The Monetary Authority of Singapore ("MAS") has, with effect from 9 October 2021, replaced the ad hoc approval regime under paragraph 9 of the Third Schedule to the Securities and Futures Act ("SFA") and paragraph 11 of the First Schedule to the Financial Advisers Act ("FAA") for cross-border business arrangements between certain specified financial institutions (each a "Specified FI") and their foreign related corporations ("FRCs") with an automatic exemption regime (the "FRC Framework").

Along with the introduction of the FRC Framework, MAS has also introduced a similar exemption framework for cross-border business arrangements between the Singapore and foreign branches of a Specified FI (the "Branch Framework").

This client update presents an overview of the key elements under the FRC Framework and the Branch Framework (collectively, the "Exemption Framework").

Summary of Key Elements under the Exemption Framework

Requirements for cross-border business arrangements The Exemption Framework applies to the following types of cross-border business arrangements under the SFA and the FAA respectively:
SFA FAA

For the purposes of the SFA, the Specified FIs would be: 

  1. Capital markets services license ("CMSL") holders (other than venture capital fund managers);1
  2. Banks, merchant banks, finance companies, or insurers, having exempt status under Part IV of the SFA;
  3. Exempt futures brokers; and
  4. Exempt over-the-counter derivatives brokers.

The eligible cross-border business arrangements would be between the abovementioned Specified FIs on the one hand, and their FRCs, and between the abovementioned Specified FIs and their foreign head offices or branches ("Foreign Offices" or "FOs"), provided that:

  1. the activities conducted by the FRCs / FOs are also activities that would be regulated under the SFA;
  2. the licensing rules of the SFA would have extended on an extra-territorial basis to such activities; and
  3. no other exemptions are applicable to the FRCs / FOs.

Additionally, for Specified FIs dealing in capital markets products, their FRCs and FOs will be able to provide product financing or custodial services, even if the Specified FIs themselves are not licensed or exempt to carry out such activities.

For the purposes of the FAA, the Specified FIs would be:

  1. Licensed financial advisers; and
  2. Banks, merchant banks, insurers, CMSL holders, or finance companies, having exempt status under Part II of the FAA.

The eligible cross-border business arrangements would be in respect of financial advisory service (other than advising by issuing or promulgating research analyses or reports) between the above-mentioned Specified FIs on the one hand, and their FRCs, and between the abovementioned Specified FIs and their FOs, provided that:

  1. the activities conducted by the FRCs / FOs are also activities that would be regulated under the FAA;
  2. the licensing rules of the FAA would have extended on an extra-territorial basis such activities; and
  3. no other exemptions are applicable to the FRCs / FOs.
Notification requirements

The Specified FI must lodge with MAS:

  1. Form FN, no later than 14 days after the date of commencement of the cross-border business arrangement; and
  2. Form FC, no later than 14 days after the date of any changes in particulars or cessation of the cross-border business arrangement.
Regulatory status Requirements for arrangements involving FRCs

The FRC must:

  1. Carry out all its activities through one or more of its branches or office (including its head office) established in one or more foreign jurisdictions;
  2. Be subject to regulatory oversight by a foreign regulatory authority in respect of any activity that the FRC carries out in these foreign jurisdictions;
  3. Be subject to anti-money laundering and countering the financing of terrorism ("AML/CFT") requirements in each foreign jurisdiction, which are consistent with the standards set by the Financial Action Task Force ("FATF"), and be supervised by a foreign regulatory authority to that end;
  4. Not be subject to any United Nations Security Council ("UNSC") sanctions; and
  5. Not operate from a jurisdiction that is subject to any UNSC sanctions.
Requirements for arrangements involving FOs

The Specified FI must:

  1. Be subject to regulatory oversight by a foreign regulatory authority in respect of any activity that its FO carries out in the foreign jurisdiction where its FO is established;
  2. Be subject to AML/CFT requirements in the foreign jurisdiction where its FO is established, which are consistent with the standards set by the FATF, and be supervised by a foreign regulatory authority to that end;
  3. Not be subject to any UNSC sanctions; and
  4. Not operate its FO from a jurisdiction that is subject to any UNSC sanctions.
Permissible clientele Generally, the range of permissible clientele will be limited to accredited investors, institutional investors, and expert investors. However, this will be subject to any variation of permissible clientele that MAS may impose on the Specified FI.
Internal controls requirement

Specified FIs with arrangements with their FRCs / FOs must put in place the following:

  1. Records in relation to the cross-border business arrangement (e.g. customers, transactions and contracts relating to the FRC / FO);
  2. Register of the FRC / FO's foreign representatives; and
  3. Policies and procedures, including those relating to the solicitation of customers in Singapore and handling of complaints, which are properly maintained.

The Specified FIs must also be able to provide MAS with the above documents (translated to English if necessary) upon request.
AML/CFT requirement

The Specified FIs must ensure that their FRCs / FOs are held to the same standard of requirements imposed under the relevant MAS Notice(s) on AML/CFT applicable to the FIs. In particular, they must:

  1. Retain CDD information for at least 5 years;
  2. Ensure that there are policies in place to prevent money laundering and terrorism financing consistent with the requirements under the relevant MAS Notice on AML/CFT; and
  3. Provide records to MAS upon request.
Annual reporting requirement

An annual declaration in relation to the Specified FI's cross-border business arrangement must be lodged in Form FR with MAS no later than 5 months from the end of the financial year. 2

This annual declaration must also be certified by an internal or external auditor.
Arrangements involving issuing or promulgating research reports All arrangements concerning issuing or promulgating research analyses or reports concerning any investment product will be exempt under regulation 32C of the Financial Advisers Regulations, and as such, will be excluded from the Exemption Framework.

Treatment of Existing Arrangements

With the coming into operation of the Exemption Framework, the MAS is no longer accepting applications for ad hoc approval of cross-border business arrangements under paragraph 9 of the Third Schedule to the SFA and paragraph 11 of the First Schedule to the FAA.

In respect of existing cross-border business arrangements already approved under the ad hoc approval framework, there will be a 12-month period (i.e. until 8 October 2022) for the Specified FI to notify MAS via the submission of Form FN and to transition to the Exemption Framework. Thereafter, the ad hoc approval will be invalidated and the cross-border business arrangement will instead be governed by the Exemption Framework.

Final Comments

We would add as a final note that section 366(2)(k) of the Companies Act (Cap. 50 of Singapore) ("CA") is presently drafted to operate in tandem with the previous approval regimes under the SFA and FAA. Thus, for purposes of the CA, a foreign company shall not be regarded as carrying on business in Singapore for the reason only that, in Singapore, it effects any transaction through its related corporation licensed or approved under any written law by the MAS, under an arrangement approved by the MAS.

However, with the new Exemption Framework in effect, it is unclear if section 366(2)(k) of the CA in its present form will serve to allow FRCs and/or FOs of Specified FIs to avoid registration requirements under the CA when conducting their cross-border business arrangements.

New Instruments

The legislative references in respect of the new Exemption Framework are set out below, all of which are available on Singapore Statutes Online:

The relevant MAS materials are set out below, all of which are available on the MAS website:

Footnotes

1. Please note that cross-border business arrangements between registered fund management companies ("RFMCs") and their FRCs / FOs do not fall within the Exemption Framework, as RFMCs are not considered to be CMSL holders.

2. Given that the annual reporting process under the Exemption Framework involves new pieces of information, MAS will defer the due date of the first round of annual reporting to 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.