MAS VCC Thematic Review 2025: What Fund Managers Must Fix Now

In early 2025, MAS published Circular IID 04/2025 — the findings of its thematic review of Singapore Variable Capital Companies. The review, conducted across a representative sample of VCCs over the preceding 18 months, uncovered widespread compliance gaps that MAS has indicated will be subject to increased supervisory scrutiny in 2025 and 2026.

For fund managers operating or planning to operate Singapore VCCs, this circular is required reading. MAS has been explicit that remediation is expected promptly, and repeat or egregious non-compliance will attract enforcement action.

What the Review Examined

MAS's review assessed VCCs against requirements under:

• The Variable Capital Companies Act 2018 (VCC Act)
• MAS Notice SFA 04-N02 (Prevention of Money Laundering and Countering the Financing of Terrorism)
• The Securities and Futures Act (SFA) and MAS Regulations for fund managers
• Income Tax Act Sections 13O and 13U (for VCCs with tax incentive approvals)
• ACRA filing requirements under the VCC Act

Finding 1: AML/CFT Deficiencies — The Most Common Gap

AML/CFT failures were the most pervasive finding across the review sample. MAS identified three sub-categories:

1a. Inadequate Customer Due Diligence (CDD)

Many VCCs had not conducted adequate CDD on investors at the point of subscription. Common deficiencies included:

• Accepting investor representations without independent verification of identity documents
• Failing to identify and verify ultimate beneficial owners (UBOs) where investors were legal entities
• Missing source-of-wealth documentation for high-risk investors
• Relying on outsourced CDD (e.g., to placement agents or prime brokers) without maintaining records of the underlying CDD

1b. Outdated Risk Assessments

The AML/CFT risk assessment — a required written document assessing the fund's money laundering and terrorism financing risks — was either absent, undated, or had not been reviewed since initial setup in a significant proportion of reviewed VCCs.

MAS expectation: Risk assessments must be reviewed at least annually and updated when material changes occur (e.g., new investor jurisdictions, new asset classes, changes in strategy).

1c. Inadequate Ongoing Monitoring

VCCs that had completed onboarding CDD were often not conducting ongoing monitoring of investor activity — in particular, failing to:

• Screen investors against updated sanctions lists (including UN, OFAC, MAS sanctions lists)
• Monitor for unusual or unexplained fund transfers
• Conduct periodic CDD refresh for long-standing investors

Finding 2: Custody Non-Compliance

MAS found that a material number of VCCs were not maintaining proper custody arrangements for fund assets. Specific issues included:

• Self-custody by fund managers: Fund managers holding VCC assets in accounts in their own name or commingled with their own assets, without proper segregation or independent oversight
• Unqualified custodians: Assets held with custodians who did not meet the MAS definition of an eligible custodian (e.g., regulated financial institution with appropriate licences)
• Missing custody agreements: No formal written custody agreement between the VCC and its custodian, or agreements that were materially deficient
• No independent custodian for public-offer VCCs: Public-offer VCCs (those permitted to take retail investors) are required to appoint a trustee or independent custodian; several were operating without one

MAS expectation: All VCC assets must be held by an independent custodian or trustee (or, for restricted-offer PE/VC funds, within a robust internal custody framework with documented segregation controls). Custody agreements must be in writing and compliant with MAS Notice SFA 04-N14.

Finding 3: Sub-Fund Asset Segregation Failures

For umbrella VCCs with multiple sub-funds, MAS found evidence that sub-fund assets were not always properly segregated:

• Assets of Sub-Fund A held in accounts nominally belonging to Sub-Fund B or the umbrella entity without proper attribution
• Costs and expenses allocated across sub-funds without a written cost-allocation policy
• No NAV calculation at the sub-fund level — only an umbrella-level NAV was maintained
• Investor registers that did not clearly attribute investor holdings to specific sub-funds

The legal ring-fencing that makes umbrella VCCs attractive is only as good as the operational records that support it. A sub-fund that cannot demonstrate its own asset register and NAV history will struggle to enforce creditor segregation in any dispute.

Finding 4: ACRA Filing Non-Compliance

MAS noted (and ACRA has separately flagged) material rates of late or non-filing by VCCs:

Finding 5: Tax Incentive Condition Breaches

For VCCs holding 13O or 13U approvals, MAS (working with IRAS) found that a significant minority were in breach of their approval conditions:

• AUM minimum: Funds had fallen below the S$10M (13O) or S$50M (13U) AUM floor without seeking a grace period or notifying MAS/IRAS
• Local investment requirement (13U): At least 10% of AUM (or S$10M, whichever is lower) must be invested in Singapore-listed securities or other qualifying local assets — several funds had zero Singapore investments
• Qualifying business spending: Fund managers had not maintained the S$200,000 (13O) or S$500,000 (13U) annual Singapore business expenditure, or could not evidence it
• Timeliness of IRAS notification: Funds had not notified IRAS within the required timeframe of material changes to fund structure, AUM, or investor composition

MAS Remediation Expectations

MAS has stated in Circular IID 04/2025 that it expects all VCC fund managers to:

1. Conduct a self-assessment against the findings in the circular within 3 months of publication
2. Remediate identified gaps within 6 months of publication
3. Report to their board or investment committee on the self-assessment outcome and remediation plan
4. Maintain documented evidence of remediation (policies updated, investor files supplemented, custody agreements executed)

MAS has indicated it will conduct follow-up reviews in late 2025 and 2026. Fund managers who cannot demonstrate good-faith remediation will face formal supervisory action.

Practical Remediation Checklist

Looking Ahead: MAS VCC Policy in 2025–2026

Beyond the thematic review, MAS has signalled several policy directions for VCCs in the near term:

• Enhanced AML/CFT guidance specific to VCCs (expected mid-2025), including sector-specific red flag indicators
• ESG reporting requirements for institutional-grade VCCs — alignment with TCFD and ISSB standards likely to be encouraged, and potentially mandated for public-offer funds
• Digital asset VCCs — MAS is developing a clearer framework for VCCs holding tokenised assets, digital tokens, and crypto-adjacent investments
• VCC-MAS co-location requirements — increased scrutiny on whether VCC fund managers are genuinely Singapore-based (vs. managing from overseas and using Singapore as a nominal domicile)

The overall regulatory direction is clear: Singapore wants VCCs to be substantively operated in Singapore, with genuine compliance infrastructure — not merely paper vehicles. Fund managers who build this substance now will be well-positioned for the decade ahead.