsible for oversight of the FMC’s risk management framework and that there should be clear lines of escalation to keep the management informed of risk exposures in a continual and timely manner.

Cessation of Business

Previously, the FMC Guidelines only set out the requirements for terminating a fund.  The updated FMC Guidelines introduce requirements for an FMC’s cessation of business, including:

• developing communications plans to give ample notice to customers, business partners and other stakeholders;
• ensuring that all obligations to customers have been discharged and all customer assets are returned; and
• ensuring that the FMC’s funds and managed accounts are either transferred to another FMC, with an orderly transition that enables customers to redeem their investments, or liquidated and all underlying assets are returned.

Complaints Handling

The updated FMC Guidelines also introduce complaints handling requirements, whereby FMCs must:

• develop policies and procedures to promptly and efficiently handle customer complaints;
• identify senior management members responsible for handling customer complaints; and
• record the complaints escalation and review process and communicate them to FMC employees.

Ongoing Oversight of FMC Representatives

Finally, the updated FMC Guidelines now require an FMC to establish an appropriate governance mechanism to effectively monitor the activities of persons who act on its behalf, including its CEO, directors, representatives and employees (collectively, FMC Representatives).  The governance mechanism should include:

• documented systems and controls to show oversight over, and management of any conflict of interest involving, FMC Representatives; and
• a disciplinary action framework to hold FMC Representatives accountable for their conduct.

Key Takeaway

MAS updated the FMC Guidelines to introduce new requirements relating to due diligence and supervision of FMC representatives, specific competency criteria for CEOs / directors / senior management, in-house compliance officer training, risk management measures and oversight, cessation of business processes and complaints handling procedures.  

For More Information

OrionW regularly advises clients on financial services regulatory and licensing matters.  For more information about compliance with Singapore laws and regulations, or if you have questions about this article, please contact us at info@orionw.com.

Disclaimer: This article is for general information only and does not constitute legal advice.