Changes to fund management industry rules in Singapore seem likely to trigger a period of consolidation, experts told AsianInvestor.
While the new -- and more streamlined -- regime is not expected to be excessively challenging, there will be added costs and capital requirements, which could prompt some smaller entities to leave or merge, according to industry experts.
“We expect additional costs to be borne by transitioning managers as a result of the more burdensome Accredited or Institutional Licensed Fund Management Companies (A/I LFMC) regime, including increased annual Monetary Authority of Singapore fees, greater costs associated with more frequent and granular reporting, increased MAS interaction and approval requests, likely an increased compliance function — whether in-house or outsourced — and potentially a higher capital requirement,” Sean Murphy, partner at Cooley LLP, an international law firm, told AsianInvestor.
The sentiment was echoed by a veteran APAC head of regulations and compliance-based in Hong Kong: “There is more compliance overlay involved in the LFMC regime. The transition may prompt a strategic reassessment of economic viability and scale within the industry.
"This could lead to industry participants contemplating mergers to create larger fund management entities, rationalising costs, and operations," the executive said.
The Monetary Authority of Singapore in late October published a consultation paper on the Repeal of the Regulatory Regime for Registered Fund Management Companies (RFMC).
Feedback will be gathered until December 31, 2023, and from January 1, 2024, MAS will stop accepting new applications under the RFMC regime.
Under the streamlined regime, all fund management entities will need to follow LFMC guidelines.
The RFMC regime, established by MAS in 2012, was aimed at smaller fund management firms that managed up to S$250 million in assets and had no more than 30 accredited or institutional investors.
With this regime gone, restrictions on asset size and investor size will be removed, but there will be additional compliance requirements.
Some of those compliance requirements may require outsourcing.
"Fund managers will look at whether they need to do back office and mid office operations in-house or outsource them," the APAC compliance head noted.
"The transition will take time, so chances are they will look to outsource the compliance reporting activities."
The proposal to overhaul the regime for fund management companies comes as Singapore’s asset management industry declined by 10% to S$4.9 trillion in 2022.
For Ken Chew, deputy CEO of Singapore-based Xin Fund Management Pte Ltd, an important change for the transition phase is the fact that players in the new regime "need to comply with and ensure ongoing capital is sufficient to cover 120% of operational risk requirements."
No such requirements exist under the RFMC regime.
“The RFMC regime has run its course. The fund management industry is becoming bigger, more stable, and more mature, so I think MAS wants to move to the next level of robustness within the industry. These measures by the MAS can be seen to clean out the fund management landscape and remove the entities that are not doing well, preparing the industry for the future”, noted Chew.
Most industry observers see no challenge to the demise of the RFMC regime since today, many sucessful funds have launches that are much larger than S$250 million.
However, companies following the old regime regulations will need to apply to be part of the streamlined regime for fund management.
That could be something that participants might raise concerns about in the consultation period: transitioning fund management companies will initially be limited to managing S$250 million, and will need to reapply to MAS for a potential increase at a later time.
“Some in the industry had hoped for the removal of this limit, as it adds extra steps for fund managers seeking to attract investor capital beyond this threshold,” noted the APAC compliance head.
“There are fund managers that have investors waiting to give money, and it will have to take them more steps to uplift that AUM limit,” she added.
The outcome of the consultation will determine whether this limit remains.