Rule - Segregation of Assets - Regulated Mutual Funds

Summary

This CIMA Rule sets out asset segregation requirements for mutual funds licensed or registered under section 4 of the Mutual Funds Law, other than those covered by the Retail Mutual Funds (Japan) Regulations. It requires that a fund's portfolio (its financial assets and liabilities, including investor funds and investments) be kept separate from the assets of any service provider engaged by the fund, such as an administrator, auditor, custodian, investment advisor, investment manager, prime broker, promoter or registrar.

Service Provider Requirements

• Safekeeping appointment: Funds must appoint a service provider responsible for safekeeping the portfolio.
• Regulated status: Funds must ensure by contract that any service provider holding or managing the portfolio is itself regulated (by CIMA, a recognised overseas regulator, or another CIMA-approved regulator).
• No improper use of assets: Funds must ensure that no service provider uses the fund's assets to finance its own or another's operations.
• Permitted activities: Specific activities do not themselves count as improper use of fund assets: paying redemption/distribution proceeds, investor fees, investment transactions, fund expenses, and consented transfer/reuse of assets with disclosure.

Operator Obligations

• Policies and controls: Operators of a fund (directors, general partners, trustees or managing members, depending on the fund's legal form) must establish and maintain policies, controls and procedures to ensure compliance with the Rule, proportionate to the fund's size, complexity and nature.
• Independent verification: Operators must ensure independent verification that the fund holds title to its assets and that records of those assets are maintained, either by an administrator/independent third party or, where conflicts of interest are properly managed and disclosed, by the manager or operator itself.

Breach of the Rule triggers CIMA's enforcement powers under its Enforcement Manual, the Mutual Funds Law and the Monetary Authority Law.

Key obligations

• A Fund must appoint a Service Provider responsible for safekeeping of the Fund's Portfolio.
• The Portfolio must be segregated and accounted for separately from any assets of any Service Provider, and the Fund must ensure any Service Provider holding or managing the Portfolio complies with this segregation requirement.
• A Fund must ensure by contract that any Service Provider holding or managing the Portfolio is regulated by CIMA, a Recognised Overseas Regulatory Authority, or another CIMA-approved regulator.
• A Fund must ensure that none of its Service Providers use the Portfolio to finance their own or any other operations, except for specified permitted activities (redemption/distribution payments, investor fees, investment transactions, disclosed fund expenses, and disclosed transfer/reuse arrangements).
• Operators of a Fund must establish, implement and maintain (or oversee) strategies, policies, controls and procedures to ensure compliance with the Rule, appropriate to the fund's size, complexity, nature and investors.
• Operators of a Fund must ensure independent verification that the Fund holds title to its assets and maintenance of records of those assets, carried out by an administrator/independent third party, or by the manager/operator if independence from portfolio management is maintained or conflicts of interest are properly identified, managed, monitored and disclosed to investors.

Applies to

Regulated mutual funds (licensed or registered under section 4 of the Mutual Funds Law), Operators of Funds (directors, general partners, trustees, managing members), Service Providers (administrators, auditors, custodians, investment advisors, investment managers, prime brokers, promoters, registrars, or their delegates)

Related documents

• This document is made under Monetary Authority Law (2020 Revision)