Navigating fund management licensing in Singapore, Hong Kong and Japan

In the dynamic world of fund management, staying compliant is not just a matter of adhering to best practices — it is crucial for the very survival of the fund. Singapore, Hong Kong, and Japan, three of Asia's financial powerhouses, have intricate and diverse fund manager licensing requirements that professionals operating in these jurisdictions must adhere to. As these markets continue to evolve and regulators become ever more vigilant, non-compliance risks not only severe penalties but also irreversible reputational damage. 

Drawing insights from leading funds lawyers across these countries, this article delves into the intricate tapestry of regulations, underscoring the imperative for fund managers to stay abreast of these laws or risk the very sanctity of their operations. We present below some recent developments in fund management across these jurisdictions and provide a summary of the key licensing requirements here.

Singapore

The Singapore Asset Management Survey published by the Monetary Authority of Singapore ("MAS") for the calendar year ending 31 December 2021 (the "2021 Survey") recorded that Singapore’s asset management industry had registered a 16% growth year-on-year to reach S$5.4 trillion (or US$4 trillion) in 2021, outpacing global growth in the sector at 12% to $112 trillion. 

Consistent with the global decline in assets under management ("AUM"), MAS' survey which was recently released for year 2022 (the "2022 Survey") showed AUM in Singapore dip by 10%. The 2022 Survey found that Singapore remains an attractive jurisdiction among global asset managers and investors despite the challenging international investment environment and highlighted, in particular, that: 

•    76% of AUM was sourced from outside Singapore and 88% of total AUM was invested outside Singapore; 

•    discretionary AUM accounted for more than half of total AUM; 

•    Singapore’s net inflow of funds in 2022 held relatively steady at S$435 billion, similar to the net inflows in 2021; 

•    private equity and venture capital growth moderated to 0.3% year-on-year to report a combined dry powder of S$95 billion, while hedge fund assets held steady; and

•     the number of licensed and registered fund management companies increased from 1,108 in December 2021 to 1,194 as at December 2022. 

Hong Kong

As at the end of 2022, Hong Kong had 2,069 registered asset managers and 54,322 employees in the asset and wealth management business.^[1]  Despite the fluctuations in recent years, Hong Kong remains a key regional hub for the asset management industry, and has been the dominant gateway to Mainland China and the global hub for offshore renminbi business.^[2]  In addition, the Government of Hong Kong has also been taking active measures to promote the industry and to incentivize the inflow of capital, including, without limitation, the introduction of the open-ended fund company regime in 2018, the unified profits tax exemption for funds in 2019, the limited partnership fund regime in 2020, the tax concessions for carried interest in 2021; and the single family office tax concession regime in 2023.  

With respect to the licensing regime for asset managers in Hong Kong, whilst there has not been any major change in the substantive requirements in recent years, the Securities and Futures Commission (the "SFC") has made continuous effort to streamline the license application procedures with the view to bring certainty and clarity as well as to expedite the process.  

Japan

Over recent years, Japan has steadily been rising as an attractive destination for foreign asset managers and has continued to gain popularity. This can be attributed to increased initiatives from the Japanese government, which includes the ongoing success of the Japan Financial Services Agency's Market Entry Office (the "JFSA Market Entry Office") which continues to attract foreign fund managers who wish to enter into Japan and seek to register as a financial instruments business. The key features of the JFSA Market Entry Office include the ability for applicants to complete their registrations entirely in English, along with the opportunity to take advantage of various subsidies. The various financial instruments business registrations in Japan each have its own permissible scope of activities (see further details in the summary mentioned above), which foreign asset managers may possibly seek to register for via the JFSA Market Entry Office. While we have included a brief summary of the registrations below, it is important to note that the personnel requirements will vary depending on the contemplated registration, scope of target investor, and the anticipated business model. However, as a general matter, the Type 1 and DIM registrations have the strictest requirements, while the IAA has the most relaxed.

While Japan in the past has been known to be a daunting jurisdiction to enter for foreign asset managers, certain reforms, regulatory initiatives and implementation of new programs and subsidies over recent years has eased the process significantly compared to the past. More recently, the Japanese government has doubled down on such initiatives by releasing its plans to grow Japan's asset management industry and turn Japan into a hub for foreign asset managers. Therefore, now is an ideal time for foreign asset managers to expand their business in Japan. 

If you have any queries, please feel free to reach out to your usual Withers contacts or any of the authoring lawyers listed below.