On 5 June 2020, the Monetary Authority of Singapore (“MAS”) issued its response to feedback received from its consultation on “Proposed Revisions to the Exemption Framework for Cross-Border Business Arrangements of Capital Markets Intermediaries” (“Response”).
On 4 December 2018, MAS issued the consultation paper to seek comments (“Consultation Paper”) on the proposal to streamline the exemption framework for business arrangements between financial institutions in Singapore and their foreign related corporations (“FRCs”) by moving from the current ex-ante approval approach to an ex-post notification approach for such business arrangements (“FRC Framework”). The FRC Framework will allow FRCs to provide cross-border financial services to customers in Singapore, without being subject to licensing requirements. Currently, FRCs seek approval from MAS for provision of cross-border financial services on a case-by-case basis.
MAS has incorporated feedback received into the FRC Framework where appropriate.
Scope of FRC Framework
MAS notes that no objections or comments were received in relation to the scope of the proposed FRC Framework. The FRC Framework will include previously exempt OTC derivatives brokers and futures brokers within its scope. MAS also proposed to exclude licensed venture capital fund manages and arrangements relating to the financial advisory service of issuing or promulgating research analyses or reports concerning any investment products from the FRC Framework.
MAS will therefore proceed with the proposals on the scope of the FRC Framework, meaning that the following types of entities in Singapore (“Singapore Entities”) will be able to enter into business arrangements with their FRCs:
- Licensed capital market intermediaries
- Licensed financial advisers
- Exempt capital markets intermediaries
- Exempt financial advisers
Given the additional risks for Singapore customers in dealing with foreign persons when being served by FRCs as part of cross-border business arrangements, MAS will continue to restrict arrangements between Singapore regulated entities and their FRCs to accredited investors, expert investors and institutional investors as these groups are better able to safeguard their own interests. The Response clarifies that Singapore Entities and FRCs may establish the status of customers at the point of onboarding, rather than at the marketing stage.
Respondents to the Consultation Paper sought clarification on the specific information to be submitted to MAS at the point of commencement of the arrangement and on an ongoing basis. MAS has responded that the information to be collected will be broadly consistent with what is currently required, such as information on the FRCs and types of regulated activities involved. However, MAS will be seeking further comments from the industry on the specific information to be submitted to MAS, both at the point at commencement of the arrangement, as well as on an ongoing basis.
Singapore Entities will be required to notify MAS of (i) arrangements with their FRCs within 14 days of commencement of the arrangements and (ii) material changes to the arrangements within 14 days of such changes occurring. The Response explains that as the Singapore Entity will be a party to the establishment of such arrangements, it is expected to put in place internal arrangements with its FRCs to meet the notification timeline when proposing material changes to such arrangements. MAS expects the Singapore Entity to have oversight of its FRC arrangements, be ordinarily involved in decisions to change or be kept apprised of material changes to arrangements with its FRCs on an ex-ante basis. MAS will assess the validity of the circumstances and reasons if there are late notifications.
The “commencement” of an arrangement refers to the date the FRC commences or intends to commence the conduct of the relevant regulated activity under the proposed arrangement. FRCs seeking to conduct regulated activities or provide financial advisory services in Singapore, under an arrangement with a Singapore Entity, must be appropriately licensed, regulated or otherwise exempt, before conducting any regulated activity or providing any financial advisory service.
Regulatory status of Singapore Entity
The Response clarifies that while MAS adopts a facilitative approach to FRC arrangements, it is not MAS’ intent to allow the establishment of entities in Singapore that are shell entities or that have minimal business presence, or arrangements that could undermine regulatory integrity or pose a risk to financial stability and market confidence.
Where FRC arrangements involve product financing or the provision of custodial services, the Singapore Entity must be licensed or authorised to deal in capital markets products for the same classes of products for which the FRC intends to provide product financing or custodial services under the arrangement.
Regulatory status of FRCs
Having considered feedback received regarding the proposal in the Consultation Paper that FRCs be licensed or authorised in their own jurisdiction in respect of the activities to be performed under the arrangement, MAS has revised this proposed requirement to provide that FRCs are to be licensed, authorised, regulated or supervised by a regulatory body in the foreign jurisdiction where the FRC is operating from. With this change, FRCs that are relying on exemptions in respect of the specific activity under the FRC arrangement but that are nonetheless licensed/authorised in the jurisdiction where they are operating from, would be allowed to conduct activities as part of FRC arrangements.
As proposed in the Consultation Paper, FRCs must still be from a jurisdiction that is supervised for compliance with anti-money laundering and countering the financing of terrorism (“AML/CTF”) requirements consistent with standards set by the Financial Action Task Force (“FATF”). The jurisdiction must also not be subject to UN Security Council sanctions. The Response further states that the fact that a jurisdiction is a member of the FATF or a member of an FATF Styled Regional Body does not automatically mean that the jurisdiction is applying AML/CTF standards consistent with FATF standards. Regard should be given to jurisdictions that have been identified by the FATF to have strategic AML/CTF deficiencies.
Record keeping requirements
MAS will require records in the following categories to be maintained for FRC arrangements:
- Records of customers, including information relating to Know-Your-Customer (KYC) or customer due diligence
- Records of transactions entered into with or on behalf of customers including transaction details or transaction-related documentation
- Copies of contracts or agreements entered into with customers under the FRC arrangement
These records can be maintained and stored by the FRCs, subject to the Singapore Entity having assessed and being satisfied that there are adequate policies and procedures for keeping these records, and that access to these records is available on a timely basis.
The Singapore Entity must still maintain a register of FRC representatives (“Foreign Representatives”), noting names, dates of visits to Singapore, the purpose of each visit, and details of regulated activities conducted during the visits. The Response clarifies that MAS will not require information on the qualifications and licences of the Foreign Representatives to be maintained in the register. Further to queries put forward during the public consultation, MAS states that it does not intend to restrict the number of days Foreign Representatives are allowed to visit Singapore, but Singapore Entities are expected to exercise adequate oversight when Foreign Representatives conduct regulated activities in Singapore under the FRC arrangements. The Response clarifies that Foreign Representatives in the context of the FRC Framework refers to individuals conducting regulating activities on behalf of the FRC, under the FRC arrangements. This is distinct from appointed representatives of Singapore Entities who are based overseas.
The following materials are available on the MAS website www.mas.gov.sg: