The Monetary Authority of Singapore (MAS) sets out a high regulatory yardstick to ensure that the relevant risks faced by all stakeholders are adequately mitigated, positively effecting sustainability of the industry. Adherence to these regulations on an ongoing basis is important as compliance breaches may impact the reputation, sustainability, and growth of Financial Institutions (FIs). Fund Management Companies (FMCs), are examples of FIs in Singapore and so they come under strict scrutiny of the MAS. The MAS imposes certain requirements and regulations on FMCs in order to ensure adequate risk mitigation is in place to protect investors. This article is the first part of a series on ongoing regulatory compliance.

Fund Management Companies (FMCs) in Singapore can either be a Registered Fund Management Company (RFMC) or a licensed fund management company holding a Capital Markets Services License (CMSL).

Applicable Laws and Regulations

The primary and secondary legislation that FMCs are subjected to includes,

  • The Monetary Authority of Singapore Act
  • The Securities and Futures Act (SFA)
  • The Securities and Futures (Licensing and Conduct of Business Regulations (SF(LCB)R)

And these are backed by guidelines issued as best practice standards for the business, such as the

The above list of guidelines is not exhaustive. There are specific ongoing regulatory compliance requirements to be met by the FMCs that come under the purview of the MAS.

Ongoing Regulatory Compliance of RFMCs

Key Requirements

  • maximum of 30 qualified investors * (not more than 15 are funds)
  • assets under management(AUM) of not more than S$250
  • minimum of two directors with at least 2 years of relevant industry experience and amongst them at least one must be executive and Singapore resident.
  • minimum base capital requirement of S$250,000

*Qualified Investors refers to Accredited Investors (AI) and Institutional Investors (II). AI is defined under 4A 1(a) of SFA and 4A 1(c) of SFA respectively

An RFMC along with its shareholders, directors, representatives, and employees shall comply with the Guidelines on Fit and Proper Criteria (FSG-G01). For this MAS considers the person’s

  • honesty, integrity and reputation,
  • competence and capability
  • financial soundness

Annual regulatory returns/filings

  • Form 25A is to be filed annually within 1 month of financial year end (annual declaration of AUM for RFMCs)
  • Form 25B is to be filed annually within 5 months of financial year end (the external auditor’s Report for RFMCs) along with a copy of the audited financial statements (balance sheet and profit and loss statement) for the latest completed financial year.

Internal Audit

RFMC shall put in place arrangements for internal audit commensurate to the nature, scale and complexity of its operations.

AML/CFT Requirements

General principles are that employees of any regulated financial institution are expected to maintain high standards of integrity, honesty and fairness when dealing with clients.  They shall ensure that

  • they know who the client
  • they must act for the benefit of the client and place their clients’ interests before their employer’s or their own interests.
  • the client is not using the transaction as a means of money laundering or terrorist

The clients, connected parties of clients, beneficial owners of clients and all natural persons appointed to act on behalf of clients all are subjected to risk based screening. If there is a positive hit or proof of relevant adverse news on the client, the RFMC should immediately freeze said clients’ assets without delay and inform the authorities accordingly.

The board and senior management of a RFMC must ensure ongoing regulatory compliance singapore with applicable laws, regulations and guidelines relating to the combat of financial crimes, failure of which will result in serious legal repercussions. Some of these would be as follows:

  1. Notice for Prevention of Money Laundering and Countering The Financing of Terrorism – Capital Markets Intermediaries
  2. Guidelines On Prevention of Money Laundering and Countering the Financing of Terrorism,
  3. Terrorism (Suppression of Financing) Act, and
  4. Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits)

It is imperative to identify and verify the true and full identity of clients by fulfilling the necessary KYC requirements.

The Ongoing Regulatory Compliance Requirements of CMSLs carrying out Fund Management (A/I)

Section 82 of the SFA mandates a CMS license for a person when carrying on business in any regulated activity or holding himself out as carrying on such business. Fund management is a regulated activity under the SFA.

Key Requirements

  • all types of investors ( no limit as in case of RFMCs)
  • assets under management must be above S$250 million
  • minimum of 2 directors with more than 5 years of relevant industry experience. At least 1 must be Executive and Singapore-resident.
  • minimum base capital requirement of S$250,000,

The holder of a CMS license along with its shareholders, directors, representatives and employees shall comply with the Guidelines on Fit and Proper Criteria, similar to that of an RFMC abovementioned.

Annual regulatory returns/filings

Quarterly Submissions within 14 days of quarter-end via MASNET

  • Form 1 – Statement of Assets and Liabilities
  • Form 2 – Statement of Financial Resources, Total Risk Requirement and Aggregate Indebtedness
  • Quarterly Income & Expenditure Returns

Annual Submissions within 5 months of financial year end via MASNET

  • Form 1 – Submission of the Statement of Assets and Liabilities
  • Form 2 – Statement of Financial Resources, Total Risk Requirement and Aggregate Indebtedness
  • Form 3 – Statement relating to the Accounts of a Holder of a CMS License
  • Form 4 – Statement relating to the Accounts of a Holder of a CMS License – Supplementary Information
  • Form 5 – Auditor’s Report – for a holder of a CMS License,
  • Form 6 – Auditor’s Certification – for a holder of a CMS License and audited financial statements (balance sheet and profit and loss statement) for the latest completed financial year shall be done annually. Form 5, 6 and financial statements must be in hardcopy.

Internal Audit

The holder of a CMS license shall put in place arrangements for internal audit commensurate to the nature, scale and complexity of its operations. A prescribed period is not defined by the regulations but CMSL holders are usually required to conduct an internal audit

The AML/CFT, and effectively, KYC/CDD requirements imposed on clients of a holder of a CMSL is similar to that of a RFMC.

Consequences of non-compliance

There are many factors that contribute towards the rising importance of ongoing regulatory compliance for FMCs in Singapore. One is the fact that Singapore being a financial hub is exposed to the risks of illicit fund flows, effectively prioritizing the urgent need to combat money laundering and terrorist financing. Recently the MAS has imposed penalties of S$5.2 million on Standard Chartered Bank, Singapore Branch (SCBS) and S$1.2 million on Standard Chartered Trust (Singapore) Limited (SCTS). The penalties were for breaches of MAS anti-money laundering and countering the financing of terrorism (AML/CFT) requirements. These breaches occurred when trust accounts of SCBS’ customers were transferred from Standard Chartered Trust (Guernsey) to SCTS. The risk management and controls in relation to the transfers were found to be unsatisfactory.

When we compare this with the global number of fines and amounts imposed on wrongdoers, regulators have amassed a hefty $26 billion in total for non-compliance with AML/CFT & sanctions regulations in the last decade. In the data published by Fenergo, the United States accounts for nearly 44 percent of all global regulatory AML/CFT fines. The fines imposed by the Financial Conduct Authority (FCA) who are the regulators in the United Kingdom, amounts to approximately $1.7 billion. Fines for sanctions violations account for 67% of all violations levied globally (by $).This differs from Asia Pacific and Europe where AML fines outweigh fines for sanctions violations. Deutsche Bank, the German lender, was fined about USD 630 million in penalties on a USD 10 billion Russian money-laundering scheme.

MAS had issued a 10-year prohibition order (PO) against Mr. Leissner, a former director of Goldman Sachs (Singapore) Pte., to prohibit him from performing any regulated activity under the SFA and for taking part, directly or indirectly in the management of any capital markets services firm in Singapore for issuing an unauthorised reference letter on behalf of Goldman Sachs (Asia) L.L.C. to a financial institution based in Luxembourg where he had made false statements without the firm’s knowledge. Later on, Mr. Leissener pleaded guilty for charges imposed by United States Department of Justice for obtaining and retaining business from 1Malaysia Development Berhad (1MDB) for Goldman Sachs through the promise and payment of bribes and kickbacks to government officials in Abu Dhabi and Malaysia. Following this, the MAS extended the duration of the PO to a lifetime prohibition.

This shows to what extent non-compliance can affect a business and a person’s professional career. Apart from the fines and sanctions noncompliance can result in losing the investor confidence.

How can Argus help? Argus specializes in ongoing regulatory compliance Singapore and provides objective insights, subject expertise and a simple approach to all your compliance-related needs. Our diversified client base spans start-ups to mature businesses. We provide the compliance solution best fit for each client. We will be happy to answer your queries, whether relating to this article or even any other regulatory compliance hurdle you may face.

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