Key observations and supervisory expectations

• Custody arrangements: A small number of VCCs did not report having custody arrangements for investments in certain types of assets, contrary to regulatory requirements. VCC managers must ensure that such arrangements are in place unless the assets are private equity or venture capital investments offered only to accredited/institutional investors (as the case may be).
• Appointment of VCC manager and director(s): Directors who are appointed by VCCs must be appointed as licensed representatives of the VCC manager if they engage in regulated activities. Examples of activities which may be regulated include deal sourcing, investment research, portfolio management or trade execution for the VCC’s investments.
• Substantive fund management activity: MAS raised concerns over cases where VCCs held no assets or had no investors despite having been incorporated for more than a year. MAS reminded VCC managers to periodically assess and wind down VCCs that hold no assets and/or have no investors.
  
  In addition, MAS raised concerns over cases where VCCs held existing assets of a single investor or a few connected investors without providing investment inputs. MAS reminded VCC managers that VCCs are to be used as collective investment schemes and VCC managers are expected to have a substantive role in the management of the VCCs.
• Anti-money laundering and countering the financing of terrorism (AML/CFT) compliance: VCCs are required to put in place robust controls to detect and deter the flow of illicit funds through Singapore’s financial system. A VCC must engage an eligible financial institution (EFI) for the purposes of conducting checks and performing the measures in order for the VCC to comply with its AML/CFT requirements under MAS Notice VCC-N01 Prevention of Money Laundering and Countering the Financing of Terrorism – Variable Capital Companies (VCCs).
  
  VCCs and their appointed EFIs are expected to maintain adequate AML/CFT controls and processes, including customer due diligence, record keeping, and timely disclosure of beneficial ownership information to law enforcement agencies upon request.

Next steps

MAS emphasised that VCC managers should:

• Review existing custody and compliance arrangements for their VCCs.
• Ensure individuals conducting regulated activities on behalf of the VCCs are appropriately appointed as representatives of the VCC manager.
• Wind down VCCs that have been assessed as unviable and dormant for an extended period of time.
• Ensure the performance of the AML/CFT obligations by EFIs.

Conclusion

The issuance of the Circular underscores MAS’ continued supervisory focus on ensuring the proper use and oversight of VCCs.

Given MAS’ indication that follow-up supervisory interventions or regulatory actions may be taken, VCC managers are advised to proactively assess their governance, compliance and operational frameworks to ensure alignment with MAS’ expectations.

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

Client Alert 2025-175