27 October, 2015
1. Introduction
The Monetary Authority of Singapore (“MAS”) has issued a consultation paper on 18 September 2015 with proposals to amend the Securities and Futures Act (“SFA”), Financial Advisers Act (“FAA”) and the Trust Companies Act (“TCA”), for the purposes of enhancing its supervisory powers and the business conduct requirements for regulated persons. The proposed changes are intended to:
(a) rationalize existing requirements applicable to the various financial institutions (“FIs”);
(b) ensure that MAS is kept apprised of specified adverse developments in these FIs;
(c) provide for suitable powers of regulatory oversight; and
(d) align requirements for these FIs with those applicable to banks where appropriate.
The proposed amendments will apply to the following FIs:
(a) SFA-regulated entities, comprising:
- Capital Markets Services Licence Holders;
- Market Infrastructure entities, consisting of:
1. Approved Exchanges and Recognised Market Operators;
2. ApprovedClearingHousesandRecognisedClearingHouses;
3. Licensed Trade Repositories and Licensed Foreign Trade Repositories; 4. Approved Holding Companies;
- Registered Fund Management Companies;
- Approved Trustees for collective investment schemes; and
- Exempt Corporate Financial Advisers;
(b) FAA-regulated entities, comprising Licensed Financial Advisers and Exempt Financial Advisers;
(c) TCA-regulated Licensed Trust Companies; and
(d) Banks, merchant banks, finance companies, insurance companies and registered insurance brokers exempt from licensing under the SFA and FAA (hereafter referred to as “Exempt FIs”).
The above entities will collectively be referred to as “Regulated FIs”. 2. Enhancements to Supervisory Powers Approval and removal of officers under the “Fit and Proper” criterion
Currently, directors, executive officers and representatives of entities regulated by the SFA, FAA and/or TCA are judged according to the “Fit and Proper” criterion when MAS decides whether to approve their appointment. Under the Banking Act (“BA”), section 54 of the
BA specifies grounds that allow MAS to remove the director / executive officer of a bank. There is no “Fit and Proper” criterion equivalent for the BA. Thus it is MAS’ proposal to align the BA with the “Fit and Proper” criterion for directors / executive officers of entities regulated by the SFA, FAA and TCA.
In addition, under the current SFA regime, Recognised Market Operators, Recognised Clearing Houses and Approved Trustees do not need to seek MAS’ prior approval in appointing their CEOs and/or directors, and the “Fit and Proper” status is not the approval criterion. Furthermore, there are differences in the grounds for the removal of officers for different categories of Regulated FIs under the respective Acts.
To create a single uniform regime for all Regulated FIs, MAS has proposed to amend the SFA to require locally incorporated Recognised Market Operators, Recognised Clearing Houses, and Approved Trustees to seek MAS’ approval prior in appointing their CEOs and/or directors. Similarly, MAS has also proposed to amend the grounds for removal of CEOs and/or directors of all Regulated FIs to a single criterion of not being “fit and proper”. MAS does not intend to extend this requirement to overseas incorporated market operators or clearing houses for which MAS is not the primary regulator.
Refining the effective control provisions under the and FAA
MAS has proposed to amend sections 97A of the SFA and 57A of the FAA to better reflect its policy intent that a potential controller is only required to seek MAS' approval prior to taking effective control of a Capital Markets Services Licence Holder or Licensed Financial Adviser. This is to clarify that MAS’ prior approval is not required for the potential controller to enter into negotiations with a Capital Markets Services Licence Holder or Licensed Financial Adviser.
Extending the effective control provisions to Recognised Market Operators, Recognised Clearing Houses and Approved Trustees
Currently, the effective control provisions do not apply to persons taking control of a locally incorporated Recognised Market Operator, Recognised Clearing House or Approved Trustee. It is MAS’ stance that given its status as the primary regulator for locally incorporated Recognised Market Operators and Recognised Clearing Houses, and that Approved Trustees act as independent oversight entities for retail funds, it would be sound policy for MAS’ approval to be sought before the takeover of these entities. This would align MAS’ regulatory approach for all Regulated FIs.
Notification requirements concerning adverse information on FIs
To keep MAS better apprised of matters affecting the fitness and propriety of substantial shareholders or controllers and key officers of Regulated FIs and adverse developments in Regulated FIs, MAS has proposed to amend the provisions in the SFA, FAA and TCA to require all Regulated FIs to notify MAS of:
(a) any adverse development that materially affect or is likely to materially affect:
- the FI itself;
- the FI’s group entities to the extent that the developments materially and adversely affect the FI; and
(b) matters affecting the fitness and propriety of the FI’s
- substantial shareholders or controllers; and
- key officers.
Adverse developments would include matters which may have an adverse impact on the entity’s (i) financial soundness or reputation; or (ii) ability to serve its customers on a business-as-usual basis.
Foreign regulators’ inspection of market infrastructure operators and Approved Trustees
Under existing legislation (section 150B of the SFA), a foreign regulator wishing to inspect a Capital Markets Services Licence Holder, Registered Fund Management Company, Exempt Corporate Finance Adviser or Exempt FI, will have to obtain the prior written approval of MAS. MAS is proposing to extend the prior written approval requirement to cover locally incorporate Recognised Market Operators, Recognised Clearing Houses, Approved Clearing Houses, Licensed Trade Repositories, Approved Holding Companies and Approved Trustees. In addition, foreign regulators will have to treat any report produced through such inspections as confidential.
Inspection by an appointed agent of the foreign regulator
Under the current FAA, TCA and BA regimes, MAS may grant approval to foreign regulatory authorities to appoint an agent to inspect an FAA-regulated entity, Licensed Trust Company or bank in Singapore. MAS has proposed to extend this requirement to cover all Regulated FIs.
Appointment of external auditors of market infrastructure operators
Given the systemic importance of Approved Exchanges, Approved Clearing Houses, Licensed Trade Repositories and Approved Holding Companies, it is important that the auditors of these entities be able to discharge their duties satisfactorily. MAS has thus proposed to require Approved Exchanges, Approved Clearing Houses, Licensed Trade Repositories and Approved Holding Companies to obtain MAS’ approval for the appointment of their auditors on an annual basis. MAS would also have the power to require these entities to remove their auditors where the auditors are unable to discharge their duties satisfactorily.
3. Strengthening of Business Conduct Requirements
Failure to exercise reasonable care in submission of information
The submission of accurate information is important for MAS to make appropriate supervisory decisions. MAS has proposed to make it an offence within the SFA, FAA and TCA for Regulated FIs which fail to take reasonable care to ensure the accuracy of information submitted to MAS. This will allow MAS to take action against a Regulated FI which persistently furnishes inaccurate information (even if the information is not material) to MAS. This is also in line with proposed amendments to the BA.
MAS has proposed to set the maximum penalty at $25,000 under the SFA, $12,000 under the FAA and TCA.
Service of notice, order or documents by MAS
Currently, under the BA and the FAA, any notice, order or document sent by registered post to any person at his last known place of residence, registered office or principal place of business, shall be deemed to have been duly served on him. Similarly, under the BA, MAS may serve any such document on a person through electronic service if he/she has given consent for electronic service of any such document. MAS has proposed to align the procedure for the service of such documents under the SFA, FAA and TCA with those under the BA.
4. Pledging Securities Held in CDP Direct Accounts for Collateralised Trading
Following the securities market structure and practices review in 2014, collateralised trading will be introduced to (a) improve securities brokers' credit risk management practices; and (b) encourage prudent investing behaviour among investors. Under the proposed regime, brokers will collect collateral of at least 5% of a customer’s net open positions directly from such customer by end of trading day. Investors would be allowed to use securities held in their respective CDP direct accounts to meet such collateral requirements.
MAS has proposed to add a streamlined option for the securities pledging process. Investors would be able to segregate a pool of securities in their CDP direct accounts and create a statutory charge over the segregated pool. Conceptually, each CDP direct account would have a main balance and one or more sub-balances for the segregated pledged/unpledged securities. An investor will be able to pledge securities to a broker by transferring these securities from his main balance to a sub-balance linked to that broker. All securities in that sub-balance would then be automatically charged, without the need to furnish Form I, each time securities are moved into the sub-balance. Likewise, there will be an automatic discharge of securities, without the need to submit Form L, when securities are transferred out of the sub-balance with the broker’s approval, either through sale of the securities or if the securities are returned to the main balance.
5. Consultation Period
The consultation period ends on 16 October 2015.
