The president of the Association of Independent Wealth Managers Singapore comments about what MAS recently said about the state of the city-state's Variable Capital Companies regime, which came into force more than five years ago.

A recent call – discussed here – by the Monetary Authority of Singapore to weed out slack practices in Variable Capital Companies (VCCs) has been praised by a prominent business organisation in the sector.

“Ultimately, we view this as a recalibration and necessary step in fortifying the ecosystem, ensuring that the VCC framework rests on a strong, credible foundation,” Jolene Tan (main picture), president of the Association of Independent Wealth Managers Singapore, said. 

VCCs, established at the start of 2020, are part of Singapore's push to raise its stakes as a wealth management sector. VCCs are flexible corporate structures used for both open-ended and closed-end investment funds; they can invest in a wide range of assets, including equities and fixed income instruments, both in public and private asset markets. The vast majority are offered to only accredited and/or institutional investors. VCCs enable branches of a family with different goals to run separate sub-funds while pooling their costs.

Among the areas of concern, in late June, MAS said that some VCCs did not maintain their assets with independent custodians; certain VCCs appointed additional directors who were not appointed representatives of the VCC manager; managers in some cases managed VCCs that held no assets or had no investors; and there were cases of VCCs holding illiquid assets on behalf of a single investor or a few related investors, which previously belonged to these investors.

“MAS’ core compliance expectations have long applied to CMS licence holders and VCC fund managers. What we are seeing now is a clear intensification in MAS’ supervisory stance, marked by strong enforcement actions, thematic reviews, and more visible communication of its expectations,” Tan told this news service. (She is also co-founder of SingAlliance Pte. This news service separately interviewed Tan in April about trends in the external asset management, family offices and funds sectors.)

“Strengthening the market integrity today will enhance regulators’ confidence to evolve toward the next phase of development, including what many anticipate as a `VCC 2.0’,” Tan said. The latter point refers to a second iteration of the VCC model. MAS is looking at the feasibility of widening the scope of fund managers permitted to use the VCC structure, to potentially include specific classes and to allow licence exempt managers, such as single-family offices.

The MAS report “signals MAS’ intent to reinforce consistently high standards across the entire industry. The heightened scrutiny forms part of a broader and ongoing regulatory effort to uplift the quality of market participants and, in particular, to close potential gaps in AML/CFT frameworks,” Tan said. 

The regulator is cracking down on dormant or shell VCCs with little or no substantive activity; it is reinforcing the need for real governance and management substance; MAS is tightening controls on fund structures and cross-border flows, ensuring that these are not exploited for illicit purposes and that intermediaries uphold robust AML/CFT safeguards.

“For managers that are already operating with a high level of compliance, these measures largely reflect a formalisation of existing best practices,” Tan said. 

“The greater impact will be felt by those lagging in compliance maturity, particularly firms relying on minimal substance, outdated practices, or attempting to bypass regulatory expectations. These entities now face stronger regulatory headwinds, prompting either a step-up in regulatory governance or a potential exit from the market,” Tan added.