15 Jul Singapore: A Manual to Family Offices – A Legal ViewpointEmail This Post
Family offices are basically legal entities which manage the administration and management of assets and various investments of ultra-high net worth individuals or families (“UHNW“) with the goal of capital preservation, managing investments and succession planning.
A boom in family offices
Recently, there has been a huge rise of set up in the number of family offices and private investment vehicles in Singapore. As per Reuters, between the years 2015 and 2017, the total number of family offices located in Singapore has multiplied four times.
What is a Single Family Office?
A single-family office (SFO) typically refers to a legal entity which manages assets for or on behalf of one particular family and is controlled and wholly-owned by members of that family. Monetary Authority of Singapore (“MAS“) issued an FAQ on 6 February 2017 and updated it on 8 October 2018, in which it clarified the regulatory treatment for all the SFOs in Singapore. Please click here to access MAS’ FAQ updated on 8 October 2018.
MAS also said that it is not their intent to license or regulate SFOs. However, the term “family office” is not defined under Singapore legislation or the Securities and Futures Act (Chapter 289).
An SFO may depend on the exemption given under paragraph 5(1) (b) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations (“SS(LCB)R“), which offers an exemption for a company that manages funds for its related corporations.
An SFO may depend on the exemption under the SS(LCBR) only where it involves:
- a corporation that manages the funds for its related corporations, as per paragraph 5(1)(b) of the SS(LCBR); or
- as per para 5(1)(c) of Second Schedule of the SS(LCBR), any person or individual who conducts business in fund management field for or on behalf of:
- his spouse, son, step-son, adopted son, daughter, step-daughter, adopted daughter, father, step-father, mother, step-mother, brother, step-brother, sister or step-sister; or
- a company or corporation in which he or any of the individuals referred above has full 100% control of the voting power, and where this control is exercised either individually or jointly with any other individuals referred to above.
On the other hand, an SFO which offers financial advisory services to its related firms or corporations may depend on a current exemption from licensing under regulation 27(1)(b) of the Financial Advisers Regulations.
Case to case exemption applicable for SFOs
In cases where an entity managing funds do not fall clearly within such a scope, then exemptions might still be available on a case-by-case basis. The company/entity might seek a licensing exemption from MAS under s 99(1)(h) of the SFA.
If MAS has to gauge an application for licensing exemption as an SFO, it would need the following information:
- names of the SFO’s shareholders and directors;
- a chart showing the shareholding structure of the particular SFO;
- an explanation of how the SFO is related to the investment fund vehicle and also to the family and beneficiaries;
- an explanation of the family’s profile whose assets are going to be managed by the SFO; and lastly
- details of the nature of activities which would be carried out by the SFO.
The application to MAS for getting such an exemption could take anywhere between two to four months to get reviewed depending on the quality of the information that has been submitted, the complexity of the arrangement, and also responsiveness of the applicant.
SFO arrangements contemplated by the MAS
MAS deliberates the following arrangements to be largely typical of SFO arrangements. An SFO that has or is planning to have these arrangements is recommended to include the information while applying to MAS for exemption:
- In case there is no common holding company, however, the assets managed by the SFO are directly held by natural persons of a single family;
- In case the assets are held in a discretionary trust, then the settlor of that trust and the beneficiaries are also members of the same family;
- In case a family trust is set up for purposes of charity, then the charitable trusts are funded wholly by settlor(s) from a single family; or
- When the non-family members like key employees of the SFO are shareholders in the SFO for aligning economic interest and risk-sharing, then the initial assets and supplementary injection of funds are exclusively funded by a single family.