As the Singapore regulator warns of problems in the VCC sector, and also clamps down on how AML and other rules are enforced, it is plain that the Asian city-state wants to take a hard line.

The Monetary Authority of Singapore recently reported on how the jurisdiction’s Variable Capital Companies (VCC) regime was faring, following a review. While its report was mostly positive – there are about 1,200 of VCCs and they are an important wealth management tool – MAS also unearthed worrying practices.

Among the areas of concern, MAS said in late June, was that some VCCs did not maintain their assets with independent custodians; certain VCCs appointed additional directors who were not appointed representatives of the VCC manager; managers in some cases managed VCCs that held no assets or had no investors; and there were cases of VCCs holding illiquid assets on behalf of a single investor or a few related investors, which previously belonged to these investors.

Law firm Bird & Bird, in the measured language of such organisations, nevertheless made it clear that the VCC industry needs to sharpen up its act.

“While VCCs have been generally compliant with the key requirements, the MAS circular shows that there are areas where VCCs and their managers may have fallen short of expectations in VCC management. It is imperative that VCC managers robustly review their governance of VCCs, especially in light of increased regulatory scrutiny,” Bird & Bird said in a 7 July note. 

VCCs, established at the start of 2020, are part of Singapore's push to raise its stakes as a wealth management sector. However, at a time when the Asian city-state is tightening controls to thwart problems such as money laundering, the VCC sector is also under a spotlight. 

VCCs are flexible corporate structures used for both open-ended and closed-end investment funds; they can invest in a wide range of assets, including equities and fixed income instruments, both in public and private asset markets. The vast majority are offered to only accredited and/or institutional investors. VCCs enable branches of a family with different goals to run separate sub-funds while pooling their costs. To some extent the development mirrors the structure innovations that have taken place in Jersey, Guernsey, the Cayman Islands and other offshore centres.

So what are the requirements? Well, a VCC must have a MAS-regulated manager to manage its property or operate the collective investment schemes that comprise the VCC; they must have at least one director who is a qualified representative of the VCC manager; they must engage an eligible financial institution (EFI) to ensure that it is compliant with the relevant AML and CFT requirements; and VCC managers must segregate VCC assets and maintain them with independent custodians, ensuring that any individual conducting fund management activity is an appointed representative of the VCC manager. 

“While there has been broad compliance with these requirements, MAS has highlighted some areas where they observed gaps in compliance and reiterated the expectations that VCCs and their managers must meet,” the regulator said. 

The regulator is clearly in a mood to tighten matters up. As reported elsewhere, it has penalised a group of banks and individuals for lapses over AML controls. In the case of family offices, new rules governing how these bodies operate took effect in 2022.

This news service understands that one consequence – perhaps inevitable – of all this regulatory scrutiny is that client onboarding in Singapore is burdensome. In February 2025, a report from Fenergo, a provider of client lifecycle management, know your customer and transaction monitoring solutions, found that Singapore's banking sector faces an "unprecedented" challenge as the number of clients abandoning banks due to slow and inefficient practices has surged to record levels. Nearly 90 per cent have lost clients over the past year due to delays and inefficiencies in onboarding, rising by more than a third (35 per cent) from the level in 2023. HP Wealth Management in Singapore told this news service that this was proving an industry headache. Sia, a global management consultancy, has delved into onboarding times at banks across different parts of the wealth spectrum, and found that client onboarding is riddled with inefficiencies.

Regardless of the specifics, what all these stories say is that Singapore appears determined to remove slack practices from the industry – creating a challenge in managing compliance burdens. Singapore does not need to win business in a “race to the bottom” – the jurisdiction has boomed as a wealth sector in recent years. But complacency must be avoided. Singapore, it seems, wants to avoid such a mistake.

(Note: This news service is keen to talk to industry figures in Singapore and other financial centres about the specific challenges in compliance, for example proving sources of wealth for onboarding purposes. This is make-or-break for some wealth management firms and banks, so we would like to learn more about the details on the ground. Email tom.burroughes@wealthbriefing.com)