SFA Regulated Activity — Fund Management¶
Definition¶
Fund management means undertaking on behalf of a client (whether on a discretionary basis or otherwise) the management of a portfolio of capital markets products, or the management of a collective investment scheme (CIS). This definition is set out in Paragraph 5 of the Second Schedule to the Securities and Futures Act 2001 (SFA).
The definition captures two distinct but related functions: 1. Discretionary portfolio management (DPM) — Managing a portfolio of investments for a specific client, with the authority to make investment decisions without obtaining prior approval for each transaction 2. Collective investment scheme management — Managing the assets of a CIS (e.g., unit trust, mutual fund, hedge fund) on behalf of all participants in the scheme
Scope of Activity¶
Discretionary Portfolio Management (DPM)¶
What constitutes DPM: - Managing a client's investment portfolio under a discretionary investment management agreement (IMA) - Making buy/sell decisions on behalf of the client within the parameters of the IMA (investment mandate, asset allocation ranges, risk limits, benchmark, restricted securities) - Selecting specific securities, funds, and other instruments for the portfolio - Rebalancing the portfolio in response to market conditions, client instructions, or changes in investment outlook - Managing cash and currency exposures within the portfolio
Key characteristics: - The fund manager exercises investment discretion — the defining feature of this activity - The client delegates decision-making authority but retains ownership of the assets - The IMA defines the scope and limits of the manager's discretion - The client can terminate the IMA and withdraw the mandate at any time
What is NOT DPM: - Non-discretionary advisory — Providing investment recommendations where the client retains the final decision to execute is "advising on capital markets products," not fund management. The line is whether the manager can execute without prior client approval. - Execution-only services — Executing trades on client instructions without any advisory or discretionary element is "dealing," not fund management. - Robo-advisory with no discretion — Automated platforms that generate model portfolios but require client approval before executing trades may fall under advising rather than fund management (depends on the specific implementation).
Collective Investment Scheme (CIS) Management¶
What constitutes CIS management: - Managing the assets of an authorised or recognised CIS under the SFA - Making investment decisions for the CIS in accordance with the scheme's constitutive documents (trust deed, limited partnership agreement, or articles of incorporation) - Selecting and monitoring sub-managers or external investment managers (for fund-of-funds structures) - Managing the CIS's liquidity, including subscription and redemption processing
Types of CIS under Singapore law: - Unit trusts — The most common structure for retail CIS in Singapore. The manager appoints a trustee to hold the assets. - Investment companies — Corporate structure (variable capital company, VCC, introduced in 2020) - Limited partnerships — Common for private equity, venture capital, and hedge funds - Designated funds — Specific fund types regulated under dedicated MAS regulations (e.g., Singapore-authorised funds for retail distribution)
Key CIS management obligations: - Compliance with the scheme's investment mandate and restrictions - Compliance with MAS Code on Collective Investment Schemes (CIS Code) - Preparation and distribution of prospectus/information memorandum - Ongoing disclosure to investors (factsheets, annual/semi-annual reports) - Valuation of CIS assets at prescribed intervals (typically daily for listed unit trusts, less frequent for private funds)
Custody Requirements¶
Client Assets in DPM¶
- Client assets managed under a discretionary mandate must be held by an independent custodian (not the fund manager itself, except where specifically permitted)
- The custodian must be an approved entity (licensed bank, trust company, or other approved institution)
- Client assets must be segregated from the fund manager's proprietary assets
- The fund manager must reconcile client holdings with custodian records at least monthly
CIS Assets¶
- CIS assets must be held by an approved trustee (for unit trusts) or custodian (for VCCs and other structures)
- The trustee/custodian must be independent of the CIS manager
- Safekeeping obligations include maintaining proper records, reconciling positions, and reporting to the CIS manager
- Sub-custody arrangements (where the trustee appoints sub-custodians in other jurisdictions) must be subject to due diligence and oversight
MAS Requirements on Custody¶
- Customer-asset segregation, safekeeping, and use is prescribed under SF(LCB)R Part III and applicable MAS Notices on customer assets
- Fund managers must not use client assets for their own purposes (e.g., securities lending of client assets for the manager's benefit is prohibited unless specifically authorised in the IMA)
- Rehypothecation (using client assets as collateral for the manager's own borrowing) is generally prohibited
Valuation¶
Valuation of DPM Portfolios¶
- Client portfolios must be valued at fair value, using market prices where available
- Illiquid or unlisted securities must be valued using appropriate methodologies (independent valuation, comparable transactions, DCF)
- Valuation must be independent of the investment decision-making function
- Valuation reports must be provided to clients at agreed intervals (typically monthly or quarterly)
Valuation of CIS¶
- Listed / daily-dealt CIS: Net Asset Value (NAV) must be calculated at least daily for schemes that deal on a daily basis. NAV per unit is the basis for subscription and redemption pricing.
- Private / illiquid CIS: Valuation at intervals specified in the constitutive documents (quarterly is common for PE/VC funds). Independent valuation of illiquid assets at least annually.
- Valuation independence: The CIS Code requires that the valuation function be independent of the portfolio management function. The manager may delegate valuation to the trustee, an independent valuation agent, or a separate internal valuation team with appropriate controls.
- Pricing errors: Material pricing errors must be identified, corrected, and reported. If a pricing error results in material over- or under-payment to subscribing or redeeming investors, compensation may be required.
CMFAS Examination Requirements¶
Mandatory Modules¶
| Module | Title | Scope |
|---|---|---|
| M5 | Rules and Regulations for Fund Management | SFA provisions on fund management, CIS Code, licensing conditions, custody requirements, valuation, risk management, AML/CFT, MAS Guidelines on Individual Accountability and Conduct |
| M6 | Securities Products and Analysis | Securities, futures, CIS products, financial analysis, valuation |
| M6A | Securities and Futures Product Knowledge | Updated version of M6 |
Note on CMFAS regime change (1 April 2024): M5, M6, and M6A were retired under SFA 04-N22. Current modules are RES-3 (Fund Management, replacing M5) and CM-EIP (Excluded Investment Products, replacing M6/M6A). For CIS management, CM-CIS replaces M8/M8A. Old M-series passes before 1 April 2024 are grandfathered.
Additional Modules¶
| Product Scope | Additional Module | Title |
|---|---|---|
| Managing CIS for retail distribution | M8 or M8A | Collective Investment Schemes |
| Managing portfolios including futures | M2 | Rules and Regulations for Trading in Futures Contracts |
| Managing portfolios including leveraged FX | M3 | Rules and Regulations for Leveraged Foreign Exchange Trading |
Continuing Professional Development (CPD)¶
- Minimum of 6 CPD hours per calendar year
- Topics must include investment management, risk management, regulatory developments, valuation
- Tracked by the employing CMS licence holder
Licensing Conditions for CMS Licence Holders¶
Base Capital Requirements¶
| Category | Minimum Base Capital |
|---|---|
| Fund management — retail CIS | S$1,000,000 |
| Fund management — accredited / institutional investors only | S$250,000 |
| Fund management — venture capital fund management | S$250,000 |
| Registered fund management company (RFMC) — AUM < S$250M, max 30 qualified investors | S$250,000 |
Operational Requirements¶
Risk management: - Fund managers must establish and maintain a robust risk management framework - Investment risk limits must be defined, monitored, and enforced - Stress testing and scenario analysis must be performed regularly - Counterparty risk, liquidity risk, and operational risk must be managed
Compliance function: - An independent compliance function must be established - Compliance monitoring programme covering investment mandate adherence, regulatory requirements, and internal policies - Regular compliance reporting to senior management and the board
Best execution: - When executing transactions for client portfolios, the fund manager must seek best execution - Best execution factors include price, costs, speed, likelihood of execution, settlement, and order size - The fund manager must maintain records demonstrating best execution
Fair allocation: - When a fund manager manages multiple client portfolios and the same investment opportunity arises, the manager must allocate the opportunity fairly among all eligible portfolios - Pre-trade allocation policies must be documented - Aggregation and allocation of orders must be fair, transparent, and auditable
Performance reporting: - Performance must be reported accurately and in accordance with recognised standards (e.g., GIPS — Global Investment Performance Standards) - Performance must be calculated net of fees - Benchmark comparison must be disclosed - Misleading performance advertising is prohibited
Key Business Conduct Obligations¶
Fiduciary Duty¶
Fund managers owe a fiduciary duty to their clients: - Act in the best interests of the client at all times - Exercise the care, skill, and diligence of a prudent fund manager - Avoid conflicts of interest; where unavoidable, manage and disclose them - Not profit at the client's expense (no secret commissions, kickbacks, or undisclosed benefits)
Soft Dollar and Commission Arrangements¶
- The fund manager must not receive goods or services from brokers (soft dollar benefits) that do not directly benefit clients
- Permissible soft dollar benefits include research, market data, and analytical tools that assist in the investment decision-making process
- All soft dollar arrangements must be disclosed to clients
Connected Person Transactions¶
- Transactions between the fund manager (or its related entities) and the client portfolio or CIS must be conducted at arm's length and on terms no less favourable to the client than those available from unrelated parties
- Prior disclosure to the client or, for CIS, the trustee, is required
- Some connected person transactions may require specific client consent
Relevance to Regnify Form 3A¶
When an FI submits a Form 3A to appoint a representative for fund management:
- CMFAS results — Evidence of passing M5 and M6/M6A (plus M8/M8A if managing CIS for retail)
- Fit and proper — No disqualifying criminal record, regulatory sanctions, or bankruptcy
- 10-year employment history — Complete with gap explanations
- Regulatory track record — All prior appointments, refusals, revocations, disciplinary actions
- Educational qualifications — As prescribed by MAS; CFA or equivalent qualifications are common in the fund management industry
- Reference checks — From most recent financial services employer
- Relevant experience — MAS may scrutinise the representative's investment management experience, particularly for portfolio manager roles with significant AUM responsibility
The FI must confirm that the representative will operate within a robust risk management and compliance framework, and that adequate supervision is in place for the representative's investment decisions.