Singapore’s Variable Capital Company (VCC) regime has rapidly gained momentum since its launch in 2020, offering fund managers both flexibility and robust regulatory oversight. This unique structure, subject to significant oversight by the Monetary Authority of Singapore (MAS), safeguards investor interests while providing operational freedom. As a result, over 1,200 VCCs and 600 regulated fund managers are now part of Singapore’s thriving fund management ecosystem.
But as the saying goes, with great power comes great responsibility.
MAS Compliance: More regulatory scrutiny on VCCs
In its latest regulatory guidance, the Monetary Authority of Singapore (MAS) has issued a wake-up call for fund managers. The new MAS circular urges fund management companies to tighten governance, demonstrate substantive fund management activities, and ensure regulatory compliance is intrinsic—not just a checkbox exercise.
Based on its 2024 survey and analysis of regulatory filings, MAS found that while most VCCs are compliant, several red flags have emerged:
Independent Custody Arrangements
For VCCs holding listed securities or bonds, independent custody is mandatory—unless dealing strictly in private equity or venture capital for Accredited and/or Institutional Investors. This requirement is crucial for the asset management industry in Singapore, as independent custody enhances governance and oversight, especially in handling investor funds.
Directors’ Duties and MAS Licensing Obligations
It is common for VCCs to appoint independent directors for corporate governance. However, any director performing regulated functions (client servicing, portfolio input, investment decision-making) must be formally appointed as a licensed representative of the VCC’s fund manager or an Eligible Financial Institution (EFI). Establishing formal terms of reference for the investment committee is vital for compliance with MAS requirements. AML obligations for VCC directors are also a core focus, as detailed below.
Unutilised and Dormant VCCs
MAS identified many VCCs with no investors or assets, even after a year of incorporation. Fund managers are now expected to regularly assess the purpose of each VCC they have under their care. Dormant VCCs should be wound up or liquidated, as empty structures undermine the credibility of Singapore’s fund management sector.
Single Investor VCCs
The VCC regime was designed to facilitate collective investment schemes, enabling streamlined asset management and easier investor subscriptions and redemptions. However, MAS has found some VCCs are used solely for single investors or related parties, with minimal active management—contradicting the original regulatory intent.
Substantive Fund Management Activities Required
MAS compliance requires VCC fund managers to be actively involved in portfolio construction, due diligence, and risk management. Fund managers should not:
- Act as passive conduits with no real accountability
- Set up VCCs that merely push third-party managed funds
- Focus solely on marketing while outsourcing all core investment management activities
The investment manager must demonstrate deep, active involvement in all core investment management functions. The Eligible Financial Institution (EFI) cannot simply rubber-stamp decisions; it is responsible for all investment activities of the VCC.
Outsourcing Compliance Functions—Not Accountability
Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) compliance remains the responsibility of the EFI, which may engage a fund administrator or compliance consultant for support. However, the VCC and its directors (including those not on the EFI) are always responsible for any compliance failures.
Key AML/CFT compliance requirements include:
- Maintaining accurate and up-to-date beneficial ownership registers
- Conducting Enhanced Due Diligence for high-risk clients and ongoing monitoring for all investors
- Promptly sharing information with MAS upon request
- Ensuring regular AML/CFT training for EFIs and VCC directors
Outsourcing does not absolve fund managers of their regulatory obligations under MAS guidelines.
Conclusion: MAS Compliance Is Non-Negotiable
MAS is not introducing new requirements but is actively reviewing Singapore fund managers overseeing non-compliant VCCs. This regulatory update signals the need for all fund management companies to be prepared for increased scrutiny.
Next Steps for Fund Managers:
- Review all VCCs to ensure compliance with MAS requirements and this latest regulatory guidance.
- Assess the adequacy of your AML/CFT controls and custody arrangements.
- Revisit and update any arrangements that do not meet MAS’s definition of “substantive fund management activities”.
How Curia Regis Can Help
As a leading regulatory compliance firm in Singapore, Curia Regis has significant expertise in MAS compliance, VCC regulations, and fund management requirements. We help Singapore fund management companies ensure full compliance with MAS requirements, whether you need an AML policy review, guidance on directors’ duties, or support with MAS regulatory submissions.
If you have queries or concerns, or simply seek clarity on MAS compliance for VCCs, contact our team through admin@thecuriaregis.com or leave a message at our Contact Us page. We are ready to support your fund management company with tailored compliance solutions in Singapore.
