Governance and Management of Variable Capital Companies (VCCs)

Circular No: IID 04/2025
26 June 2025
To: Chief Executive Officers
[Holders of a Capital Markets Services Licence for Fund Management] [Financial Institutions Exempt from Holding Capital Markets Services Licence for Fund Management] Dear Sir / Madam GOVERNANCE AND MANAGEMENT OF VARIABLE CAPITAL COMPANIES (VCCs) A PROFILE OF VCCs AND KEY REGULATORY REQUIREMENTS Since the launch of the VCC framework in January 2020, there has been steady year￾on-year growth in the number of VCCs. As of 31 March 2025, there were approximately 1,200 VCCs in Singapore. 2 MAS carried out a thematic review of VCCs and their managers in 2024 based on an analysis of information obtained from lodgements filed by VCCs and a survey of VCC managers. The survey provided insights on the VCCs such as their investment focus, asset size, governance practices and management approach. This circular highlights key observations from the MAS review, and sets out supervisory expectations and good practices for VCC managers in their governance and management of VCCs. 3 The VCCs were managed by about 600 financial institutions comprising fund management companies and banks that are regulated by MAS. VCCs are flexible corporate structures used for both open-ended and closed-end investment funds, and 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.

4 VCCs
1 and VCC managers are subject to regulatory requirements, including the following key requirements specific to the governance and management of VCCs:
a) VCC to be used as collective investment schemes (CIS). A VCC is to be one or more CIS in the form of a body corporate2 . b) Appointment of MAS-regulated manager. A VCC must have a manager that is regulated by MAS to manage its property or operate the CIS that comprise the VCC3 . c) Appointment of director from the VCC manager. A VCC must have at least one director who is either a director or a qualified representative of the manager of the VCC4 . d) Appointment of eligible financial institution (EFI). A VCC must engage an EFI for the purposes of conducting the necessary checks and performing the measures in order for the VCC to comply with its AML/CFT requirements under MAS Notice VCC-N015 . 5 In addition, a VCC manager is required to segregate the assets of the VCC and maintain them with an independent custodian. The manager must also ensure any individual who conducts fund management activity (e.g. providing inputs on the portfolio composition, marketing, etc.) for the VCC is appointed as a representative of the manager. B OBSERVATIONS AND SUPERVISORY EXPECTATIONS 6 In general, based on the survey responses, we observed that a majority of VCCs and VCC managers met the key regulatory requirements outlined above. However, the survey responses also suggested potential areas where certain VCCs and/or VCC managers may not be fully adhering to regulatory requirements. These areas, together with the relevant supervisory expectations, are elaborated below. 1 The Variable Capital Companies Act 2018 and its subsidiary legislation is administered by the Accounting and Corporate Regulatory Authority (ACRA) except for the provisions on anti-money laundering and countering the financing of terrorism (AML/CFT) which come under MAS’ purview. 2
Section 15(1) of the Variable Capital Companies Act 2018
3
Section 46 of the Variable Capital Companies Act 2018
4
Section 48(1)(b) of the Variable Capital Companies Act 2018
5 Paragraph 4.1 of MAS Notice VCC-N01

Custody Arrangement
7 There were a small number of VCCs which did not report having custody arrangements despite investing in certain types of assets (e.g. listed equities and fixed income instruments) that would require independent custody arrangements. VCC managers must ensure that assets under management are subject to independent custody6 , unless the assets are private equity or venture capital investments offered only to accredited/institutional investors. Appointment of VCC Manager and Director 8 Some VCCs had appointed additional directors who are not directors or representatives of the VCC manager to strengthen oversight and enhance the corporate governance of the VCC. Where such VCC directors are engaged in regulated activities, they must be appointed as licensed representatives of the VCC manager. Examples of activities which may be regulated and attract licensing obligations are as follows:
(i) deal sourcing, investment research, portfolio management or trade execution for the VCC’s investments; or (ii) client-facing activities such as account servicing, business development or marketing. Substantive Fund Management Activity 9 The review observed a small number of VCC managers as managing multiple VCCs that did not hold any assets and/or did not have any investors. This was despite the VCCs having been incorporated for more than a year. VCC managers should periodically assess and wind down VCCs that hold no assets and/or have no investors. 10 Another potential area of concern relates to instances where VCC managers do not carry out substantive fund management activity. This refers to cases where VCCs hold illiquid assets on behalf of a single investor or a few connected investors, and where these assets were previously owned by the investors. MAS is of the view that VCC managers who merely help transfer investors’ existing investments or assets into the VCC without providing investment inputs would not be considered as carrying out substantive fund management activity. VCC managers are reminded that a VCC is to be used as a collective investment scheme, and VCC managers are expected to have a substantive role in the management of the VCCs. The VCC manager should be actively involved in all aspects of investment and risk 6 Regulation 13B(1)(c) of Securities and Futures (Licensing of Business) Regulations

management of the VCC, including portfolio construction, investment due diligence and analysis. VCC managers should not7 :
(i) provide a conduit for customers to structure investments or assets in the form of fund units, without providing any substantive input or influence over the merits or suitability of the investment or assets, or assuming responsibility for their investment performance; (ii) set up VCCs that merely serve as a conduit for the offer of funds managed by other fund managers; or (iii) purely engage in marketing of the VCCs. Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) 11 VCCs shall put in place adequate controls and processes to comply with their AML/CFT obligations, including those outlined in the MAS Notice VCC-N01 and Variable Capital Companies (Sanctions and Freezing of Assets of Persons) Regulations 2020. VCCs are reminded that they remain responsible for fulfilling their AML/CFT obligations. There should be sufficient oversight exercised by its directors over the EFIs appointed by the VCCs. This is to ensure that AML/CFT frameworks and controls implemented by the VCCs’ EFIs are robust and effective for ML/TF risk mitigation. 12 VCCs8 shall ensure compliance against key AML/CFT requirements such as identifying and verifying the identities of VCCs’ customers and their beneficial owners, maintaining an accurate and up-to-date register of beneficial owners of VCCs, performing screening, as well as conducting enhanced due diligence measures on higher risk customers. VCCs should also be able to provide such beneficial ownership information to MAS and relevant law enforcement agencies in a timely manner upon request. 13 VCCs should continue to remain vigilant to ML/TF risk typologies in the sector and take note of the key observations noted in MAS’ thematic review of the sector in 20229 . In this regard, EFIs and directors of the VCCs should receive appropriate and regular training on ML/TF risk management. C CONCLUSION 14 Based on the survey findings, MAS is conducting supervisory reviews of specific managers and engaging these managers further to determine whether supervisory interventions or regulatory actions are warranted. MAS expects all VCC managers to review 7 Paragraph 3.3 of Guidelines on Licensing and Conduct of Business for Fund Management Companies 8 By extension, the EFIs appointed by the VCCs. 9 Circular No. AMLD 06/2022-1 (September 2022)

their management of VCCs against the observations set out in this circular and take appropriate steps to address any gaps in compliance. This includes putting in place formal custody arrangements for the VCCs where necessary, ensuring all individuals conducting regulated activities on behalf of the VCCs are appropriately appointed as representatives of the VCC manager, and winding down VCCs that have been assessed as unviable and dormant for an extended period of time. A VCC manager retains overall responsibility for the fund management duties of the VCCs under its management and should ensure that its duties as manager are effectively discharged. The VCC manager should be able to demonstrate it is conducting substantive fund management activity in respect of the VCCs under its management. Where the VCC manager is also appointed as the EFI of the VCC, the VCC manager shall ensure that the required AML/CFT measures are carried out on behalf of the VCCs. Yours faithfully TEO KOK MING EXECUTIVE DIRECTOR INVESTMENT INTERMEDIARIES DEPARTMENT