Following the previous article "Overview of Singapore's Capital Market Regulatory Policies and Fund Management Licenses in 24 Years (Virtual Assets)", we can see that if virtual assets are classified as capital market products defined by the Monetary Authority of Singapore, they will be subject to capital market regulations. Engaging in service activities related to these virtual assets may require a specific license. In addition, the issuance of these virtual assets must also comply with the registered prospectus requirements stipulated by the Monetary Authority of Singapore (MAS), unless an exemption is met. This article will explain two scenarios for Singapore crypto funds:
- Licensed Fund Management Company LFMC
- Exemptions from licensing
1. Licensed Fund Management Company LFMC
Licensed Fund Management Company (LFMC) refers to a fund management company that has obtained a CMS license. The following are the main types and requirements:
Generally speaking, fund management activities in Singapore require a capital market services license. For virtual asset "fund management", any project involving the management or operation of collective investment schemes (Collective Investment Scheme) token issuance and market services must comply with the Securities and Futures (Licensing and Operation) Regulations and obtain authorization and license from MAS.
Among the LFMCs, A/I LFMC Qualified Investor Licensed Fund Company is a more common application type for crypto funds, mainly because its threshold is relatively low. The following are the requirements for applying for a licensed fund management company (LFMC) - A/I LFMC (Qualified Investor LFMC):
1. Basic application requirements
① The company is an entity registered in Singapore;
② The registered capital shall not be less than 25 SGD;
③ A CEO and an executive director with more than 5 years of relevant experience, of which the executive director must be a Singapore resident and be responsible for the company's daily operations full-time;
④ At least 2 full-time local Singaporean employees with more than 5 years of relevant working experience;
⑤At least 2 Singapore resident representatives.
Note: The above three requirements for directors, representatives and related professionals are not mutually exclusive, as the same two people (3 retail investors) can meet all three requirements as long as they have the necessary experience and qualities.
2. Requirements for investors and managed assets
A/I LFMC companies can only serve qualified investors, but there is no limit on the number of investors and the maximum size of assets under management. If the total asset management amount reaches S$10 billion, an independent and dedicated compliance department must be established in Singapore.
3. Risk capital management
Financial resources are at least 120% of operational risk requirements.
4. Minimum compliance arrangements
When the assets under management (AUM) is less than S$10 billion or A/I LFMCs only conduct research and consulting, the same standards as RFMCs are applied; when the AUM is S$10 billion or above, A/I LFMCs are subject to the same standards as Retail LFMCs.
5. Risk management framework
It must comply with the principles set out in the Risk Management Practice Guide and at least cover:
① Manage, be independent and competent in risk management functions;
②Identify and measure the risks associated with client assets;
③ Timely monitoring and reporting management;
④Record risk management policies, procedures and reports.
6. Audit requirements
① Quarterly report (unaudited, submitted within 14 days);
②Annual report (audited, submitted within 5 months).
7. Professional Liability Insurance
It is not mandatory but is highly encouraged that such arrangements, or the lack thereof, be disclosed to all clients.
8. Letter of Responsibility
Where applicable, MAS may require such letter to be sourced from the parent company of the licensed fund management company.
9. Disclosure of Information
Ensure that sufficient information about the assets or accounts under its management is disclosed to clients, which should at least include investment strategy, valuation policy, leverage, custodian, trustee, administrator, auditor, conditions for closing accounts, etc.
10. Anti-money laundering requirements
Comply with anti-money laundering requirements to identify, assess and address money laundering and terrorist financing risks.
11. Notification/application for permission
For certain transactions and changes in one’s own circumstances (such as appointment of new directors/CEO), one needs to notify MAS or apply for permission.
12. Company annual fee
① Fixed costs;
② Starting from January 1 of the calendar year, a variable fee of S$1 per delegate will be charged starting from the 101st delegate.
II. Exemptions from Licensing
For those who manage cryptocurrency funds, Singapore has some special rules that allow them to avoid applying for official licenses if they meet certain conditions. In short, if the funds they manage do not involve specific security token products (products and services covered by the Securities and Futures (Licensing and Operations) Regulations, as introduced at the beginning of the article), and their investors are all qualified "qualified investors", they can enjoy this special exemption.
The concept of security token products is a bit broad, including products other than mainstream cryptocurrencies such as Bitcoin and Ethereum. For example, if a non-fungible token (NFT) represents a certain share or has the characteristics of a security, it may be considered a security token product. Therefore, for cryptocurrency derivatives and some special NFTs, we need to judge based on their specific nature.
If a cryptocurrency fund is open only to “accredited investors,” a term that includes professional and institutional investors, it will be subject to less regulation. This means that cryptocurrency funds designed specifically for experienced investors can operate more freely.
Even though these fund managers do not need to hold specific licenses under the Securities and Futures Act (SFA), they are still considered financial institutions and need to comply with various regulations set by the Monetary Authority of Singapore (MAS), including anti-money laundering and risk management requirements. (Automated Anti-Money Laundering and Identity Compliance Solutions) In particular, when investors use cryptocurrencies (rather than traditional fiat currencies) to pay for their investments, fund managers need to pay special attention to this process to ensure that they comply with all relevant legal obligations.
In addition, under Singapore's Payment Services Act, cryptocurrency fund management activities may be considered as digital payment token (DPT) services that require a license. However, if these payments are merely an incidental or necessary part of the fund management activities, the fund manager may be able to enjoy specific licensing exemptions. This gives cryptocurrency fund managers more flexibility, allowing them to focus more on managing the fund.
3. Cryptocurrency Fund Structure
There are two mainstream ways to set up a cryptocurrency fund in Singapore. First, the fund can choose not to apply for a license and directly invest in non-securities cryptocurrencies, using specific exemptions to avoid becoming a licensed manager. Secondly, the fund can also adopt a traditional private equity fund structure, created by a fund manager registered or authorized by the Monetary Authority of Singapore (MAS), using the organizational form of a Singapore variable capital company (VCC). Please refer to 1. [Dry Goods] How to Set Up a Singapore Crypto Fund VCC, 2. A New Choice for Crypto-Friendly Funds: Singapore VCC. In actual operations, since institutional investors usually have higher requirements for supervision and compliance, the credibility of licenses is of course higher.
For more information on the establishment forms, regulatory framework and fund manager qualifications of private equity funds in Singapore, please stay tuned for our next issue.
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