MAS to Singapore Fund Managers: You Better See What Is Happening with the VCC!
Summary: This blog is an insight into a circular issued by the Monetary Authority of Singapore on June 26, 2025, and addressed to chief executive officers of fund management entities in Singapore. Upon its release, it had caused a flutter among some fund management entities regarding the implications and intent behind the circular. We take a closer look at what it entails.
Introduction
Our previous blog [A variable capital “company”, or “fund”? | Private Client] was about the Variable Capital Company (“VCC”) structure introduced in Singapore through a legislation in 2018 and how, while being a company, it acts like a pooling vehicle in practice and has propelled Singapore to the global stage as a premier asset and wealth management hub.
In mid-2025, the Monetary Authority of Singapore (“MAS”) issued a circular on Governance and Management of Variable Capital Companies (“Circular”)[1] to all heads of licensed fund managers in Singapore. What prompted this Circular? It was MAS’s 2024 examination, which revealed concerning gaps between regulatory expectations and actual practices, prompting the regulator to clarify its supervisory stance.
In Singapore, the VCC per se may not be considered as regulated by MAS; however, MAS exercises regulation over it through the fund manager of a VCC, which in turn owes several licensing and compliance obligations to the regulator. Thus, MAS issued the said Circular to regulated fund managers who hold management shares of, and in other words, manage the operations of, a VCC along with a duly appointed fund administrator and legal and tax advisors, as required by applicable laws.
Central to the Circular is guidance on how a regulated fund manager should deal with a VCC it “manages”, issues identified by MAS upon a deeper examination of several Singapore fund managers, and certain “good practices” a manager must adhere to in their governance of a VCC. This blog endeavours to clarify MAS’s intent behind the issuance of the Circular and highlight its impact on fund managers in Singapore.
The Pith and Substance of MAS’s Ask from Fund Managers
As discussed in our previous blog, the fund manager holds the management shares of a VCC, and the investors are issued participatory shares in lieu of their investments in the VCC. Effectively, this means that the investors will only have an economic right in the fund, whereas the regulated fund manager will helm the ownership and overall management of the fund.
But what does fund management in this context entail? Is it limited to reporting obligations that the fund manager has to the regulator, or is it more than that?
To answer these questions, it is important to consider the essential purpose and / or function of a fund manager in terms of the applicable laws of Singapore, namely, the Securities & Futures Act, 2001, and the Financial Advisers Act, 2001. Broadly, this would entail establishing the fund in accordance with applicable laws of Singapore, managing the capital committed by an investor, deploying the capital in terms of the investment strategy and objectives of the fund, and providing investment advice that is in consonance with the fund’s private placement memorandum (“PPM”) and subscription documents. Therefore, if a fund manager (i) limits itself to proposing investment in a fund / VCC to an accredited investor[2] only for consolidating the latter’s investments under the VCC; and (ii) seeks tax incentives under Section 13 of the Singapore Income Tax Act, 1947 (refer to our previous blog for a refresher), (iii) makes requisite reporting to the regulator, and stops right there, that may not suffice.
Why? Well, it is of utmost importance for a regulated fund manager to fulfil the duty of actively providing investment guidance concerning the capital infused in the fund / VCC. Typically, under these discretionary mandates, the investor has no say in the eventual deployment of this capital. Instead, the fund manager takes a call on deployment, ensuring it is within the boundaries of the investment management agreement executed with an investor. MAS found several instances of VCCs established by a fund manager either merely functioning as conduits for consolidating an investor’s global assets or merely holding assets that were not being actively used for investments as envisaged in the PPM. Such practices fell short of what MAS considers substantive fund management activity, which is not aligned with the spirit of the Singapore VCC framework.
Beyond the foregoing core issue, the Circular also flags certain operational and compliance issues that emerged during MAS’s review, including instances of VCCs not reporting their custody arrangements despite having investments in assets such as listed equities or fixed-income instruments, which are typically assets that require independent custody. Exceptions apply to assets comprising private equity or venture capital investments offered exclusively to accredited/institutional investors.
Fund governance was another area of concern. MAS noted instances of directors engaged in regulated activities (e.g., deal sourcing, investment research, portfolio management or client-facing activities), without being appointed as licensed representatives of the fund manager. MAS also highlighted fund managers managing multiple dormant VCCs that neither held any assets nor had investors, despite having been incorporated for more than a year. The objective here was straightforward: wind down a VCC that serves no purpose.
Last but not the least, from a pure compliance perspective, a substantial portion of the Circular addressed fund managers’ anti-money laundering and countering the financing of terrorism obligations (“AML / CFT”). MAS requires fund managers to adopt adequate controls and processes to comply with the AML / CFT obligations, including those outlined in the MAS Notice dated June 30, 2025,[3] and the Variable Capital Companies (Sanctions and Freezing of Assets of Persons) Regulations 2020, such as verifying the identities of customers and their beneficial owners, maintaining an accurate and up-to-date register of beneficial owners, and conducting enhanced due diligence measures on higher-risk customers. VCCs should also be able to provide such beneficial ownership information to MAS and relevant law enforcement agencies in a timely manner upon request. MAS emphasised that the VCCs / fund managers should exercise sufficient oversight over the eligible financial institutions it appoints to ensure that AML / CFT frameworks and controls are robust and effective.
Does Anything Change for the Singapore Fund Managers?
At a pinch, yes and no. No, to the extent that the Circular does not state something not already in existence. Instead, it alerts the regulated fund managers that MAS is watching closely and will take requisite action where needed. The yes is to underline the most important message that MAS intended to convey through the Circular: if you are a Singapore-based regulated fund manager holding a capital market services license for providing fund management services, please provide these services.
In other words, such a fund manager must play an active role in “managing” the funds the investors have invested in the fund, implying the fund manager must demonstrate substantive fund management activity. Not doing so may be considered as an abdication of a central responsibility owed to investors who have reposed their trust and confidence in the fund manager.
So, what should fund managers do now? MAS expects a thorough self-assessment against the issues raised in the Circular, followed by concrete remedial action where gaps exist. This means implementing proper custody arrangements if they are missing, ensuring anyone performing regulated functions is appropriately licensed as a representative of the VCC, and taking the necessary decision to wind up dormant VCCs. This is not merely guidance; MAS has already begun supervisory reviews of certain managers based on its findings and is actively considering whether regulatory action is warranted in specific cases.
The Circular’s overarching message is clear: MAS expects fund managers to be genuine investment managers, not administrative facilitators and that it will actively supervise and enforce this expectation. If you are a Singapore-regulated fund manager who has been compliant and fulfilling other obligations as required by a regulated entity, you should be fine. If you aren’t, remember, MAS is watching!
[1] Circular No IID 04/2025, issued by MAS on June 26, 2025
[2] Securities and Futures Act 2001, Second Schedule, Part 2, definition of “fund management”
[3] MAS Notice VCC-N01