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


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.