Singapore's Regulator Says Tougher Hedge Fund Rules Could Cause Some Shutdowns

Tom Burroughes

19 November 2012

Smaller hedge funds falling below $250,000 in “base capital” may in some cases shut down due to tougher regulations imposed by Singapore although rules should not deter start-ups, the city-state’s financial regulator has said.

Responding to a question from Singapore MP Ong Teng Koon, the Monetary Authority of Singapore, quoting Tharman Shanmugaratnam, deputy prime minister and minister in charge of MAS, said: “Taken together with rising regulatory standards globally, a possible outcome of these changes is that some small firms in Singapore which are unable to adapt will close. A similar trend has been observed in other fund management centres.”

“That said, MAS does not expect the recent changes to the regulatory regime for fund management companies in Singapore to deter fund managers from setting up business in Singapore. Since the introduction of the new regime on 7 August, 58 exempt fund managers have either registered to operate as a RFMC or applied for a licence under the enhanced regime, while 101 have shut down,” he said.

The question focused on the new “enhanced regulatory regime for fund management companies” that requires funds to have $250,000 in base capital, and to have internal and independent audits in addition to existing financial audits.

Singapore, like other financial jurisdictions such as the US and European Union, has been looking to tighten rules on hedge funds and other investment vehicles to prevent blow-ups and frauds of the kind that came to light in the 2008 financial crisis.

“In the aftermath of the global financial crisis as well as the Madoff scandal, regulators around the world have increased oversight of the industry to restore investor confidence and avoid a build-up of systemic risks in the industry. MAS gave notice of its intention to enhance the regulatory regime for fund managers as early as April 2010,” the MAS statement said.

Fund managers overseeing assets of more than $250 million or serving more than 30 qualified investors are required to obtain a licence from MAS; those under those thresholds may either apply for a licence or register with MAS. The required base capital ranges from S$250,000 to S$1 million and is tiered, based on the type of clientele served by the manager.

Businesses that operated under the previous exempt fund manager regime have until 6 February 2013 to either register as a RFMC or apply for a licence.