The Monetary Authority of Singapore has proposed a simplification of the authorisation process and regulatory framework for venture capital managers—with the goal of supporting start-ups.
Singapore’s Committee on the Future Economy (CFE) released a report on 9 February setting out seven strategies to maximize Singapore’s growth potential in the face of a slowing economy and global uncertainty (CFE Report). A key initiative outlined in the CFE Report is enhancing the financing ecosystem for start-ups to help sustain innovation and risk-taking in the economy.
In response, the Monetary Authority of Singapore (MAS) has released a Consultation Paper proposing to simplify the authorisation and regulatory requirements for venture capital (VC) managers to enable them to operate more nimbly in supporting start-ups in Singapore and the region. The MAS will also look to deepen the pool of private equity (PE) managers to draw in more capital for late stage and mature start-ups. In the coming year, the MAS will examine the scope to streamline rules and enhance the operating environment for PE managers.
Recognising the exponential room for growth within the nascent regional VC industry in Singapore, these changes are in line with the Singapore government’s aim to compete with leading fintech and VC ecosystems in New York and Silicon Valley. VC and PE assets under management in Singapore have grown by an average of 30% per year in the past five years.
Proposed Criteria to Differentiate VC Managers from Other Fund Managers
To be eligible under the proposed simplified regime, VC managers must only manage funds that meet all of the following criteria:
Fund invests only in unlisted ventures that have been established or incorporated for no more than five years at the time of initial investment
Investment is non-redeemable at the discretion of the investor and should not be continuously available for subscription
Fund is offered only to accredited investors and/or institutional investors that have the resources and expertise to protect their own interests
Simplified Authorisation Process for VC Managers
Under the proposed simplified regulatory regime, the MAS will focus primarily on a fitness and propriety assessment of VC managers. The proposed relaxing of the regulatory regime for VC managers includes the following initiatives:
Directors and representatives of VC managers no longer need to have at least five years of relevant experience in fund management
Base capital or risk-based capital requirements are no longer mandatory
In-house compliance capability is no longer mandatory
Independent valuations or internal audits carried out by VC managers for the funds they manage no longer mandatory
VC manager submission of annual audited financial statements or audit reports to the MAS no longer mandatory
Other ongoing regulatory requirements currently in force for all fund managers will remain applicable to VC managers, including the following:
Notification to the MAS of changes to particulars of VC managers (e.g., information on its substantial shareholders, CEO, directors, and representatives)
Annual declarations to the MAS in relation to VC managers’ funds under management and investor/deal profile, as well as written confirmation that they meet the criteria under the proposed regime
Obligation to implement robust controls to control flow of illicit funds and prevent money laundering and terrorist financing
Whilst the MAS has not yet outlined its proposed tax incentives for VC funds and VC managers, it has recognised the need to bolster existing concessions to nurture the local VC ecosystem.
The current qualifying criteria for the tax incentive schemes require a fund manager to be either a registered or licensed fund management company or to be expressly exempted from the requirement to hold a capital markets services licence in respect of its fund management activities.
The three main tax exemption schemes are the following:
Offshore fund tax exemption scheme
Singapore resident fund tax exemption scheme
Enhanced tier fund tax exemption scheme
To qualify for (1), there can be neither 100% Singaporean ownership nor Singaporean tax residence. To qualify for (2), amongst other requirements, there needs to be at least S$200,000 business spending per year. To qualify for (3), amongst other requirements, there is a minimum fund size requirement of S$50 million, a minimum of S$200,000 local business spending per annum, as well as the need to file annual tax returns.
Public comments on the Consultation Paper will be accepted by the MAS until 15 March 2017.