Oversight Hedge fund manager regulation: Singapore vs Hong Kong

Since the global financial crisis, the regulatory regimes of Asia’s two competing international financial centres - Hong Kong and Singapore - have continued to converge with regard to the regulation of hedge fund managers.

In the former, since the enactment of the Securities and Futures Ordinance (SFO) in 2003, the Securities Futures Commission (SFC) has increasingly tightened the requirements, most recently with the introduction of the Manager-In-Charge (MIC) regime and the updated Fund Manager Code of Conduct (FMCC) effective November 2018.

In the latter, there had been an exemption for hedge fund managers until 2012. After the global financial crisis, the licensing regime in Singapore was significantly reformed.

Since 07 August 2012, following a review of the regulatory regime for Fund Management Companies (FMCs), the Monetary Authority of Singapore (MAS) implemented an enhanced regulatory regime for FMCs based in Singapore. The legislative amendments to the Securities and Futures Act (SFA) implemented then affected all FMCs based in Singapore. The MAS essentially increased the regulatory requirements with which FMCs of all types have to comply. These developments aligned the regulatory regime in Singapore more closely with the regulatory framework in place in other financial hubs, such as Hong Kong.

This Oversight sets out a brief review of the requirements for fund managers in each of Singapore and Hong Kong, and a comparison of certain areas of the regulatory regime in Singapore with the equivalent requirements of an entity licensed in Hong Kong.

Licensing requirements

Singapore

Unless exempt, corporations with fund management as their principal business activity in Singapore have to be either: (i) registered FMCs (RFMCs) or (ii) licensed FMCs (LFMCs), which hold a capital markets services (CMS) licence for fund management either for retail or for non-retail. FMCs in Singapore are thus regulated in 3 bands:

• Registered FMC (RFMC) – An FMC whose assets under management (AUM) does not exceed S$250m (approximately US$183m) and which does not serve more than 30 clients that meet the definition of “qualified investors” (of which not more than 15 of such clients are funds or limited partnership structures, and whose underlying investors are all accredited investors and/or institutional investors). An RFMC will be subject to, among others, (i) eligibility criteria; (ii) business conduct rules; and (iii) capital requirements (although, as indicated, an RFMC does not hold a CMS licence). An RFMC should periodically monitor the size of its AUM and should take steps to apply to be an A/I LFMC once it is aware that there is a likelihood of its AUM crossing the S$250m threshold in the near future - see below.
• Accredited/Institutional Licensed FMC (A/I LFMC) – An FMC which serves only clients which meet the definition of “qualified investors”. Generally, the underlying investors of funds managed by an A/I LFMC must be accredited investors and/or institutional investors. There is no limit on the AUM of the FMC.
• Retail Licensed FMC (Retail LFMC) - An FMC which serves all types of clients, including funds authorised for public offer to retail investors.