In the 1999 Budget, Minister for Finance, Dr Richard Hu, announced the extension of the Tax Exemption Scheme for Fund Management to boutique fund management companies ("BFMs"). At the 2nd Annual Conference of the Investment Management Association of Singapore ("IMAS") on 17 Mar 99, Mr Koh Yong Guan, Managing Director, MAS, announced the criteria for BFMs to be licensed as Investment Advisers ("IAs") under the Securities Industry Act (Cap 289). This circular provides further details of the qualifying criteria for a BFM to be granted an IA licence and the tax incentive.
2 IA Licence
The requirements for a BFM to be licensed as an IA are as follows :
- Funds Under Management
A BFM must have at least S$100 million of discretionary funds under management 1 at the time of application. This could be funds under management in Singapore or elsewhere. A BFM which will only be providing advisory services and which has no intention of offering discretionary fund management services can be considered for an IA licence if the funds it manages on a non-discretionary basis 2 at the time of application is at least S$100 million;
- Financial Requirement
For a BFM managing discretionary funds, the minimum paid-up capital must be at least S$500,000. For a BFM acting only as a sub-advisor and not managing funds on a discretionary basis, the minimum paid-up capital must be at least S$250,000;
- Shareholding
A BFM must be majority-owned by local fund management professionals (Singapore citizens and permanent residents) and/or local entities. A foreign-owned BFM will be considered on a case-by-case basis if it has operated in Singapore as an Exempt Investment Adviser under Regulation 41(1)(e) of the Securities Industry Regulations or as an Approved Fund Manager under the Tax Exemption Scheme for Fund Management for at least 3 years or if its principals/shareholders have worked in Singapore for more than 3 years;
- Track Record
A BFM must have a minimum 3-year track record in the fund management business. The track record need not be attained in Singapore;
- Management Expertise
A BFM must employ at least 2 fund managers, at least one of whom must be a shareholder. The shareholder must have at least a 10-year acceptable track record in fund management or in closely-related areas, with at least 3 years of experience in fund management itself. At least one other fund manager must have at least 5 years of experience in fund management or such related areas. The fund managers must also have acceptable academic qualifications such as a degree or professional qualification including the Chartered Financial Analyst ("CFA");
- Professional Indemnity Insurance
A BFM managing discretionary funds must obtain professional indemnity insurance amounting to 1-3% of discretionary funds under management. The exact quantum of insurance cover would be determined by MAS, taking into account the scope and nature of activities conducted by the BFM;
- IMAS
A BFM must be a member of IMAS; and
- Clientele
The clientele must be restricted to sophisticated investors as defined in the Companies Act (Cap 50) 3.
3 Tax Exemption Scheme for Fund Management
3.1 As announced in the 1999 Budget, investment income earned by foreign investors 4 from funds managed by Approved Boutique Fund Managers ("ABFMs") in Singapore is exempted from Singapore tax 5. To qualify as an ABFM, a BFM must first be licensed as an IA. The additional requirements for a BFM to be awarded ABFM status are as follows:
- Funds under Management
A BFM must have at least S$100 million of discretionary funds under management in Singapore at the time of application. A BFM which does not meet but comes close to the S$100 million requirement can be considered on a case-by-case basis provided it commits to achieving the S$100 million level within 2-3 years;
- Financial Requirement
A BFM must have a minimum paid-up capital of S$500,000;
- Shareholding
A BFM must be majority-owned by local fund management professionals (Singapore citizens and permanent residents) and/or local entities; and
- Commitment
The applicant must commit to a growth target over a 5-year period in assets under management or number of investment professionals. The growth target will be determined in consultation with MAS.
3.2 Upon approval, the ABFM status will be granted for a period of 5 years. At the end of 5 years, ABFMs which have fulfilled their required growth commitment and continue to satisfy the qualifying conditions for ABFM status will be considered for renewal for a further 5 years.
4 Application Procedures
4.1 The application form for IA licences (Form 4) and investment representative's ("IR") licences (Form 6) for representatives of BFMs engaging in investment advisory activities can be found in the Securities Industry Regulations ("SIR"). The manner of application for the licences is spelt out in Regulations 6 and 7 of the SIR. Applications for IA and IR licences should be sent to the Supervision of Intermediaries Division, Financial Supervision Group.
4.2 Applications for ABFM status should be sent to the Financial Sector Promotion Department. The application form for ABFM status is attached.
4.3 Please contact Ms Merlyn Ee (Tel No : 6229 9687) if you have any questions on the IA and IR licence applications. For enquiries on the Tax Exemption Scheme for Fund Management, please contact Mr Teo Eng Cheong (Tel No : 6229 9175).
Yours faithfully
THARMAN SHANMUGARATNAM
DEPUTY MANAGING DIRECTOR (FINANCIAL SUPERVISION)
Application form for download:
