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Client Update: Singapore – 10 April 2008

Singapore legislates to maintain progressive securities industry

In brief: The regulator of Singapore's securities industry, the Monetary Authority of Singapore, has undertaken consultation with a wide range of stakeholders on proposed amendments to the principal legislation governing the securities industry – the Securities and Futures Act and the Financial Advisors Act. AAR TSMP Partners Robert Clarke (view CV) and Stefanie Yuen Thio, and Senior Associate Krista Bowie, provide a brief overview of the proposed legislative amendments, which aim to maintain a regulatory framework that is responsive to market innovation.

Background

Over the past three decades, the Singaporean government has consistently implemented measures designed to ensure that the city/state is recognised internationally as the premier financial centre of Asia. The Monetary Authority of Singapore (the MAS) is responsible for overseeing the continuous development of Singapore as a sound and progressive international centre of finance. This can be contrasted with the laissez-faire approach adopted by neighbour (and competitor in this arena) Hong Kong, where market forces have shaped the direction of the economy.

Singapore continuously strives to maintain its reputation as a pro-business environment supported by streamlined and consistent regulatory frameworks, and this most recent review of the Securities and Futures Act (the SFA) and the Financial Advisors Act (the FAA) is further evidence of that effort.

The amendments

The draft Bills setting out the proposed amendments to the SFA and FAA were released on 11 October 2007 and it is anticipated that the amendments will be passed and come into effect some time this year.

In summary, the proposed amendments include the following:

  • A requirement to obtain MAS approval before entering into any arrangement that, if carried out, would entitle a person to obtain 'effective control' of an entity that holds a Capital Markets Services Licence (CMS Licence) under the SFA, or a Financial Advisory Licence (FA Licence) under the FAA. These provisions have extra-territorial application, and 'effective control' is defined as direct or indirect control of not less than 20 per cent of:
    • the voting power; or
    • the issued shares of an entity.
  • A perpetual licensing regime for corporations holding a CMS Licence or FA Licence. This removes the administrative burden of having to renew such licences every three years.
  • The introduction of a public register of representatives who are entitled to undertake regulated activities in Singapore that will:
    • apply to both licensed and exempt representatives; and
    • contain all representatives' details (including the regulated activities that the representative is permitted to undertake, and any formal regulatory actions taken by the MAS against the representative) enabling probity checks to be undertaken.
  • Clarification that Representative Offices are not permitted to engage in activities regulated by the SFA or FAA.
  • Clarification of the meaning of 'qualified investors' under the existing CMS Licence exemption available to a fund manager if it manages not more than 30 'qualified investors'. The amendment provides that an entity will only be regarded as one 'qualified investor' if all of its underlying investors are 'accredited investors'.
  • A reduction in the minimum investment amount required in order to rely on the 'Offer to accredited investors and certain other persons' exemptions from the requirements to issue a prospectus under the SFA. In respect of each of the relevant exemptions (ie sections 275, 282Z and 305 of the SFA), this amount has been halved to SG$100,000.
  • Rationalisation of the substantial holding notification rules, such that:
    • substantial shareholders are no longer required to notify the Singapore Stock Exchange of certain changes;
    • substantial unitholders in a Real Estate Investment Trust (REIT) are now required to notify both the trustee and the manager of certain changes; and
    • a shareholder in a manager of a REIT or business trust will be required to notify the manager when its shareholding exceeds the following thresholds – 15, 30, 50 and 75 per cent.
  • Clarification of the rules applicable to clearing houses, including:
    • the circumstances in which customers' funds may be used; and
    • in relation to the management of customers' funds, so that such money is held on trust, there is no commingling of customers' funds and separate records are maintained.
  • A number of significant changes to market conduct rules, in particular regarding corporate derivative liability. The aim of these amendments is to enhance compliance with internal policies and procedures designed to prevent and detect market misconduct. The amendments provide for a company to be liable, in certain circumstances, for employees' misconduct if such acts were executed for the benefit of the company, and such acts were committed with the consent, or attributable to the neglect, of the company.
Conclusion

This most recent review of the SFA and FAA undertaken by the MAS to facilitate industry feedback and developments, correct inconsistencies and provide greater clarity, is a further example of MAS' ongoing efforts to ensure the regulatory framework for the securities industry continues to operate smoothly and evolve in line with market practice.

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