The Monetary Authority of Singapore (MAS) published a consultation paper proposing a simplified authorisation process and regulatory framework for managers of venture capital funds (VC managers). The move is part of MAS’ broader efforts to promote financing for enterprise development.
VC managers are an essential component of the start-up eco-system. They provide capital and expertise to businesses that are in the start-up or early growth phases. Although the VC industry has been growing at a healthy rate, there is room to further expand the size and scope of VC funding available for start-ups.
Currently, VC managers are subject to the same regulatory framework as other fund managers. VC managers are, however, different from other fund managers as they manage funds that typically:
- invest in only unlisted business ventures operating for no more than five years;
- do not accept new subscription after the close of a fund, with redemption only available at the end of the fund life; and
- are offered only to accredited and/or institutional investors.
These differences make some fund management rules that are currently imposed on VC managers less relevant.
MAS therefore intends to simplify the authorisation process and regulatory regime for VC managers. The simplified regime also takes into account the extent of contractual safeguards that are already present in typical fund management contracts negotiated by VC managers’ sophisticated investor base.
Under the proposed simplified authorisation process, MAS will focus primarily on fitness and propriety assessment of the VC managers. Unlike the case for fund managers, MAS will not require VC managers to have directors and representatives with at least five years of relevant experience in fund management. New VC managers can expect a much shortened application process.
Under the proposed simplified regulatory framework, new and existing VC managers will not be subject to the capital requirements and business conduct rules that currently apply to fund managers in general.
The base capital requirements and risk-based capital requirements will be removed. The requirement for independent valuation, internal audits and submission to MAS of audited financial statements will not be imposed.
It is important that the VC industry remains sound, has good governance and adequate controls against financial crime, and upholds high standards of integrity. VC managers, their directors and key officers must therefore continue to meet fit and proper requirements and comply with anti-money laundering obligations. MAS will also retain regulatory powers to deal with errant VC managers.
Mr Lee Boon Ngiap, Assistant Managing Director, Capital Markets, MAS, said:
The proposed simplified regulatory regime for VC managers recognises the lower risks they pose, given their business model and sophisticated investor base. It will allow new VC managers a faster time-to-market and reduce their ongoing compliance burden. We hope this will attract more VC managers and spur them to play a greater role in supporting entrepreneurship and innovation.
The public consultation will last until 15 March 2017. A copy of the public consultation is available on the MAS website.