On 1 August 2024, the Monetary Authority of Singapore (MAS) introduced its Guidelines on Licensing and Conduct of Business for Fund Management Companies (FMCs), with significant changes taking effect from 1 August, 2024 itself. These revisions are designed to address the evolving landscape of financial markets, particularly with the rising prominence of digital assets like cryptocurrencies. The new guidelines aim to ensure that all entities engaged in fund management within Singapore operate under stringent regulatory standards that prioritize transparency, investor protection, and market integrity.
A FMC is broadly defined as any entity involved in managing investment portfolios on behalf of clients, which can range from individual investors to large institutional clients such as pension funds or insurance companies. The primary role of an FMC is to make informed investment decisions, oversee portfolio construction, and manage the execution of trades to achieve specific financial objectives for its clients. The MAS guidelines stipulate that any entity conducting these activities in Singapore must obtain a Capital Markets Services (CMS) license, ensuring they meet the required standards of competency and regulatory compliance.
Under the MAS guidelines, FMCs must engage in substantive fund management activities, which means they must have a direct influence or control over the investment decisions and strategies employed in managing their clients’ assets. This includes responsibility for portfolio construction, asset allocation, and the execution of investment transactions. The guidelines also clarify that entities merely acting as intermediaries, conduits for transactions, or marketing agents do not qualify as FMCs, as they do not engage in the core management of investment assets.
The updated guidelines emphasize the importance of substantive fund management activities within Singapore, especially for companies dealing with digital assets. Specifically, these companies must demonstrate their ability to influence or control portfolio management actively. This includes being deeply involved in portfolio construction, having access to detailed portfolio holdings, and being mentioned in marketing materials. The MAS’s focus is clear: only entities that engage in genuine fund management activities, with the requisite infrastructure and expertise, are eligible for licensing. Simple conduits or marketing intermediaries are not recognized as FMCs under the updated guidelines.
For crypto funds, this means that entities must now ensure they possess the necessary expertise and infrastructure to exercise control over the assets they manage. The MAS’s stringent criteria emphasize the importance of active management over mere facilitation, ensuring that all licensed entities are genuinely engaged in the substantive management of digital assets.
The MAS guidelines introduced disclosure obligations specifically tailored for FMCs involved in digital asset investments to cover unique risks associated with digital assets. FMCs must provide detailed information on several fronts, including the potential for significant price volatility and liquidity risks inherent to digital assets. They are also required to disclose custody arrangements, emphasizing the importance of segregating customer assets and using secure storage methods, such as cold wallets, to mitigate the risks associated with digital asset custody. Furthermore, FMCs must outline any legal and regulatory risks that may arise from investing in digital assets, ensuring that investors are aware of the complex regulatory landscape that governs these investments.
Additionally, FMCs are now mandated to ensure that assets under management, including digital assets, undergo independent valuation for maintaining transparency and accuracy in reporting the value of these often volatile assets. The guidelines stipulate that independent valuation can be fulfilled by third-party service providers or through in-house functions that are distinctly separate from the investment management operations, the guidelines help to safeguard investors and ensure that they receive accurate and reliable information about the value of their investments.
The updated guidelines place a strong emphasis on the mitigation of conflicts of interest, particularly in scenarios where FMCs or their related entities are involved in digital asset investments. FMCs are required to disclose any proprietary investments or investments made by related entities into the funds they manage. For FMCs managing cryptocurrencies or other digital assets, it is now more important than ever to establish clear boundaries to avoid conflicts of interest.
A significant addition to the updated guidelines is the requirement for a appropriate risk management framework, particularly concerning customer assets. FMCs dealing with digital assets are required to identify, measure, and monitor all associated risks, including those unique to the crypto market. This includes managing cybersecurity threats, operational risks linked to the management of private keys, and the inherent volatility of digital assets. The complexities of managing digital assets necessitate a more sophisticated approach to risk management, ensuring that all potential threats are identified and addressed proactively.
The updated guidelines reiterate the need for stringent anti-money laundering (AML) and countering the financing of terrorism (CFT) measures. Given the global and often opaque nature of cryptocurrency transactions, FMCs are required to implement rigorous checks and reporting mechanisms to prevent the use of cryptocurrencies in illicit activities. This includes thorough client due diligence, ongoing monitoring of transactions, and the reporting of any suspicious activities to the relevant authorities.
The updated MAS guidelines have far-reaching implications for both traditional finance and decentralized finance (DeFi). In traditional finance and the decentralized finance space, the inclusion of crypto entities under the FMC definition is a significant step towards integrating digital assets into the regulated financial system. This move by MAS is expected to enhance the credibility of the crypto market, attract institutional investment, and promote a safer, more transparent environment for digital asset management. By subjecting crypto FMCs to the same regulatory standards as traditional FMCs, MAS is fostering a more level playing field, where all market participants are held to the same high standards of transparency and accountability.
