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MAS to review regulatory regime for VCs to anchor more such funds in Singapore

Friday, November 11, 2016 - 05:50

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The Monetary Authority of Singapore will ease its regulatory regime for venture capital (VC) managers to draw and anchor more of them in Singapore as part of the Republic's innovation drive.

Singapore

THE Monetary Authority of Singapore will ease its regulatory regime for venture capital (VC) managers to draw and anchor more of them in Singapore as part of the Republic's innovation drive.

Deputy Prime Minister Tharman Shanmugaratnam said on Thursday that the MAS is working with the VC industry to grow the funding landscape for startups in Singapore and the region.

VCs' role in stimulating economic dynamism has been a recurring theme in discussions of the Committee on the Future Economy (CFE), said Mr Tharman, who is also MAS chairman. The CFE has been been tasked with charting a blueprint for Singapore's economic future, and will release its report early next year.

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Speaking at the launch of Lattice80, a fintech hub, Mr Tharman said that in its review of the regulatory regime for VC managers, MAS is specifically looking to simplify and shorten the authorisation process for new VC managers.

It currently takes about 4 months to approve an application, though this year the time taken has shortened considerably, and the shortest has been one month.

Further, to the extent that there are contractual safeguards to provide sufficient protection to a VC's sophisticated investor base, MAS is also looking to exempt VC managers from business conduct requirements that are currently applied to asset managers in general. Some of the requirements include having independent valuation and reporting to investors, mitigation of conflicts of interest and disclosures on the funds managed.

MAS is also studying whether existing incentives for funds and fund managers, which have successfully drawn traditional asset managers to set up in Singapore and to grow over time, are suitable to anchor VC funds and VC fund managers here.

"We recognise VC funds and fund managers are typically smaller in size and headcount than traditional asset managers," Mr Tharman said.

"But they contribute in a different way, by supporting entrepreneurship and innovation in Singapore and the region. "We will take this into account in assessing the requirements for VC funds and fund managers to qualify for our incentives," said Mr Tharman.

Currently, all funds are required to have a minimum headcount of two, each with at least 5 years of fund management experience. Fintech investors said easing the regulations for VC managers would help build the fintech eco-system in Singapore.

Singapore is home to more than 300 fintech startups, focused on each segment of the value chain - from providing consumers more seamless payments services to offering institutions enhanced, automated fraud monitoring. In addition, more than 20 global banks and insurance companies have set up innovation labs and research centres in Singapore.

"It's a good thing, attracting vibrancy to this sector," said Gina Heng, co-founder and chief executive of Marvelstone Group which launched Lattice80.

Ms Heng is familiar with starting fund companies, having done two in the past; she said the process then took 3-6 months. The requirement to have five years of fund management experience often meant ex-bankers or investment bankers would qualify. Ms Heng said VC investors coming from alternative backgrounds would hire ex-bankers to front the business.

Ms Heng also questioned the usefulness of requiring regular audits: "Auditing startups with no cash flow?"

Chin Chao, chief executive for South-east Asia at venture debt firm InnoVen Capital, said that after the fund regime was tightened five years ago, many small VC firms moved out of Singapore. "Getting the smaller guys to set up again in Singapore is a good thing" for the eco-system, he said. "The smaller firms couldn't justify the cost, they stopped, or moved to Hong Kong or joined another firm."

New VCs may start with as little as S$10 million, an amount which would not need 2 professionals to handle, he said.

Asean has not attracted much fintech capital, especially at the growth stage, said Markus Gnirck, tryb managing director and co-founder. tryb is a growth stage investor in technology firms building the financial infrastructure platforms for Asean. "In Asia in general most of the investments have gone to China and India," said Mr Gnirck. tryb is in the process of raising US$100 million in long-term funding.

Asia fintech funding hit a new high of US$2.6 billion in Q1 2016, with China taking the lion's share of US$2.4 billion, according to a report in May on fintech VC trends published jointly by KPMG International and CB Insights.

MAS said a public consultation on its proposals will be done in January next year, and targets to introduce changes by July 2017.

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