On 26 June 2025, MAS issued a circular (IID 04/2025) on governance and management of Variable Capital Companies (VCCs), following its thematic review of VCCs (the Circular). This article will set out the key regulatory requirements highlighted in the Circular, observations by the MAS and next steps for fund managers.

Regulatory requirements

1. A VCC is to be used as a collective investment scheme (CIS)¹.
2. A VCC must have a manager that is regulated by MAS to manage its property or operate the CIS that comprise the VCC².
3. A VCC must have at least one director who is either a director or a qualified representative of the manager of the VCC³.
4. A VCC must engage an Eligible Financial Institution (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.

Additionally, a VCC manager is supposed to segregate the assets of the VCC and maintain them with an independent custodian. The fund manager should also check and confirm that any individual conducting fund management activity is appointed as a representative of the fund manager.

Observations

While a majority of VCCs meet the key regulatory requirements set out above, MAS has set out some observations and areas to address.

1. Custody arrangement

Generally, VCC managers should ensure that their assets under management are under independent custody, save for assets that are private equity or venture capital investments offered to accredited / institutional investors⁴. Certain number of VCCs investing in asset classes that would require independent custody arrangements, such as listed equities and fixed income instruments, did not have custody arrangements.

2. Appointment of VCC manager and director

MAS has noted that certain VCCs have appointed directors who are not directors or representatives of the VCC manager. MAS emphasised that where such additional appointed VCC directors are engaged in regulated activities, they should be appointed as licensed representatives of the VCC manager. This would include activities such as (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.

3. Substantive fund management activity

Despite some VCCs being incorporated for more than a year, MAS has observed that there are a number of VCCs that did not hold any assets and/or did not have any investors. For VCCs that have no assets and/or no investors, they should routinely assess and wind down accordingly.

VCCs should also have substantial fund management activity, and not simply provide a conduit for customers to structure investments or assets, without providing any substantive views or opinion over the merits or suitability of the investment or assets, or being responsible for their investment outcome, or use VCCs as a mere conduit for offer of funds managed by other fund managers, or solely be involved in marketing of the VCCs.

4. Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT)

VCCs are accountable for fulfilling their AML/CFT obligations. In relation to this, there should be ample supervision exercised by its directors relating to the EFIs appointed by the VCCs. In particular, VCCs (including their appointed EFIs) should comply with important 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, conducting inspections, as well as performing enhanced due diligence measures on higher risk customers. Upon MAS’ request, VCCs should be able to provide requested information such as beneficial ownership details.

Next steps

As MAS is conducting supervisory reviews of certain managers to ensure compliance, all fund managers are expected to take appropriate steps to address any potential gaps in compliance. This paragraph sets out next steps for fund managers to consider:

1. Review and assess current arrangements

Fund managers should review current arrangements that are in place and identify areas of improvement. For example, in relation to custody arrangements, fund managers should assess whether their assets under management require independent custody. In relation to the appointment of additional directors, fund managers should review if such directors are indeed conducting regulated activities which require them to be appointed as licensed representatives of the VCC manager.

2. Take action to address gaps

Upon assessing the potential gaps in compliance, fund managers should take appropriate action to address these gaps. This will include, for example, putting in place formal custody arrangements, and also making sure that appointed directors of the VCC who are conducting regulated activities are appointed as representatives of the VCC manager. Fund managers should be able to also show that the VCC is conducting substantive fund management activity, and not merely acting as a conduit. Additionally, fund managers must ensure that AML/ CFT obligations are met.

Ultimately, fund managers are responsible for the overall supervision and compliance of the VCCs, and should ensure that the VCCs are compliant at all times. The earlier fund managers act, the more prepared they will be when MAS conducts their supervisory review.

1. Section 15(1) of the Variable Capital Companies Act 2018↩
2. Section 46 of the Variable Capital Companies Act 2018↩
3. Section 48(1)(b) of the Variable Capital Companies Act 2018↩
4. Section 13B(1)(c) of the Securities and Futures (Licensing of Business) Regulations↩