MAS implements exemption frameworks for cross-border business arrangements of capital markets intermediaries involving foreign related corporations and foreign offices

18 October 2021

On 9 October 2021, the exemption frameworks for cross-border business arrangements of capital markets intermediaries involving foreign related corporations (“FRCs”) (“FRC Framework”) and foreign head offices/branches (“Foreign Offices”) (“Branch Framework”) came into effect.

With the implementation of the FRC Framework, the Monetary Authority of Singapore (“MAS”) has streamlined the exemption framework for cross-border business arrangements between financial institutions (“FIs”) in Singapore and their FRCs (“FRC Arrangements”), replacing the previous ex-ante approval approach with an ex-post notification approach.

Similarly, under the Branch Framework, Foreign Offices are exempt from the applicable business conduct requirements under the Securities and Futures Act (“SFA”) and/or the Financial Advisers Act (“FAA”) when they conduct regulated activities under an arrangement with their Singapore branch or head office (“Singapore Office”) (“Branch Arrangement”) which is notified to MAS. The Branch Framework applies where the representative is acting on behalf of the Foreign Office. There is no change to the requirement for individuals who are based overseas and act on behalf of the Singapore Office to be appointed as overseas-based representatives and comply with the relevant requirements.

Background

On 4 December 2018, MAS issued a consultation paper seeking feedback on its proposal to introduce the FRC Framework. Under the prevailing framework at the time, FIs in Singapore could allow their FRCs to provide cross-border financial services to customers in Singapore without being subjected to licensing requirements, but the FIs had to apply to MAS for approval on a case-to-case basis. MAS issued its response to feedback from the consultation on 5 June 2020, announcing that it would proceed with its proposal to move to an ex-post notification approach for FRC Arrangements.

With a view to adopting a similar notification framework and a more level playing field for Branch Arrangements (which were subjected to more stringent requirements than FRC Arrangements), MAS issued a consultation paper on 15 March 2021 seeking feedback on its proposal to introduce the Branch Framework (“15 March 2021 Consultation”). MAS also sought feedback on the notification forms, regulations and notices for both the Branch Framework and the FRC Framework (collectively, “Exemption Frameworks”).

This was followed by a consultation paper issued on 12 May 2021 (“12 May 2021 Consultation”) seeking feedback on the draft notices setting out the anti-money laundering and countering the financing of terrorism requirements (“AML Notices”) under both Exemption Frameworks.

MAS issued its response to feedback from the 15 March 2021 Consultation and the 12 May 2021 Consultation (“Response”) on 8 October 2021. Highlights from the Response are set out below.

Applicability of Branch Framework

In its Response, MAS explained that there is no change to the extra-territorial application of the SFA and FAA. The Branch or FRC Framework is relevant where the activities conducted by the Foreign Office/FRC and its representatives are (a) regulated under the SFA and/or FAA, (b) not otherwise exempted, and (c) where the extra-territoriality of the Act applies. As such, if the activity conducted by a Foreign Office/FRC is exempt under the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations (“SF(LCB)R”), the Exemption Frameworks do not apply to that activity. Furthermore, it is a question of fact whether the extra-territoriality of the Act applies. FIs should refer to the Guidelines on the Application of Section 339 (Extra-Territoriality) of the Securities and Futures Act.

The Response states that whether an individual based overseas is acting on behalf of the Singapore Office or the Foreign Office in his/her conduct of regulated activities would similarly depend on the facts and circumstances of the case. As a guide, when assessing whether an individual based overseas is acting on behalf of the Singapore Office or the Foreign Office, FIs should consider (a) which office is responsible for the individual’s conduct of regulated activities in Singapore, (b) which office the individual represents to the customer that he/she is acting for in his/her dealings with the customer, and (c) which office the customer is contracted with.

AML Notices

MAS has amended the definition of “customer” in the AML Notices, to exclude persons that invest into certain investment vehicles to which the Singapore FI provides the regulated activity of fund management. In respect of cross-border arrangements involving the regulated activity of fund management, the Exemption Frameworks are only applicable if the FRC/Foreign Office intends to manage segregated mandates for Singapore customers. The updated definition of “customer” in the AML Notices will continue to include Singapore customers for which the FRC/Foreign Office manages segregated mandates.

Notification and reporting requirements

Notification forms for commencement and changes to arrangements

MAS has refined the declaration for conflicts of interest within the notification forms, requiring the Singapore FI to declare if it has assessed there to be any conflicts of interest at that juncture, and that it will implement conflicts mitigating measures on an ongoing basis. The Singapore FI should assess for such conflicts arising from its conduct of business as a result of participating in the cross-border business arrangement.

Annual reporting form

MAS has updated the annual reporting form to allow reporting to be done on a consolidated basis at the arrangement level, following feedback from some respondents that there are practical difficulties faced by the industry in breaking down certain metrics by entity or regulated activity.

To simplify the reporting requirement for number of customers, MAS will require the reporting of the total number of customers (defined as individuals on whose behalf the FRC/Foreign Office carries on regulated activities, or provides financial advisory services) instead of the number of active customers as originally proposed.

As the annual reporting process under the Exemption Frameworks involves new pieces of information, MAS will defer the due date of the first round of annual reporting to 2023.

Signatory for notification and reporting forms

While the forms can be submitted on behalf of the directors of the Singapore FI, the declaration must be made by the directors. Given the feedback that where the Singapore FI is a branch, the Singapore branch would not have its own directors, MAS will allow the declaration for such forms to be made by the Singapore branch’s chief executive officer.

Other boundary conditions

To provide Singapore FIs/FRCs with sufficient time (if necessary) to obtain the opt-ins from their customers, they will be given two years from the effective date of the Exemption Frameworks, i.e. by 9 October 2023, to obtain the opt-ins. Prior to 9 October 2023, FIs would need to ensure that customers served under the Exemption Frameworks meet the eligibility criteria of “accredited investor” under section 4A(1) of the SFA.

Treatment of existing arrangements

Following feedback, MAS has extended the transition period to 12 months (instead of six months as previously proposed) for Foreign Offices dealing or advising in specified contracts under an arrangement with the Singapore Office, and relying on the transitional arrangement under regulation 60 or 61 of the SF(LCB)R and/or regulation 40BB or 40BC of the Financial Advisers Regulations (“FAR”) which ended on 8 October 2021, to comply with the proposed boundary conditions and submit notifications on such arrangements under the Branch Framework.

MAS has also extended the transition period to 12 months for existing approved arrangements under paragraph 9 of the Third Schedule to the SFA and paragraph 11 of the First Schedule to the FAA, and arrangements involving FRCs exempted under regulation 65 of the SF(LCB)R and regulation 32CA of the FAR. Singapore FIs will have 12 months to comply with the boundary conditions and submit notifications on such arrangements under the FRC Framework.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg:

The following materials are available on Singapore Statutes Online sso.agc.gov.sg:

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