ARTICLE
7 December 2023

MAS Proposes Harmonised Class Exemption For Single Family Offices

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Shook Lin & Bok

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MAS has on 31 July 2023 published a consultation paper proposing a new class exemption for single family offices from the requirement to be licensed for fund management under the Securities and Futures Act 2001.
Singapore Finance and Banking
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The Monetary Authority of Singapore ("MAS") has on 31 July 2023 published a consultation paper proposing a new class exemption for single family offices ("SFOs") from the requirement to be licensed for fund management under the Securities and Futures Act 2001 ("SFA"). The requirements under this class exemption will help to facilitate the supervision of SFOs in Singapore and address any money laundering risks arising from their activities.

1. Introduction

Given the increase in SFOs being set up in Singapore due to its status as an international financial hub, MAS notes that SFOs may pose money laundering risks similar to those of high net-worth or private banking clients, and as such, has proposed to harmonise the criteria for SFOs to be exempt from licensing under the SFA, and to introduce new notification and reporting requirements to better monitor the activities of SFOs in Singapore.

2. Conditions for the new SFO Class Exemption

Currently, some SFOs are able to rely on paragraph 5(1)(b) of the Securities and Futures (Licensing and Conduct of Business) Regulations ("SF(LCB)R") (the "Paragraph 5(1)(b) Exemption"), which provides for an automatic exemption from the requirement to be licensed for fund management when they manage the assets of their related corporations. Other SFOs with ownership structures that do not fall within the scope of the Paragraph 5(1)(b) Exemption would typically have to seek an ad-hoc licensing exemption under the SFA.

In order to do away with the above differential treatment, MAS is proposing to introduce a class exemption (the "SFO Class Exemption") under the SF(LCB)R which would be applicable to all types of SFOs regardless of their structure so that ad-hoc exemption applications to the MAS would no longer be needed. In order to rely on the SFO Class Exemption, the SFO must be wholly owned (whether directly or indirectly) by members of the same family. In this regard, family members will be defined as lineal descendants of a common ancestor (living or deceased), including current and former spouses, adopted children and current and former stepchildren.

The SFO must also conduct fund management only on behalf of (i) family members (including family trusts and corporations wholly owned by and for the sole benefit of the family), (ii) charities (whether in Singapore or overseas) funded exclusively by the family, or (iii) key employees, which refer to the CEO and executive directors of the SFO. In relation to the latter, MAS is proposing to allow SFOs to manage the assets of key employees because it is normal for them to invest alongside the family so as to align their economic interests.

The SFO must obtain a legal opinion confirming that both of the above requirements are met, and be prepared to confirm this to the MAS (although it does not appear that the opinion itself must be provided to the MAS).

Even with the SFO Class Exemption, the SFO still cannot hold itself out as being regulated by MAS in Singapore, and MAS Notice SFA04-N07 on Prohibited Representations made by Exempt Persons would be amended in due course to provide for this.

The SFO must also be incorporated in Singapore, so that it will be subject to beneficial ownership requirements administered by the Accounting and Corporate Regulatory Authority under the Companies Act 1967. It must also have at all times at least one employee who would be resident in Singapore and could serve as the designated point of contact with the MAS.

Finally, it would be necessary for the SFO to establish and maintain business relations with at least one financial institution within a class of MAS-regulated financial institutions as stipulated by MAS. These would generally include banks, capital markets services licensees, financial advisers as well as trust companies. The purpose of this condition is to help ensure that SFOs are subject to anti-money laundering and countering the financing of terrorism ("AML/CFT") checks by the MAS-regulated financial institution.

3. Notification and Reporting Requirements

Aside from the conditions for the new SFO Class Exemption, SFOs must also file an initial notification to MAS within 7 days of commencement of operations in Singapore. MAS is proposing for this initial notification to contain the following information:

  1. key particulars of the SFO, specifically:
    1. name, UEN and date of incorporation of the SFO;
    2. name, country and date of incorporation of the fund vehicle;
    3. name(s) of MAS-regulated FI(s) that the SFO has established and maintained business relations with;
    4. name of law firm that provided the above-mentioned legal opinion; and
    5. amount of assets to be managed by the SFO.
  2. a signed declaration by all the family members who own the SFO, CEO and director(s) that:
    1. such family members are currently not the subject of any investigation by authorities, or the subject of any civil or criminal proceedings whether in Singapore or elsewhere;
    2. such family members, as well as the CEO and director(s), have never been convicted of a serious crime or been involved in money laundering, terrorism financing or proliferation financing; and
    3. the SFO does not and will not engage in any activity with individuals or entities in the United Nations lists or any other similar list found on the MAS website, whether directly or indirectly.
  3. a signed declaration by all the family members who own the SFO, CEO and director(s) that the SFO fulfils all the requirements under the SFO Class Exemption.

Subsequently, the SFO must, on an annual basis, submit an annual return within 14 days after the end of each calendar year to report the amount of assets under its management, and identifying the MAS-regulated financial institution(s) that it has business relationships with as at the end of the calendar year.

4. Implementation Timeline

MAS is proposing a transitional period of 6 months for existing SFOs operating in Singapore to comply with the requirements under the SFO Class Exemption. SFOs would need to provide the initial notification to MAS within 6 months from the effective date of these requirements, but once the notification is submitted, they do not need to obtain MAS' acknowledgement to continue operating in Singapore.

Similarly, new SFOs would need to file the initial notification within 7 days of their commencement of operations in Singapore, and they would likewise not need to obtain MAS' acknowledgement to commence operating in Singapore.

5. Conclusion

The introduction of the SFO Class Exemption is a welcome development to allow SFOs to operate in Singapore on equal footing, regardless of the structure that they choose to adopt. Increased surveillance over SFOs is also an important step given that they have become more common in Singapore, and this is necessary to ensure an appropriate balance between upholding Singapore's stringent AML/CFT standards, and continuing to welcome the presence of foreign capital to stimulate and grow Singapore's economy.

A copy of the Consultation Paper can be obtained here.

Originally published August 02, 2023

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.

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