Write Up On New 13O And 13U Changes
Singapore has become a favoured destination for high-net-worth families to set up Single Family Offices (SFO). Statistics show that as of 2020, there were more than 400 hundred family offices set up in Singapore. Unsurprisingly, this area has garnered attention and MAS has issued new regulations that kicked in on 18 April 2022.
By way of brief summary, the changes made are as follows:-
Changes made for setting up a 13O (formerly known as 13R) Family Office in Singapore
| Previous Rules | New Rules | |
| Assets Under Management (AUM) | No minimum AUM. | Fund must have minimum size of S$10 million at the point of application, and must commit to increasing AUM to S$20 million within a 2-year grace period |
| Investment Professionals[1] (IPs) | Family office must have at least 1 IP | Family office must have at least 2 IPs. In the event that the family office is unable to employ two IPs by the point of application, the fund would be given a 1-year grace period to employ the second IP. |
| Local investment | N.A. | Fund to invest at least 10% of AUM or S$10 million, whichever is lower, in local[2] investments at any one time. In the event that the fund is unable to invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments by the point of
application, the fund would be given a 1-year grace period to do so. |
| Tiered business spending framework | Fund to incur at least $200,000 in business spending regardless of fund size in each basis period relating to any year of assessment | a) Where AUM < S$50 million, fund must incur at least S$200,000 in total business spending
b) Where AUM is S$50 million or more but less than S$100 million, fund must incur at least S$500,000 in total business spending
c) Where AUM is S$100 million or more, fund must incur at least S1,000,000 in total business spending |
[1] Investment professionals refer to portfolio managers, research analysts and traders who are earning more than S$3,500 per month and must be engaging substantially in the qualifying activity. An individual has to be a Singapore tax resident to be considered an investment professional.
[2] Products may include: i) equities listed on Singapore-licensed exchanges, ii) qualifying debt securities, iii) funds distributed by Singapore-licensed/registered fund managers, iv) private equity investments into non-listed Singapore-incorporated companies (e.g., start-ups) with operating business(es) in Singapore.
Changes made for setting up a 13U (formerly known as 13X) Family Office in Singapore
| Investment Professionals (IPs) | Family office to employ at least 3 IPs | Family office to employ at least 3 IPs, with at least one IP being a non-family member[1]. |
| Local Investment | N.A. | Fund to invest at least 10% of AUM or S$10 million, whichever is lower, in local[2] investments at any one time. In the event that the fund is unable to invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments by the point of
application, the fund would be given a 1-year grace period to do so. |
| Tiered business spending framework | Fund to incur at least $200,000 in business spending regardless of fund size in each basis period relating to any year of assessment
|
a) Where AUM is less than 100 million, fund must incur at least S$500,000 in local business spending
b) Where AUM is S$100 million or more, fund must incur at least S1,000,000 in local business spending |
Existing applications
It is important to note that the new rules only apply to applications submitted to MAS from 18 April 2022 onwards. Naturally, applications which have already been formally approved before 18 April 2022 will not be affected by the new rules.
MAS has also made an exception for applications that are still at a preliminary stage. Applications which have submitted preliminary information (i.e. the required Annex A documents) before 18 April 2022 will also be unaffected by the new rules, provided that there has been some correspondence with MAS within the last 6 months. This means that applications which for whatever reason have been stalling for more than 6 months will be affected by the new rules.
In addition, in cases where a formal MASNET application was made before 18 April 2022, but is approved only after 18 April 2022, the old rules continue to apply.
[1] Non-family member refers to an individual who is not a family member of the beneficial owner(s). Family
members may refer to individuals who are lineal descendants from a single ancestor, as well as the spouses, ex-spouses, adopted children and stepchildren of these individuals.
[2] Products may include: i) equities listed on Singapore-licensed exchanges, ii) qualifying debt securities, iii) funds distributed by Singapore-licensed/registered fund managers, iv) private equity investments into non-listed Singapore-incorporated companies (e.g., start-ups) with operating business(es) in Singapore.
What needs to be read into the new rules
The requirements relating to investment professionals are an indication that MAS is looking to professionalize the SFO industry. Thus, in addition to the express new rules relating to investment professionals, it is also quite possible that MAS might start to be more selective when evaluating the CVs of proposed investment professionals.
Next, it is also noteworthy that MAS requires AUM to be determined using “Net Asset Value based on accounting convention”. What this probably means is that a shareholder’s loan will no longer count towards AUM. The AUM will be determined strictly according to the fund’s capital.
Concluding Thoughts
While the new changes might seem like a tightening of the regulations governing SFOs, these changes are arguably necessary in order to professionalise the family office domain. The new changes will also have the additional effect of encouraging more investments to stimulate the local economy.
The requirements relating to investment professionals will also boost demand for local staff as well as train them in relevant skill sets, thus creating more jobs.
The requirement of having a non-family investment professional should lead to greater professionalism, expertise and skill in wealth management.
The new changes should not dampen Singapore’s attractiveness to family offices. After all, a successful family office ought to be of a certain size anyway. They should also be run professionally to be successful and viable.
For families that cannot meet the new conditions, there are still alternative solutions which may be explored, such as multi-family offices and external asset managers.
How SMTP can assist
At SMTP, we provide a suite of services related to SFOs, which includes advising and assisting on application and incorporation matters. Tapping on our wealth of experience and resources, we can guide you through the entire process, be it advising on new regulations, handling the application process, and liaising with the relevant institutions on your behalf.
We also believe in close engagement with our clients, paying close attention to their individual facts and circumstances, and tailoring our advice and courses of action to cater to their specific needs and requirements.
SMTP’s core philosophy is to provide bespoke legal advice based on our private clients’ specific needs and requirements, as cases always differ on their fine details. Our team of dedicated staff are ever eager and prepared to assist interested parties.
We understand that keeping up to date with changing regulations can be a challenge.
Should you or your clients require any assistance in SFO matters, please feel free to contact our Business Development Team to schedule a consultation. We look forward to working with you.