Singapore: ASEAN CIS Framework enhancements

Key enhancements

 Details

1. Time-to-market

• To shorten the time-to-market for the launch of funds, the Signatories have committed to reviewing within 21 calendar days a complete application for the authorisation of a fund.

2. Experience of CIS Operator 

• A CIS Operator was required to have a track record in managing CIS for at least five years under the Initial CIS Framework.
• The Revised CIS Framework requires the CIS Operator to satisfy the Home Regulator that for the past five years the CIS Operator has been responsible for the operation of CIS that have been regulated in a way that enables the CIS to be offered to the general public in jurisdictions prescribed by the Revised CIS Framework. The CIS Operator may rely on the experience and expertise of its related companies in the operation of CIS in relation to the abovementioned requirement, provided that certain conditions set out in the Revised CIS Framework are met.

3. Assets under management (AUM) requirement

• A CIS Operator (together with its related companies) must have AUM of at least $500m globally under the Initial CIS Framework.
• The Revised CIS Framework reduces the threshold to $350m globally which is to be assessed at the time of application of each Qualifying CIS.

• Where the CIS Operator has AUM of more than $500m, it must maintain additional capital equivalent to 0.1% of the AUM in excess of $500m under the Initial CIS Framework.
• The Revised CIS Framework caps the amount of additional capital requirement at $20m.
• Further, the Revised CIS Framework clarifies that the AUM of CIS Operator refers to the sum of the value of: (i) the assets of each CIS the operations of which it is responsible; and (ii) any other assets for which the CIS Operator performs discretionary investment management on behalf of another person, whether or not this is on a collective basis.

• Under the Initial CIS Framework, up to an aggregate of 20% of the NAV of a Qualifying CIS may be delegated to foreign sub-managers / delegates that are not regulated by a Signatory to the CIS Framework provided that the foreign sub-managers / delegates are: (i) domiciled in a jurisdiction that is a signatory to International Organisation of Securities Commission (IOSCO) Multilateral Memorandum of Understanding Appendix A, and (ii) acceptable to the Home Regulatory of the Qualifying CIS.
• The 20% limit mentioned above will not apply if the fund management function is delegated to foreign sub-managers / delegates that are: (i) regulated by a Signatory to the CIS Framework, (ii) subject to the CIS Operator qualification requirements under section 1 of the CIS Framework, and (iii) subject to the exchange of information and supervisory arrangement as provided for under the MOU.
• The Revised CIS Framework provides that the function of making discretionary investment decisions for the Qualifying CIS may only be delegated or sub-delegated to an entity that is licensed, registered, authorised or regulated to carry out fund management activities by (i) a Signatory to the CIS Framework or (ii) an acceptable financial supervisory authority that has a regulatory framework applying to CIS that is broadly similar in effectiveness to that of the Home Jurisdiction in the opinion of the Home Regulatory, having regard where relevant to the IOSCO principles and IOSCO assessment methodology relating to CIS.
• If the CIS Operator of a Qualifying CIS delegates or sub-delegates the function of making discretionary investment decisions, the CIS Operator must ensure that the qualifying delegate shall at all times has one or more fund managers, who are able to meet the prescribed conditions.

• Under the Revised CIS Framework, the CIS Operator must appoint an independent reviewer to conduct compliance review of the operation of the Qualifying CIS.
  Such independent reviewer is required to produce a report which should minimally state certain information as prescribed under the Revised CIS Framework.
• The Revised Framework also prescribes the entities with respect to each Home Regulator, which are permitted to conduct independent reviews.

• The Revised CIS Framework clarifies the entities with respect to each Home Regulator, which are permitted to serve as trustee / fund supervisor for a Qualifying CIS.

•  The Initial CIS Framework provided that compensation to participants must be made in compliance with the strictest regulation / laws stipulating the threshold to compensate to investors of the jurisdictions in which a Qualifying CIS is offered.
• Under the Revised CIS Framework, it is sufficient to just provide compensation in compliance with the rules specified by the Home Regulator.

• The Revised CIS Framework states that the offer of a Qualifying CIS to the general public in a Host Jurisdiction shall be subject to the rules specified by such Host Jurisdiction.
• Such rules among others include, licensing requirements for marketing and distribution of the Qualifying CIS, advertising of Qualifying CIS and communications with investors or prospective investors (including misleading and deceptive conduct in relation to such communication).

• The Initial CIS Framework stated that any investment must be issued and offered in any jurisdiction that is an ordinary or associate member of the International Organisation of Securities Commission (IOSCO) and, if the investment is a listed security, the investment must be traded in an exchange that is a member of World Federations of Exchange, for it to be classified as a “transferable security”.
• The Revised CIS Framework provides an investment which is issued and offered in ASEAN jurisdictions will also be classified as a “transferable security”.

• The Initial CIS Framework stated that the underlying of a financial derivative must consist of: (i) eligible assets, (ii) financial indices comprising eligible assets, (iii) foreign exchange rates / currencies, or (iv) interest rates.
• The Revised CIS Framework provides that in addition to the four instruments listed above, the underlying of a financial derivative may also consist of a rate of inflation calculated, endorsed or determined by a Government or Government agency.