11 October, 2017
On 25 September 2017, the Monetary Authority of Singapore (“MAS”) issued a consultation paper proposing certain changes to streamline the Representative Notification Framework (“RNF”) for financial institutions (“FIs”) whose representatives serve only non-retail customers. For the purposes of this present consultation, a non- retail customer would be a customer who falls within the statutory definitions of an accredited investor or an institutional investor under the Securities and Futures Act (“SFA”).
Disapplication of Notification Requirements for Representatives Serving Only Non-Retail Customers
Currently, under the RNF, FIs are obliged to file notifications with MAS whenever they appoint a representative to conduct activities that are regulated under the SFA or under the Financial Advisers Act (“FAA”). As part of the filing, the Chief Executive Officer or a director of the FI is required to certify that reasonable background checks have been conducted and that the proposed representative is fit and proper and has met the competency, financial soundness and integrity standards set out in the Guidelines on Fit and Proper Criteria (FSG-G01).
Upon successful notification under the RNF, the representative is issued a unique representative number and his or her relevant particulars will be entered into a public register of representatives (“Register”) on MAS’ website (“Notified Representative”). The Register allows consumers and FIs to verify if a particular individual has been duly authorised to perform regulated activities and whether any disciplinary action had been taken against him/her by MAS.
The RNF currently applies to all representatives, regardless of the type of customers they serve. Having considered that non-retail customers are typically more sophisticated and thus better able to protect their own interests, MAS is proposing to dis-apply the notification requirement under section 99B of the SFA and section 23B of the FAA for representatives who serve only non-retail customers (the “Exempt Representatives”) so that their particulars need not be kept within the Register.
Obligations of FIs in lieu of Notification under the RNF
Regardless of whether the representatives are or are not notified in the Register, MAS has continued to emphasise the need for FIs to exercise due diligence where checking on the fitness and propriety of their representatives and that this should be in accordance with the MAS Circular on Due Diligence Checks and Documentation in respect of the Appointment of Appointed, Provisional and Temporary Representatives (CMI 01/2011). In respect of Exempt Representatives, FIs will be required to maintain their own records on such Exempt Representatives, and to make these records available to MAS on request.
FIs are also still required to have internal compliance controls to ensure that their representatives (including Exempt Representatives) comply with all applicable laws, codes of conduct and standards of good practice. In particular, MAS has highlighted the responsibility of FIs to ensure proper conduct by their representatives, and that MAS remains empowered to issue prohibition orders against all categories of representatives, including Exempt Representatives, should they engage in improper conduct.
While Exempt Representatives will no longer be subject to minimum entry and Capital Markets and Financial Advisory Services (“CMFAS”) examination requirements under the present proposal, FIs would still have to assess and to satisfy themselves of the competency of their Exempt Representatives, including having them clear the relevant CMFAS examination modules if this would be appropriate or necessary.
Notwithstanding these proposals, MAS has also stated that it will not discourage FIs from including Exempt Representatives in the Register even though they do not serve retail customers. Existing representatives who are already notified in the RNF will continue to remain on the Register unless the FI requests for their removal.
Refining the Scope of the Notion of Non-retail Customers under the RNF
MAS is also seeking feedback on the related question of whether expert investors (as this term is defined in the SFA) ought to be classified as retail or non-retail customers.
MAS noted that persons who qualify as expert investors are mainly individuals who work as traders within FIs. While FIs are currently exempted from most business conduct requirements when they deal with expert investors, the expert investors themselves may or may not in fact meet the prescribed wealth or income thresholds to qualify themselves as accredited investors.
To address this, MAS is proposing that expert investors should not automatically be presumed to be non-retail customers. Instead, where an expert investor meets the eligibility criteria to be categorised as an accredited investors, he may elect to be treated as an accredited investor under the opt-in regime for accredited investors. The opt-in regime for accredited investors was previously proposed and is now likely to become law once fine- tuning of the relevant implementation provisions is completed.
The present proposal to dis-apply the RNF requirements for representatives who serve only non-retail investors will likewise be implemented only after the opt-in regime for accredited investors is in place.
Consultation Period
The public consultation period ends on 27 October 2017. A copy of the consultation paper can be assessed here.
Commentary
The present proposals have come about largely because non-retail customers are typically more sophisticated and have access to a larger pool of financial products, and thus MAS wishes to give FIs greater flexibility in assessing the competency of their Exempt Representatives vis-à-vis specific job demands. This is very much to be welcome.
In putting out the present proposals, MAS had also stated that it has taken on board feedback received from an earlier consultation paper on the Competency Requirements for Representatives Conducting Regulated Activities under the SFA and the FAA (issued on 12 December 2016), where suggestions had been made that representatives under the SFA ought to be afforded an exemption similar to representatives under the FAA when they serve only accredited investors. If implemented, the measure will greatly reduce the compliance burden on FIs whose licences limit them to serving only non-retail customers.
