What is the VCFM Regime?
The VCFM regime was introduced by the Monetary Authority of Singapore (“MAS”) in 2017 to simplify and shorten the authorization process for managers of venture capital funds to apply for a capital markets licence. This was intended to enhance the operating environment for such managers to support start-up and growth stage businesses.
Under the simplified regulatory regime, a VCFM is not subject to the minimum base capital requirements and ongoing business conduct rules that apply to other fund managers. The directors and professionals of a VCFM do not need to have at least 5 years of relevant experience in fund management.
Requirements for licence to operate VCFM
(A) Fund eligibility
A VCFM may only manage funds that meet the following criteria:
- invest at least 80% of committed capital (excluding fees and expenses) in specified products that are directly issued by an unlisted business venture that has been incorporated for no more than ten years at the time of initial investment (“qualifying investments”). Any follow-on investment in such qualifying investments will remain as qualifying, even if the portfolio company has been incorporated for more than ten years at the point of follow-on investment;
- invest up to 20% of committed capital (excluding fees and expenses) in other unlisted business ventures that do not meet sub-criterion (1), i.e. they have been incorporated for more than ten years at the time of the initial investment, and/or the investment is made through acquisitions from other investors in the secondary market (“non- qualifying investments”);
- the funds must not be continuously available for subscription, and must not be redeemable at the discretion of the investor; and
- the funds are offered only to accredited investors as defined under the Securities and Futures Act 2001 (“SFA”) or investors in an equivalent class under the laws of the country where the offer is made, and/or institutional investors, except as allowed under paragraph c below.
a. An “accredited investor” includes:
(i) an individual whose net personal assets exceed in value $2 million (or its equivalent in a foreign currency) or such other amount as the MAS may prescribe;
(ii) an individual whose financial assets (net of any related liabilities) exceed in value $1 million (or its equivalent in a foreign currency) or such other amount as the MAS may prescribe;
(iii) an individual whose income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency) or such other amount as the MAS may prescribe;
(iv) a corporation with net assets exceeding $10 million in value (or its equivalent in a foreign currency) or such other amount as the MAS may prescribe.
b. An “institutional investor” includes:
(i) the Government;
(ii) prescribed statutory boards;
(iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is to (i) manage its own funds; (ii) to manage the funds of the central government of that country; or (iii) to manage the funds of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country;
(iv) a holder of a capital markets services licence
c. The VCFM may also carry on business in fund management with their employees only if these employees either:
(i) meet the definition of an accredited investor; or
(ii) are investment professionals employed by the VCFM or employed within the same corporate group.
- A VCFM’s funds can only make investments (non-qualifying or otherwise) in unlisted assets. The funds cannot invest in listed securities or initial public offerings. However, the MAS has clarified that this does not preclude a VCFM’s funds from holding listed securities in portfolio companies, provided that the fund had acquired these securities prior to their listing. VCFMs are not expected to reclassify an investment from qualifying to non-qualifying if its portfolio company’s securities become listed.
(B) Admission and ongoing requirements
The VCFM has to hold a capital markets services licence to operate a VCFM (“VCFM licence”). The following are some of the requirements to be met:
- Fit and proper requirements – The VCFM’s shareholders, directors, representatives and employees, as well as the VCFM itself, must be fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by the MAS.
- Place of incorporation – The VCFM must be a Singapore incorporated company that has a permanent physical office in Singapore. The office should be dedicated, secure, and accessible only to the VCFM’s directors and staff.
- Key personnel – The VCFM should have at least two directors, at least one of whom should be full-time and resident in Singapore; and at least two full-time professionals and representatives resident in Singapore, who may include the directors. Nominee directors such as legal advisers or corporate secretaries will not count towards meeting this requirement. Unlike licensed fund management companies or registered fund management companies, there is no requirement for directors and relevant professionals of the VCFM to have at least 5 years of relevant experience in fund management.
- Disclosure – The VCFM will have to disclose to investors that they are not subject to the specified requirements that are imposed on other fund management companies.
- Conflicts of interests – The VCFM should avoid any conflicts of interest and, where such conflicts arise, ensure that they are resolved fairly and equitably.
- Anti-money laundering and countering the financing of terrorism (“AML/CFT”) requirements – The VCFM should comply with the AML/CFT requirements as set out in the Notice to Capital Markets Service Licensees and Exempt Persons on Prevention of Money Laundering and Countering the Financing of Terrorism.
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Base capital requirements – The minimum base capital requirement is $0.
(C) Procedure
- The application for the VCFM licence may be done by submitting a Form 1V and other supporting documents, including the VCFM’s business profile as per the Accounting and Corporate Regulatory Authority’s record, and the VCFM’s shareholding chart showing all immediate, intermediate, and ultimate shareholders to the MAS. This is done through the MAS’ Corporate Electronic Lodgment system. There is a non-refundable application fee of S$1,000.
- According to the MAS, it takes up to 4 months to review a VCFM licence application. The MAS would issue a regulatory in-principle approval for the VCFM licence after the review process if the application is successful. Thereafter, the applicant has 6 months to fulfil specified requirements for licensing. As soon as the applicant meets these requirements, the MAS will grant the licence.
References:
- Securities and Futures Act 2001
- FAQs on the Licensing and Registration of Fund Management Companies published by the Monetary Authority of Singapore
This article is authored by Jacqueline Teo (Partner).
If you have any questions, please do not hesitate to contact our team below or any of our lawyers at Wee Swee Teow LLP.
Lawyers
Lee Soo Chye
lee.soochye@wst.com.sg
6854 3164
Jacqueline Teo
jacqueline.teo@wst.com.sg
6854 3167
Disclaimer: The material in this article is prepared for general information only and is not intended to be a full analysis of the points discussed. This article is also not intended to constitute, and should not be taken as, legal, tax or financial advice by Wee Swee Teow LLP. Any illustrations used in this article may not be applicable or suitable for your specific circumstances or needs and you should seek separate advice for your specific situation. Any reference to any specific local law or practice has been compiled or arrived at from sources believed to be reliable and Wee Swee Teow LLP does not make any representation as to the accuracy, reliability or completeness of such information.
