Guidance on Regulatory Framework for Specialised Fund Manager Categories

INTRODUCTION

This Guidance is issued under section 15(2) of the Financial Services and Markets
Regulations 2015 (“FSMR”). It should be read in conjunction with FSMR, the relevant Rulebooks of the Financial Services Regulatory Authority (“the Regulator”) and the Guidance & Policies Manual of the Regulator.
The Regulator is not bound by the requirements set out in this Guidance and may modify
this Guidance at its discretion where appropriate. Unless otherwise defined or the context otherwise requires, the terms contained in this Guidance have the same meanings as defined in FSMR and in the Glossary Rulebook (“GLO”).
The Guidance is relevant to:
(a) an Applicant for a Financial Services Permission (“FSP”) to carry on the Regulated Activity of Managing a Collective Investment Fund, where the Applicant seeks to use either the Sub-Threshold Fund Manager (“STFM”) framework or the Institutional Fund Manager (“IFM”) framework; (b) an Authorised Fund Manager seeking to vary its FSP to use either the STFM or IFM framework; (c) an Applicant seeking to manage one or more Venture Capital (“VC”) Funds or a Venture Capital Fund Manager (“VCFM”).
The STFM and IFM frameworks are intended to operate with streamlined regulatory
requirements, recognising the lower risk associated with Fund Managers eligible to use those frameworks. The STFM framework is relevant to Fund Managers of smaller Funds, whereas the IFM framework is relevant to Fund Managers managing Funds targeting exclusively institutional investors e.g., sovereign wealth funds or other similar institutional investors. VCFMs are a sub-category of STFM. Therefore, references to an SFTM in the Guidance should be read as referring also to a VCFM, except where qualified otherwise.
The Regulator applies a proportionate, risk-based regulatory framework to STFMs and
IFMs, while continuing to apply appropriate regulatory safeguards. In this respect, STFMs and IFMs are granted specific dispensations from certain requirements, as further described below. Aside from such dispensations, STFMs and IFMs must comply with all other applicable requirements under the Regulator’s funds framework.
This Guidance outlines the eligibility and authorisation criteria that Applicants/Authorised
Persons must satisfy to use the STFM and IFM framework respectively and the key features of each framework. The Guidance also outlines certain additional considerations specific to VCFMs.
Annex 1 to the Guidance provides an overview of the different categories of Fund Manager,
including eligibility criteria and key dispensations (where applicable). STFM FRAMEWORK: FINANCIAL SERVICES PERMISSION AND ELIGIBILITY CRITERIA
In order to use the STFM framework, an Applicant must apply for an FSP to carry on the
Regulated Activity of Managing a Collective Investment Fund and satisfy the STFM eligibility criteria outlined below. An FSP granted to a successful Applicant will be subject to a restriction indicating the Fund Manager’s status as an STFM.
Similarly, an Authorised Person that wishes to use the STFM framework and that satisfies
the STFM eligibility criteria may apply to vary its FSP. Where such variation is granted, a restriction would be placed on the Fund Manager’s FSP to indicate its status as an STFM.
An Authorised Person/Applicant must meet the following eligibility criteria to use the STFM
framework:
(a) The Committed Capital for all Funds managed by the Authorised Person or proposed to be managed by the Applicant must not exceed USD 200 million. (b) The Funds managed by the Authorised Person (or proposed to be managed by the Applicant) may not be invested in by a Retail Client. Accordingly, all such Funds must either be Exempt Funds or Qualified Investor Funds (“QIFs”) or equivalent Foreign Funds (i.e., those Foreign Funds that are not open to Retail Clients). (c) All Funds managed by the Authorised Person (or proposed to be managed by the Applicant) must be closed-ended. (d) The Authorised Person/Applicant must not operate, or seek to operate, as a ‘host’ Fund Manager.
Where an STFM intends to take on capital commitments that would cause its Committed
Capital to exceed the USD 200 million threshold, it must apply to the FSRA to vary its FSP in advance of accepting such commitments. Similarly, an STFM must seek a variation if it wishes to manage Funds that do not comply with the above STFM eligibility criteria (e.g., a Fund open to Retail Clients). VCFM-SPECIFIC CONSIDERATIONS
Generally, STFMs are not limited in terms of the categories of assets in which their Funds
may invest. However, VCFMs may only manage VC Funds (i.e., Funds that are generally limited to investing in instruments issued by companies at an early stage of development).
An Applicant seeking to operate as a VCFM must apply for an FSP to carry on the Regulated
Activity of Managing a Collective Investment Fund and must satisfy the STFM eligibility criteria outlined above. As part of its application, the Applicant should complete the STFM authorisation form and indicate its intention to operate as a VCFM. The FSP granted to a successful Applicant will be subject to a restriction indicating the Fund Manager’s status as an VCFM.
An Applicant seeking to operate as a VCFM may also apply for an FSP to carry on the
Regulated Activities of Advising on Investments or Credit and/or Arranging Deals in Investments where those activities are restricted to co-investments in assets in which a VC Fund to be managed by the Applicant will invest. Whether an Applicant wishes to apply for 1 See FUNDS 4.1.6 for the list of permissible investments of a VC Fund.

these additional permissions will be dependent on its investment strategy and business model.
15) For example, if an Applicant wishes to recommend that a client invest in an investee
company alongside the VC Fund and to advise on the strategy and structure required to make the investment, an FSP for Advising on Investments or Credit would be required. If an Applicant wishes to make arrangements to facilitate co-investments in an investee company, an FSP for Arranging Deals in Investments would be required. A VCFM may also apply for a variation of its FSP to add these Regulated Activities post-authorisation, if required.
16) Authorisation fees and annual supervision fees for a VCFM are capped at USD 10,000
regardless of whether one or both of these additional Regulated Activities in relation to coinvestments are included in its FSP. STFM FRAMEWORK: KEY FEATURES
17) The table below outlines the dispensations granted to STFMs, in recognition of the lower
risk associated with the Funds managed by STFMs. STFMs must comply with all other requirements applicable to the Manager of a QIF or Exempt Fund (as applicable).
18) An STFM is expected to disclose information concerning its regulatory status in addition to
any restrictions imposed upon its FSP in its Fund Prospectus as such information should be considered relevant to an investor making an informed decision, as contemplated under FUNDS 9.3.1(2).
Table outlining dispensations granted to STFMs
Topic Dispensation (from Rule)
Internal Audit function An STFM is not required to establish an internal audit function (GEN 3.3.13). Finance Officer An STFM is not required to appoint a Finance Officer (GEN 5.3.5). Where an STFM does not appoint a Finance Officer, it should be in a position to demonstrate that it has the relevant expertise (whether in-house or outsourced) on hand to prepare and oversee its financial accounts. The SEO and Directors / Partners of the STFM ultimately remain responsible for all compliance matters, including compliance with prudential capital requirements. Capital Requirements and Capital Resources An STFM is required to have Capital Resources to allow it to meet a Base Capital Requirement (“BCR”) of USD 50,000 on an ongoing basis. However, an Expenditure Based Capital Minimum (“EBCM”) is not applied to STFMs.

Topic Dispensation (from Rule)
Beyond this minimum capital requirement, an STFM is subject to all other prudential requirements generally applicable to Category 3C firms. These include a requirement to maintain liquid assets in excess of the firm’s minimum capital requirement, certain requirements relating to the management of operational risk and a requirement to take out and maintain professional indemnity insurance. Approved Persons’ experience (VCFMs only) A VCFM must appoint an SEO and, additionally, a Licensed Director (for a Body Corporate) or a Licensed Partner (for a Partnership). Of the two Approved Persons, the SEO should possess a minimum of ten years’ relevant and demonstrable experience and the Licensed Director or Licensed Partner a minimum of five years’ relevant experience in either:

operating a VC or private equity fund; or
in-depth industry experience and expertise within the
target sectors that the VCFM intends to focus on investing in.
This dispensation is applicable only to VCFMs in recognition of the specific nature of the VC ecosystem. It is not generally available to other STFMs. IFM FRAMEWORK: FINANCIAL SERVICES PERMISSION AND ELIGIBILITY CRITERIA

In order to use the IFM framework, an Applicant must apply for an FSP to carry on the
Regulated Activity of Managing a Collective Investment Fund and satisfy the IFM eligibility criteria outlined below. An FSP granted to a successful Applicant will be subject to a restriction indicating the Fund Manager’s status as an IFM.
Similarly, an Authorised Person that wishes to use the IFM framework and that satisfies the
IFM eligibility criteria may apply to vary its FSP. Where such variation is granted, a restriction would be placed on the Fund Manager’s FSP to indicate its status as an IFM.
An Authorised Person/Applicant must meet the following eligibility criteria to use the IFM
framework:
(a) It must manage only QIFs or equivalent Foreign Funds, where both have a minimum subscription threshold of USD 5 million; and (b) such Funds must not have natural persons as Unitholders.
An IFM must seek a variation of its FSP if it wishes to manage Funds that do not comply with
the above eligibility criteria (e.g., an Exempt Fund or a Fund with a minimum subscription threshold of less than USD 5 million).
However, Fund Managers should note the Rules on Employee Investment Vehicles, which
facilitate certain employees investing in a Fund managed by an IFM without impacting the Fund Manager’s IFM status. IFM FRAMEWORK: KEY FEATURES
The below table outlines the dispensations granted to IFMs, in recognition of the lower risk
associated with such Fund Managers. IFMs must comply with all other requirements applicable to the Fund Manager of a QIF.
An IFM is expected to disclose information concerning its regulatory status in addition to
any restrictions imposed upon its FSP in its Fund Prospectus as such information should be considered relevant to an investor making an informed decision, as contemplated under FUNDS 9.3.1(2).
Table outlining dispensations granted to IFMs
Topic Dispensation (from Rule)
Internal Audit function An IFM is not required to establish an internal audit function under GEN 3.3.13. Finance Officer An IFM is not required to appoint a Finance Officer under GEN 5.3.5. Where an IFM does not appoint a Finance Officer, it should be in a position to demonstrate that it has the relevant expertise (whether in-house or outsourced) on hand to prepare and oversee its financial accounts. The SEO and Directors / Partners of the IFM ultimately remain responsible for all compliance matters, including compliance with prudential capital requirements. Capital Requirements and Capital Resources An IFM is required to have Capital Resources to meet a minimum capital requirement of the higher of a BCR of USD 50,000 and an EBCM of 6/52nds of Annual Audited Expenditure (“AAE”) on an ongoing basis. Beyond this minimum capital requirement, an IFM is subject to all other prudential requirements generally applicable to Category 3C firms, other than the requirement to take out and maintain professional indemnity insurance (see below). Other prudential requirements imposed on Category 3C firms include a requirement to maintain liquid assets in excess of the firm’s minimum capital requirement and certain requirements relating to management of operational risk. Professional Indemnity Insurance (PII) An IFM is not required to take out and maintain PII under PRU 6.12.

ANNEX 1: OVERVIEW OF FUND MANAGER CATEGORIES
‘Full scope’ Fund Manager Sub-Threshold Fund Manager Venture Capital Fund Manager Institutional Fund Manager Purpose Manage all types of Funds with all types of Clients A proportionate approach to Fund Managers of smaller Funds VCFMs typically raise funds for a VC Fund from sophisticated and financially well-resourced investors and invest those funds into early-stage entities A proportionate and riskbased approach to Fund Managers managing Funds targeting exclusively institutional investors. Applicants All types but mainly established Fund Managers Fund Managers of smaller Funds with a lower risk profile and low commitments. Managers of VC Funds Fund Managers targeting institutional investors only Domestic Funds

Public Funds
Exempt Funds
QIFs
Exempt Funds and QIFs (closed-ended only) QIFs Foreign Funds All types Foreign Funds not available to retail clients (closed-ended only) Foreign Funds equivalent to QIFs Investors Depends on the type of Domestic Fund Professional Clients Professional Clients (other than natural persons) Minimum investment
No minimum- Public Fund
$50,000 - Exempt Fund
$500,000 - QIF
$50,000 – Exempt Fund
$500,000 - QIF
$5,000,000
Maximum investment
None $200 million Committed Capital (across multiple Funds) None Fund Asset Limitations None None Securities or instruments issued by start-ups None KEY DISPENSATIONS Authorisation process Standard authorisation process applies More streamlined authorisation process compared to ‘full scope’ Fund Manager More streamlined authorisation process compared to ‘full scope’ Fund Manager

‘Full scope’ Fund Manager Sub-Threshold Fund Manager Venture Capital Fund Manager Institutional Fund Manager Minimum Capital Requirement Higher of:
(1) BCR ($50,000 for
QIF/Exempt Fund Manager and $150,000 for Public Fund Manager); or (2) EBCM of 13/52nds of AAE. BCR of $50,000 Higher of:
(1) $50,000 BCR; or
(2) EBCM of 6/52nds of
AAE.
Professional
Indemnity
Insurance (PII)
Required to hold PII under
PRU 6.12
Required to hold PII under PRU 6.12 No requirement to hold PII under PRU 6.12 Mandatory Approved Persons SEO, Finance Officer, CO and MLRO (GEN 5.5.1) No requirement to appoint a Finance Officer No requirement to appoint a Finance Officer Internal Audit GEN 3.3.13 to 3.3.15 apply No requirement to establish and maintain internal audit function (i.e., exempt from GEN 3.3.13 – 3.3.15) No requirement to establish and maintain internal audit function (i.e., exempt from GEN
3.3.13 – 3.3.15)
FSRA Fees
No exemptions No exemptions Authorisation fees and supervision fees capped at $10,000 No exemptions