MAS consults on proposed exemption framework for cross-border business arrangements of capital markets intermediaries involving foreign offices
On 15 March 2021, the Monetary Authority of Singapore (“MAS”) released a consultation paper seeking feedback on a proposed exemption framework for cross-border business arrangements of capital markets intermediaries involving foreign offices. The consultation closes on 15 April 2021.
Currently, foreign related corporations (“FRCs”) of financial institutions (“FIs”) in Singapore are allowed to provide cross-border financial services to customers in Singapore through arrangements between the FRC and Singapore FI (“FRC Arrangements”) that have been approved by MAS. MAS issued a consultation paper on 4 December 2018 to seek feedback on its proposal to streamline the exemption framework for FRC Arrangements by moving from the current ex-ante approval approach to an ex-post notification approach. The proposed framework for FRC Arrangements (“Notified FRC Framework”) does not apply to a business arrangement between an FI in Singapore which is a branch or head office (collectively, “Singapore Office”) and its foreign head office and/or branch (collectively, “Foreign Office”) (“Branch Arrangement”) as they are not separate legal entities. In its response issued on 5 June 2020, MAS expressed its intention to consult on a similar exemption framework for business arrangements involving Foreign Offices.
The current consultation paper thus seeks comments on the introduction of an exemption framework for cross-border business arrangements involving Foreign Offices (“Proposed Branch Framework”). MAS plans to implement the Proposed Branch Framework on 9 October 2021. MAS is also seeking views on the proposed notification forms to be submitted at the point of commencement of the arrangement and on an ongoing basis, as well as the proposed regulations and notices, for the Proposed Branch Framework and Notified FRC Framework.
Regulatory framework for Branch Arrangements
Under the Proposed Branch Framework, the Foreign Offices will be exempt from the applicable business conduct requirements under the Securities and Futures Act (“SFA”) and/or Financial Advisers Act (“FAA”) when they conduct regulated activities under an arrangement with their Singapore Office which is notified to MAS. The Foreign Offices will also be exempt from the requirement to appoint overseas-based representatives to serve Singapore customers under the Proposed Branch Framework.
Scope of Proposed Branch Framework
Under the proposal, the following FIs would be able to notify MAS of their arrangements for the conduct of regulated activities under the SFA and/or FAA by their Foreign Offices:
- persons licensed under section 82(1) of the SFA (i.e. capital markets services licensees), other than persons licensed to conduct the regulated activity of fund management solely in respect of the management of portfolios of specified products on behalf of venture capital funds;
- persons licensed under section 6(1) of the FAA (i.e. licensed financial advisers);
- exempt persons under section 99(1)(a), (b), (c) or (d) of the SFA (i.e. banks, merchant banks, finance companies and insurers that are exempt capital markets intermediaries);
- exempt persons under section 23 (other than subsections (1)(ea) and (f)) of the FAA (i.e. banks, merchant banks, insurers, capital markets services licensees and finance companies that are exempt financial advisers); and
- exempt persons under paragraphs 3(1)(d) or 3A(1)(d) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations (i.e. exempt brokers).
MAS also proposes to amend regulation 32C of the Financial Advisers Regulations to exempt Foreign Offices in respect of the financial advisory service of issuing or promulgating research analyses or reports concerning any investment product, subject to the same safeguard currently provided for under regulation 32C.
Boundary conditions
To mitigate the potential risks to customers in Singapore which may arise under the Proposed Branch Framework, the Singapore FI will be required to comply with a set of boundary conditions, similar to those under the Notified FRC Framework.
The boundary conditions relate, inter alia, to the regulatory status of the Singapore FI, the regulatory status of the Foreign Office, the permissible clientele under the Branch Arrangements, having policies and procedures to oversee the conduct of the Foreign Offices and their representatives under the Branch Arrangements, and audit certification and reporting requirements.
Notification requirement
The Singapore FI is required to notify MAS of the arrangement with its Foreign Office and confirm its compliance with the boundary conditions within 14 days of commencement of the Branch Arrangement. On an ongoing basis, the Singapore FI will be required to notify MAS of specified changes to the Branch Arrangement within 14 days of such a change via a prescribed form.
Treatment of existing OTCD branch arrangements
Under the transitional arrangement for the regulation of over-the-counter derivatives contracts (“OTCD”) (“OTCD Transition Arrangement”), FIs (including Foreign Offices) dealing in or advising on OTCD prior to 8 October 2018 will have to comply with the applicable conduct requirements and appoint representatives for dealing in or advising on OTCD under the SFA and/or FAA after the end of the transitional period (i.e. on 8 October 2021).
MAS proposes to extend the Proposed Branch Framework to the OTCD Branch Arrangements which are covered under the OTCD Transition Arrangement (“Existing OTCD Branch Arrangements”) such that the Foreign Offices and their representatives under these arrangements will continue to be exempt from the conduct and/or appointment requirements after the OTCD Transition Arrangement ends. FIs will be required to notify MAS of and comply with the proposed boundary conditions for their Existing OTCD Branch Arrangements. To this end, MAS intends to implement the Proposed Branch Framework on 9 October 2021, immediately after the end of the OTCD transitional period. MAS also proposes to give FIs a transition period of six months to comply with the proposed boundary conditions and submit notifications on their Existing OTCD Branch Arrangements under the Proposed Branch Framework.
Operationalisation of Proposed Branch Framework and Notified FRC Framework
Under the Proposed Branch Framework and Notified FRC Framework, the Singapore FI will be required to:
- notify MAS of the cross-border arrangement and confirm to MAS its compliance with the boundary conditions, within 14 days of commencement of such arrangement;
- notify MAS of any changes to the arrangement within 14 days of such a change; and
- report annually, within five months from the end of the financial year, information on the size, type of activities, and other relevant metrics to allow for effective and risk-based monitoring of developments on the arrangement.
MAS seeks feedback on the prescribed notification forms and annual reporting forms, set out in Annexes A1 to A3 to the consultation paper.
Regulations and accompanying notices
MAS also seeks feedback on proposed regulations and notices to effect the Notified FRC Framework and Proposed Branch Framework. These are set out in Annexes B1 to D to the consultation paper.
Reference materials
The following materials are available on the MAS website www.mas.gov.sg via the webpage on the consultation paper:
