Since 2002 financial institutions’ foreign related corporations may provide financial services in Singapore without being subject to licensing requirements in Singapore. These arrangements are approved by the Monetary Authority of Singapore (“MAS”) on a case-by-case basis.
MAS released a consultation paper in 2018 to seek comments from public on the proposal to streamline the current exemption framework for business arrangements between financial institutions in Singapore and their foreign related corporations by replacing the approval approach to a post notification approach.
In June 2020, the MAS issued its response to feedback received from the public on the consultation.
The below describes the scope of the intended cross border arrangement framework.
Applicability of the Cross Border Framework
Under the current cross border framework, financial institutions conducting regulated activities under the Securities and Futures Act can apply for the exemption for their foreign related corporations. Exempt capital market intermediaries such as banks, merchant banks, finance companies and insurers and their related foreign corporations are eligible to apply for cross border exemptions. In addition, licensed financial advisers and exempt financial advisers related corporations are also eligible for the cross border exemptions.
Under the proposed cross border notification framework, other financial institutions such as the exempt futures brokers, OTC derivative brokers can apply for the notification. Venture capital fund managers will continue to be excluded from the cross border notification framework. Cross border arrangements involving the provision of financial advisory service of issuing or promulgating research analyses or reports concerning any investment product will not be covered under the new cross border notification framework. Instead foreign research houses seeking to provide financial advisory service to any investor under arrangements with licensed or exempt financial advisers in Singapore may do so by relying on the existing exemption under regulation 32C of the Financial Advisers Regulations, which is much broader than the cross border framework in place.
Prior approval for cross border arrangements will no longer be required. Instead financial institutions need to notify MAS within 14 days upon commencing (or intending to commence) a regulated activity and following material changes to the arrangement.
MAS will impose standard “boundary conditions” for such cross border arrangements to be met by financial institutions. Financial institutions will have to confirm that these conditions are complied with at the time of the notification and provide certification on compliance on an ongoing basis. The Singapore financial institutions are required to have oversight over the foreign related corporations and the cross border arrangements in place and should be involved in the decision making process of any material changes to the cross border arrangements or kept apprised of such material changes. MAS will access the validity of these changes and if there were late notifications, the reasons for the late notifications.
The type of information to be provided in the cross border notification arrangement are largely similar to the information submitted in the current cross border approval arrangement. Information includes information on the foreign related corporations and the types of regulated activities involved.
Regulatory Status of Singapore Financial Institutions
Singapore financial institutions that enter into the cross border arrangements must meet some conditions and must ensure they are not operating as shell entities or conducting minimal activities in Singapore. Singapore financial institutions must be licensed or authorised to conduct the regulated activities that are to be undertaken by the foreign related corporations in relation to the cross border notification arrangement. Exempt Capital Market Services Licence holders, exempt financial advisers and exempt brokers are only allowed to enter into cross border notification arrangements for the activities that they are exempted from being licensed for.
Regulatory Status of Singapore Foreign Related Corporations
Foreign related corporations and their representatives must be licensed, authorised or regulated in the foreign jurisdiction where they are operating from in respect of the activities that they are to perform under the cross border notification arrangement. If the related corporations are relying on certain exemptions in respect for those activities they intend to perform under the cross border notification arrangement, they may be permitted to do so. Representatives of foreign related corporations from jurisdictions that do not licence or authorise representatives or individuals can conduct the regulated activities in Singapore under the cross border notification arrangement.
Foreign related corporations must be operating from a jurisdiction with adequate anti-money laundering / Countering Financing of Terrorism requirements that are consistent with Financial Action Task Force (“FATF”) standards.
Permissible Clientele under the Cross Border Arrangement
Under the cross border notification arrangement, the clientele permitted to be serviced must be restricted to non retail clients such as accredited and institutional clients.
Singapore financial institutions must ensure they have appropriate policies and procedures to oversee the conduct of the foreign related corporations who are to be notified under the cross border arrangements and these includes:
- Keeping records relating to the business arrangements such as business transactions or agreements
- Register of foreign representatives including dates of visits, purpose of visits and details of regulated activities conducted during the visits
- Conduct appropriate customer due diligence in accordance to Singapore requirements
- Allow MAS access to records kept overseas by the related foreign corporations
- Ensure written policies and procedures are implemented to only allow solicitation of customers in Singapore through appointed representatives of the Singapore foreign institutions
- Implement policies and procedures to handle complaints adequately
Annual Reporting Obligations
Singapore financial institutions must ensure they submit annual certification that the boundary conditions under the new cross border notification framework have been complied with. They can be provided by an independent assurance function which includes third party internal or external auditors.
MAS has also proposed an annual reporting requirement to collect information on size and type of activities via a prescribed format as part of the annual reporting requirements.
How can Argus Assist?
We, at Argus Global, are a team of consultants who specialize in regulatory compliance for financial institutions. We assist to do the following:
- Provide regulatory advice on Singapore regulations
- Provide ongoing outsourced compliance support
- Provide written policies and procedures to assist with adhering to Singapore regulatory requirements
- Provide training on various regulatory requirements in Singapore
Please reach out to us for an initial discussion on Cross Border Exemptions at email@example.com.
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