Singapore: Proposed Changes To MAS Exemptions For Cross Border Business

Co-authored by Carolyn Chia (Resource Law LLC) and Tania Teng (Resource Law LLC)

On 4 December 2018, the Monetary Authority of Singapore (MAS) published a consultation paper (the MAS CP) proposing changes to the exemption framework for business arrangements between financial institutions and their foreign related corporations (FRCs).

These arrangements, commonly known as 'Paragraph 9' and 'Paragraph 11' arrangements, allow FRCs of Singapore regulated entities which hold a licence or exemption under the Securities and Futures Act (Cap. 289) (SFA) and/or the Financial Advisers Act (Cap. 110) (FAA), to provide their services into Singapore, subject to conditions. Paragraph 9/11 arrangements form an important cornerstone of inbound cross-border financial services in Singapore, and these proposals will therefore be of significant interest to the industry.

This alert provides an overview of the MAS' proposals and considers some of the key practical implications for Singapore regulated entities and FRCs.

Overview of proposals

Background

The SFA, which regulates the activities of capital markets intermediaries, and the FAA, which regulates financial advisory services, have extraterritorial effect. Entities conducting activities partly or even wholly outside Singapore may therefore, where such activities are licensable under the SFA and/or FAA and are undertaken with Singapore-based customers, trigger a licensing requirement under the SFA and/or FAA, unless an exemption applies.

Paragraph 9/11 arrangements (based on the exemptions in paragraph 9 of the Third Schedule to the SFA and paragraph 11 of the First Schedule to the FAA) allow FRCs of Singapore regulated entities which hold an appropriate licence or exemption under the SFA and/or FAA, and representatives of the FRCs, to conduct such activities in Singapore. Such arrangements must be approved by the MAS and are subject to conditions which aim at mitigating risks to customers in Singapore.

Move to ex-post notification

The MAS CP proposes that regulated entities should no longer be required to seek approval from the MAS for these arrangements; rather, the arrangements would need to be notified to the MAS in prescribed form on an ex-post basis, within 14 days of their commencement. Regulated entities and their FRCs would also need to comply with other boundary conditions, as further described below.

Scope of new framework

In addition to entities that are currently eligible to apply for Paragraph 9/11 arrangements, the updated framework is also proposed to apply to entities falling within the new exemptions for over-the-counter derivatives brokers and futures brokers, introduced into the SFA on 8 October 2018. Some such entities previously held a licence under the SFA, which made them eligible to maintain a Paragraph 9/11 arrangement, but they are no longer able to do so in their capacity as exempt entities.

The new framework will not extend to the activity of issuing or promulgating research reports (for which an alternative cross-border exemption – the so-called 'foreign research house exemption' – is already available) or to managers of venture capital funds (as they do not carry on any regulated activities to which the framework would apply – e.g., the management of segregated portfolios).

The new framework is proposed to apply to all entities holding existing Paragraph 9/11 arrangements already approved by the MAS, to ensure a level playing field.

Boundary conditions

Most of the proposed boundary conditions are similar to those currently imposed by the MAS for Paragraph 9/11 arrangements. In summary, the conditions relate to:

  • Notification: Regulated entities would be required to notify the MAS, and to confirm their compliance with the boundary conditions, within 14 days of commencing an arrangement. The MAS would also need to be notified within 14 days of any material change being made to the arrangement (which would include defined changes such as the addition of new FRCs to the arrangement or changes in the products and services under the arrangement).
  • Status of Singapore regulated entity: The regulated entity would generally need to be permitted to conduct the regulated activities which the FRC proposes to undertake (although this requirement would not apply for the activities of product financing or providing custodial services).
  • Status of FRCs: An FRC and its representatives would need to be licensed or authorised for their activities in their home jurisdiction. The home jurisdiction would also need to be supervised for compliance with anti-money-laundering and countering-the-financing-of-terrorism standards set by the Financial Action Task Force, and must not be subject to UN Security Council sanctions.
  • Permissible clientele: Customers serviced under an arrangement would need to be limited to 'accredited investors', 'expert investors' and/or 'institutional investors' (each as defined in the SFA), or a narrower range of investor types if the Singapore regulated entity is subject to additional restrictions on the scope of its clientele.
  • Internal controls: The regulated entity would need to have in place policies and procedures to oversee the conduct of the FRC and its representatives (including record-keeping arrangements, maintenance of a register of FRC representatives, and performance of know-your-customer due diligence in accordance with MAS requirements).
  • Annual reporting: The regulated entity would need to submit to the MAS an annual certification from its external auditors that the boundary conditions have been complied with. In the event of non-compliance with these conditions, the MAS would be empowered to impose additional supervisory measures or discontinue the arrangement. The MAS also proposes to collect other data on an annual basis, including on the size and type of activities conducted (among other metrics).

Form and timing of changes

While the MAS has specified that the boundary conditions will be set out in legislation, it has not provided further details on the form which the new framework will take (e.g., whether any aspects of the framework will be reflected in a notice, in guidelines, etc.).

The MAS has not indicated when the changes would take effect, although regulated entities with existing Paragraph 9/11 arrangements will be given a suitable transition period to comply with the new framework.

Practical impact

While the move to an ex-post notification framework would allow regulated entities and FRCs to avail themselves of the exemption for cross-border arrangements more promptly (without needing to await MAS approval), in practice the ongoing compliance burden for regulated entities and FRCs would likely be comparable to that under the current Paragraph 9/11 regime, given that the conditions typically imposed under the current regime would be maintained as boundary conditions under the new framework.

Nevertheless, given that regulated entities with existing Paragraph 9/11 arrangements would be required to confirm their compliance with the boundary conditions upon moving to the new regime, such entities (especially those sitting within large groups and holding multiple Paragraph 9/11 arrangements) may wish to consider conducting a review of their compliance with the conditions of their existing arrangements, and assessing whether any aspects of the proposed boundary conditions would be more onerous than the existing conditions.

Entities not currently maintaining Paragraph 9/11 arrangements may also wish to assess the palatability of availing themselves of the new framework.

Any comments with regard to the proposals in the MAS CP should be fed back to the MAS as part of the consultation, which closes on 31 January 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions