Quarterly and Annual Returns for A/I LFMCs

Licenced fund management companies restricted to servicing qualified investors, namely accredited investors and institutional investors, (“A/I LFMCs”) are generally required to submit quarterly and annual returns to the Monetary Authority of Singapore (“MAS”) to confirm their compliance with capital requirements and provide information for supervisory and statistical purposes.
Every quarter, they must submit the following forms (reg. 27 SF(FMR)R and sec. 3(1) and 5 of the Statistics Act 1973):

• Form 1
• Form 2
• Quarterly Income & Expenditure Statement For Compilation Of Value-Added Of Financial Sector (Financial Institutions Excluding Insurance Companies) (“QIE Form”)

Form 1 and Form 2 must be submitted within 14 days after the end of the quarter end (reg. 27(6) SF(FMR)R). The QIE Form must be submitted within 15 days after the end of every quarter (para. 2 ED S 01/88 dated 18 July 2018). The latest forms can and should be downloaded from MASNET.

Every year, A/I LFMCs must submit the following forms and document (sec. 107(1) SFA, reg. 27(8)-(9) SF(FMR)R):

• Financial statements
• Form 1
• Form 2
• Form 3
• Form 4
• Form 5
• Form 6

All of these documents must be submitted within 5 months after the end of the financial year (sec.107(1)(a) SFA).

A/I LFMCs are expected to submit all forms within the stipulated timelines. Missing submissions and missed deadlines contributed to several enforcement actions by the MAS.[1]

If the A/I LFMC is unable to submit the forms within the stipulated timelines, it should notify its MAS officer-in-charge ahead of the deadline, providing reasons for its inability.

Quarterly Returns

The quarterly returns are based on the management accounts of the A/I LFMC. As the timeline for the submission of the quarterly returns is quite short, the A/I LFMC should clearly convey to its accounting team that the management accounts must be quickly prepared after the end of the calendar quarter, in particular, where the A/I LFMC is engaging an outsourced accountant. It is also important to note that the preparation of the quarterly returns requires the balance sheet as of the end of each month to calculate the average aggregated assets in Form 2.

Form 1

To a large extent, Form 1 is a restatement of the Company’s balance sheet whereby the exposure to the different types of activities under the Securities and Futures Act 2001 is emphasised.

Tips

Contrary to Form 1, the “Unappropriated profit or loss” in Form 1 is the sum of the retained earnings and the current financial year’s profit or loss.

Form 2

Form 2 focuses on the A/I LFMC’s capital requirements: the base capital, financial resources, the total risk requirement, and adjusted assets. A/I LFMCs may note that the section on aggregate indebtedness does not apply to them (reg. 15 SF(FMR)R).

Tips

For the calculation of the base capital, the A/I LFMC must pay particular attention to the statement of its profit or loss. For the calculation of the base capital, the “Unappropriated profit or loss” is the A/I LFMC’s last audited profit or loss, its retained earnings. The current financial year’s loss must be deducted from the base capital whereas the current financial year’s profit must not be added for the base capital calculation but is taken into account for the calculation of the financial resources. It is important to remember that the “unappropriated profit or loss” changes and only changes after the A/I LFMC’s financial audit is completed.

An A/I LFMC also does not need to calculate the counterparty risk requirement, the position risk requirement, the large exposure risk requirement or the underwriting risk requirement as long as its average adjusted assets do not exceed the lower of SGD 10m or five times its financial resources (para. 3.3.1(a) read in conjunction with 3.3.3 SFA04-N13).

In many cases, an A/I LFMC’s operational risk capital is simply SGD 100,000. Until the A/I LFMC has an average gross income of SGD 2m for the three immediately preceding years, the A/I LFMC’s operational risk requirement is SGD 100,000 (para. 4.1.2 SFA04-N13).

QIE Form

The QIE Form is based on the A/I LFMC’s profit and loss statement for the full quarter. It examines the A/I LFMC’s income and expenses for statistical purposes. The first section collects data on the investments and their depreciation. The second section analyses the income and expenses, including employment.

To properly complete the QIE Form, the A/I LFMC must report business transactions with Singapore residents and firms under “In Singapore” and transactions with persons and firms outside Singapore under “Outside Singapore”. The A/I LFMC may need to organise its accounting to extract the figures with this segregation.

Salaries are also reported “In Singapore” and “Outside Singapore”. At the same time, a distinction is made between “Singapore resident employees”, these are Singapore citizens and Singapore permanent residents, and other staff, “Non-Singapore resident employees”. The same distinction is also made for total employment figures as at the end of the quarter. The A/I LFMC may need to inquire with its human resources department to make these distinct amounts available.

Tips

In the transfer of its accounts into the QIE Form, the A/I LFMC should pay particular attention to accounts with a negative figure. The QIE Form (generally) does not allow for negative income or expenses. As a result, a negative income may need to be reported as an expense and vice-versa.

In the QIE Form, values must be stated to the nearest Singapore dollar. This may lead to slight discrepancies when multiple numbers that were individually rounded are added up to a sum, namely the profit/loss before tax. Where the A/I LFMC encounters an error message for a field that is a sum, it is worth examining it for an error due to the rounding of the individual components.

Annual Returns

The annual returns are based on the audited financial statements of the A/I LFMC.

Form 1 and Form 2

The A/I LFMC must submit Form 1 and Form 2 as part of its quarterly returns and as part of its annual returns. Although the forms for the quarterly and the annual returns request the same data, different templates need to be used. Importantly, the figures in the annual submissions must be based on the audited financial statements. Thus, they may differ from the figures submitted for the quarter end that coincides with the financial year-end.

Form 3

Form 3 examines the income of the A/I LFMC based on the types of financial services activities.

Tips

Many activities will not apply to the A/I LFMC because the same form applies to all holders of a capital markets services (“CMS”) licence.

Form 4

In Form 4, the A/I LFMC must catalogue its assets under management, namely based on types of investors and activity.

Tips

For the distinction between “Institutional clients” and “Individual clients”, “Institutional clients” is not equivalent to institutional investors as defined in section 4A(1)(c) of the Securities and Futures Act 2001. This distinction in Form 4 rather reflects the distinction as per the market practice of whether the A/I LFMC’s customer is an individual or an institution.

Where an A/I LFMC is also exempt from the requirement to hold a financial adviser’s licence, the A/I LFMC should also note that the distinction between funds under “discretionary management” and “under advisory service” does not reflect the distinction between the two regulated activities of fund management and financial advice. Funds “under advisory service” means the value of assets for which the A/I LFMC acts as an advisor without the authority to make investment decisions. This targets funds where the primary fund manager engages the A/I LFMC as an advisor/sub-advisor for a fund.

Form 5 and Form 6

Form 5 and Form 6 must be completed by the A/I LFMC’s external auditor. In Form 5, the auditor confirms that it has audited the A/I LFMC’s accounts. However, the auditor also confirms that nothing has come to its attention that causes it to believe that the A/I LFMC has not complied with all conditions and restrictions applicable to the A/I LFMC under its licence, i.e. under applicable regulations and as imposed in its licence. Due to this confirmation, various external auditors insist on a comprehensive review of the A/I LFMC’s internal controls, not just the A/I LFMC’s accounts. In Form 6, the auditor confirms that the A/I LFMC’s financial statements have been properly drawn up. 

Financial Statements

The financial statements that the A/I LFMC submits as part of its annual returns must be true and fair financial statements made up to the last day of its financial year in accordance with the Companies Act 1967 (reg. 27(8) SF(FMR)R) and must include the management letter (if any). These will be the company’s audited financial statements.

Ingenia Consultants Pte. Ltd. supports financial institutions in their compliance, including the preparation of quarterly and annual returns for fund management companies. This support is included in our outsourced compliance services or can be engaged separately.

For any further information, please contact:

Maurice Yap
Senior Manager
Ingenia Consultants Pte. Ltd.
maurice.yap@ingenia-consultants.com

[1] For example, “MAS Takes Enforcement Actions Against China Capital Impetus Asset Management, its Executive Director and Former CEO for Breaches of the Securities and Futures (Licensing and Conduct of Business) Regulations” of 31 July 2024, “MAS Reprimands RVP One Pte. Ltd. and its Chief Executive Officer for Breaches of the Securities and Futures (Licensing and Conduct of Business) Regulations” of 30 July 2024.