The venture capital landscape in Asia continues to be robust. By Q2 2017, global venture capital deal value reached US$ 40.1 billion, a healthy 55.3% increase.1 Asia accounted for US$12.7 billion, taking the second place from United States led venture capital investments which aggregated US$21.8 billion.2 Europe accounted for US$4.1 billion of global venture capital investments.3
Against this backdrop, the Monetary Authority of Singapore (MAS) launched a public consultation in February 2017, on a proposed simplification of the existing regime for venture capital funds in Singapore. Following the public consultation, the regime (VC Manager Regime) was implemented with immediate effect on 20 October 2017. The VC Manager Regime is intended to further facilitate the funding of early stage start-up businesses by permitted increased access to equity funding.
Prior to the implementation of the VC Manager Regime, fund managers were subject to the same or similar regulations, requirements and oversight in Singapore and exemptions where applicable. The VC Regime marks a change in the treatment of venture capital fund managers and recognition by the MAS of the unique market position that venture capital funds occupy given, inter alia, the business model and sophisticated investor base.
Qualifying venture capital funds under the VC Regime will need to satisfy the following continuing investment requirements:
- the fund must invest in business ventures which are not listed on a securities exchange;
- the fund must invest at least 80% of committed capital in securities that are directly issued by unlisted business ventures that are no more than ten (10) years old; the remaining 20% of committed capital may be invested in other unlisted business ventures (through secondary market acquisitions and/or which are more than ten (10) years old;
- units of the fund that are not available for new subscription after the close of fund raising and can only be redeemed at the end of the fund life; and
- the units are only offered to accredited and/or institutional investors. This requirement is extended to include employees of the fund manager.
In addition to the above, venture capital fund managers operating under the VC Regime will need to satisfy the following continuing compliance requirements:
- be a Singapore incorporated company that has a permanent physical office in Singapore;
- be in compliance with anti-money laundering and counter financing of terrorism requirements (which extend to include investor due diligence, monitoring and screening);
- complete and submit periodic regulatory returns, updates as to changes in key appointments, investor categories and numbers, fund types, deals by sector and geography and assets under management;
- disclose to investors that it is not subject to all of the regulatory requirements imposed on other fund management companies; and
- that the venture capital fund manager itself, its directors, employees and representatives are fit and proper and subject to the fitness and proprietary screening of its CEO, directors, shareholders and representatives.
Notably, venture capital fund managers will not be subject to any capital or competency requirements. From the MAS’ perspective, investors are able to negotiate these requirements with the venture capital manager that they invest with. Aside from complying with the general record keeping duty, compliance with other ongoing business conduct rules are no longer required (for example the provision of statements of account, audit and risk management to customers). VC managers under the VC Regime will separately listed on the financial institutions directory on the MAS website. MAS will retain existing regulatory powers to deal with non-compliant managers.
From a practical perspective, venture capital fund managers (which do not currently hold a capital markets services licence) intending to bring themselves within the VC Regime will need to submit an application to the MAS to hold a capital markets service licence as a venture capital fund manager using Form IV. Venture capital fund managers which are currently licensed as fund managers or fund management companies and which seek to bring themselves within the VC Regime need to notify the MAS of their intention to be a venture capital fund manager through submission of Form IV.4
Consequential legislative amendments to the following Regulations and Notices as a result of the implementation of the VC Regime:
- Securities and Futures (Licensing and Conduct of Business) Regulations;
- Financial Advisor Regulations;
- Notice on Minimum Entry and Examination Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions Notice (Notice No. SFA04-N13); and
- Notice on Risk Based Capital Adequacy Requirements for Holders of Capital Markets Services Licences (Notice No. SFA04-N13).
A copy of the MAS consultation paper and response to public feedback received on the consultation can be accessed here.
2 Please see footnote 1.
3 Please see footnote 1.
4 The application or notification is to be submitted through the MAS Corporate Electronic Lodgement System.