Client Update: Singapore

2020 JUNE

Financial Institutions

MAS to Revise Exemption Framework for

Cross-Border Business Arrangements of
Capital Markets Intermediaries
Introduction
To facilitate business arrangements between financial institutions in Singapore ("Singapore FIs") and
their foreign related corporations ("FRCs"), the Monetary Authority of Singapore ("MAS") has put in
place a framework since 2002 that permits these FRCs to provide cross-border financial services to
customers in Singapore without being subject to the licensing requirements in Singapore ("FRC
Framework"). Under the current FRC Framework, an arrangement between a Singapore FI and its
FRCs for the FRCs to provide cross-border financial services in Singapore ("FRC Arrangement") must
be approved by MAS on a case-by-case basis.

On 5 June 2020, MAS announced that it will proceed with its proposal to move the approval approach
under the FRC Framework to an ex-post notification approach. This follows a public consultation
conducted by MAS from 4 December 2018 to 31 January 2019. On 5 June 2020, MAS issued its
Response to Feedback Received pursuant to the Consultation Paper on "Proposed Revisions to the
Exemption Framework for Cross-Border Business Arrangements of Capital Markets Intermediaries"
("Consultation Paper").

This Update provides an overview of the new FRC Framework that will adopt the ex-post notification
approach ("New FRC Framework") and the revised conditions thereunder. The Consultation Paper
stated that the conditions under the New FRC Framework will be set out in legislation and Singapore
FIs with existing FRC Arrangements will be given an appropriate transition time to submit the notification
required under the New FRC Framework. MAS is expected to seek further feedback on details of the
New FRC Framework.

Scope of New FRC Framework

The following Singapore FIs will be covered under the New FRC Framework:

a) Persons licensed under section 82(1) of the Securities and Futures Act ("SFA"), 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 (broadly, "CMS
license holders");
b) Persons licensed under section 6(1) of the Financial Advisers Act ("FAA") ("licensed financial
advisers");

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c) Exempt persons under section 99(1)(a), (b), (c) or (d) of the SFA ("exempt CMS license
holders");
d) Exempt persons under section 23 (other than subsections (1)(ea) and (f)) of the FAA (broadly,
"exempt financial advisers"); and
e) 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 ("Exempt Brokers"). These refer
to exempt over-the-counter ("OTC") derivatives brokers and exempt futures brokers who are not
covered under the current FRC framework.

FRC 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 FRC
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
MAS recognised is broader in scope as compared to the FRC Framework.

Boundary Conditions under New FRC Framework

The conditions that MAS will impose on an FRC Arrangement under the New FRC Framework to
mitigate the risks from cross-border business arrangements are set out below ("boundary
conditions"). Upon the boundary conditions being met, the Singapore FIs can commence the
Arrangement with their FRCs without the need to seek prior approval from MAS.

Notification requirements

a) Notification period of 14 days: Singapore FIs will be required to notify MAS of an FRC
Arrangement within 14 days of commencement of the FRC Arrangement and within 14 days of
the occurrence of any material changes to the FRC Arrangement. The Singapore FIs are
expected to have oversight of their FRC Arrangements and should be involved in the decision-
making process of any material changes to the FRC Arrangements or kept apprised of such
material changes on an ex-ante basis. MAS will assess the validity of the circumstances and
reasons if there are late notifications by the Singapore FIs.

b) Types of information to be included in notification: The information to be provided in the

notification to MAS is expected to be broadly similar to the information submitted in the application
for MAS approval under the current FRC framework. Such information includes information on
the FRCs and the types of regulated activities involved. MAS intends to seek further comments
from the industry on the types of information to be provided in the notification to MAS upon
commencement of the FRC Arrangement as well as on an ongoing basis.

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Regulatory status of Singapore FIs

The Singapore FIs that enter into an FRC Arrangement must satisfy the following conditions. These
conditions aim to ensure that the Singapore FIs are not shell entities or do not just have minimal
business presence in Singapore, or the FRC arrangements would not undermine regulatory integrity or
pose a risk to financial stability and market confidence.

c) Licensed FIs: A Singapore FI must be licensed or authorised to conduct the regulated activities
that are to be undertaken by the FRC pursuant to the FRC Arrangement.

As an exception, an FRC Arrangement for the provision of product financing or custodial services
as a complement to a Singapore FI's business of dealing in capital markets products will be
allowed even if the Singapore FI is not licensed or authorised to provide product financing or
custodial services. However, the FRC must be providing product financing or custodial services
under the FRC Arrangement for the same classes of capital markets products that the Singapore
FI is licensed or authorised to deal in.

d) FIs exempt from licensing: Exempt CMS licence holders, exempt financial advisers and Exempt
Brokers are only allowed to enter into FRC Arrangements involving activities for which they are
exempted from being licensed.

Regulatory status of FRCs

e) FRCs licensed/authorised in home jurisdiction: FRCs and their representatives must be

licensed, authorised, regulated or supervised by a regulatory body in the foreign jurisdictions
where they are operating from, in respect of the activities to be performed under an FRC
arrangement. 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 the FRC Arrangements.
Representatives of FRCs from jurisdictions that do not license or authorise individuals would also
be allowed to conduct activities as part of the FRC arrangements, as long as the FRC itself is
licensed, authorised, regulated or supervised in that jurisdictions.

f) FRCs must be operating from a jurisdiction with adequate AML/CFT standards: FRCs and
their representatives must be operating from a jurisdiction that is supervised for compliance with
the anti-money laundering and countering the financing of terrorism (“AML/CFT”) requirements
that are consistent with standards set by the Financial Action Task Force (FATF) and is not
subject to UN Security Council sanctions.

Permissible clientele under FRC Arrangement

g) Clientele restricted to non-retail customers: The clientele for the FRC Arrangement must be
restricted to non-retail customers, namely accredited investors, expert investors and institutional
investors. If the Singapore FIs are restricted to serving certain types of customers, the clientele

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for the FRC Arrangement is restricted to those types of customers. The status of a customer may
be ascertained at the point of onboarding, rather than at the marketing stage.

Internal controls over FRC Arrangement

h) Policies and procedures to oversee conduct of FRCs and their foreign representatives:
The Singapore FIs are required to put in place the following policies and procedures to oversee
the conduct of the FRCs and their foreign representatives ("Foreign Representatives") under
the FRC arrangements:

• Keeping records relating to business arrangements: Singapore FIs must ensure that
records relating to the business arrangements with the FRCs are kept in a manner that
complies with the requirements provided in the SFA and FAA. Such records include records
of customers, transactions entered into with or on behalf of the customers and copies of
contracts or agreements entered into with the customers under the FRC Arrangement. These
records may be maintained and stored by the FRCs, subject to the Singapore FIs having
access to the records on a timely basis. Singapore FIs have to assess and be satisfied that
there are adequate policies and procedures for keeping these records.

• Register of Foreign Representatives: The Singapore FIs must ensure that a Register of
Foreign Representatives is maintained. The Register should include names of the FRCs and
the Foreign Representatives, dates of the Foreign Representatives' visits to Singapore and
the purpose of the visits and details of regulated activities conducted during the visits.

• Customer due diligence ("CDD"): If a customer of the FRC Arrangement is a customer of

the Singapore FIs, the Singapore FIs must perform CDD on the customer in accordance with
the requirements in the MAS Notices on Prevention of Money Laundering and Countering
the Financing of Terrorism applicable to Singapore FIs (collectively, "MAS AML/CFT
Notice"). For customers who are not the Singapore FIs' customers, the Singapore FIs are
required to establish policies and procedures for the conduct of CDD for customers of the
FRC Arrangements that are at least as stringent as the requirements in the MAS AML/CFT
Notice.

• MAS' Access to records kept overseas by FRCs: Singapore FIs must maintain and have
access to all records kept overseas by the FRCs that relate to the business arrangements
and provide MAS with timely access to these records (in English) upon request. MAS will not
grant any waiver of the requirement to ensure access to records by MAS on the basis of
legal or regulatory impediments in foreign jurisdictions.

• Solicitation by Foreign Representatives: Foreign Representatives are required to solicit

customers in Singapore only through or with appointed representatives of the Singapore FIs.
MAS will require Singapore FIs to ensure that there are written policies and procedures
governing the FRC Arrangements in respect of the marketing and solicitation of customers

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by the FRCs or Foreign Representatives. Singapore FIs are responsible for assessing and
identifying the relevant conduct risks that may arise in the process of marketing or
solicitation, and ensuring that the policies and procedures implemented adequately address
these risks.

• Complaints handling: Singapore FIs must implement policies and procedures pertaining to
complaints handling. Singapore FIs relying on global/group-level policies and procedures on
complaints handling are responsible for ensuring that these policies and procedures are
adequate for handing customers' complaints.

Annual reporting requirements

i) Audit certification: Singapore FIs will be required to submit an annual certification that the
boundary conditions under the New FRC Framework have been complied with. The annual
certification may be provided by an independent assurance function (which can be the internal
audit function within a Singapore FI or a related entity of the Singapore FI, a service provider
engaged to perform the internal audit function, or an external auditor).

j) Data collection: MAS proposed a new annual reporting requirement under the New FRC
Framework for information on the size and type of activities (and other relevant metrics) in respect
of the FRC Arrangements to be collected via a prescribed machine-readable format.

Transitional Arrangement for FRC Arrangement Approved under

Current Framework
The New FRC Framework aims to replace the current framework for FRC arrangements approved by
MAS pursuant to paragraph 9 of the Third Schedule to the SFA and paragraph 11 of the First Schedule
to the FAA. When the New FRC Framework takes effect, Singapore FIs will be required to submit an
initial notification to MAS of the list of FRC arrangements approved under the current FRC framework.
These approved FRC arrangements are required to comply with the boundary conditions under the New
FRC Framework and a six-month transitional period will be provided to submit the notification. The
approvals granted by MAS under the current FRC arrangements will expire at the end of the six-month
transitional period.

FRC arrangements between Exempt Brokers and their FRCs that were approved by MAS and currently
covered under the exemptions provided in regulation 65 of the Securities and Futures (Licensing and
Conduct of Business) Regulations will be covered under the New FRC Framework. Exempt Brokers will
have a six-month transitional period to ensure that their FRC arrangements comply with the boundary
conditions under the New FRC Framework and to notify MAS of the list of FRC Arrangements in place.

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Other Arrangements Not Covered under New FRC Framework

a) Arrangements involving foreign head offices or foreign branches: Business arrangements

between foreign branches in Singapore and their foreign head offices or other foreign branches
are outside the scope of the New FRC Framework. These arrangements will be subject to a
proposed new notification framework similar to the New FRC Framework. MAS intends to issue
a consultation paper on its proposal in Q3 2020.

b) Arrangements approved under section 337 of the SFA: Section 337 of the SFA empowers
MAS to exempt any person, capital markets product, matter or transaction from the provisions of
the SFA. MAS has clarified that any arrangements that are approved by MAS under section 337
of the SFA falls outside the scope of the New FRC Framework and proposed revisions to the
FRC Framework will have no bearing on any exemptions already granted under section 337 of
the SFA.

Next Steps
MAS has indicated that it will seek further comments on the types of information to be submitted in the
notifications to MAS under the New FRC Framework and the notification process. The boundary
conditions under the New FRC Framework are expected to be set out in legislation which have yet to
be issued.

For further queries, please feel free to contact our team below.

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Contacts

Regina Liew Larry Lim

Head, Financial Institutions Deputy Head, Financial
Group Institutions Group

T +65 6232 0456 T +65 6232 0482

regina.liew@rajahtann.com larry.lim@rajahtann.com

Benjamin Liew
Partner, Financial Institutions
Group

T +65 6232 0686

benjamin.liew@rajahtann.com

Please feel free to also contact Knowledge and Risk Management at eOASIS@rajahtann.com

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