27 August, 2019
On 5 August 2019, the Monetary Authority of Singapore ("MAS") issued a consultation paper, proposing new requirements to be imposed on financial institutions in Singapore that undertake the regulated activity of dealing in capital markets products.
The proposals aim to improve controls and facilitate investigations into cases of market abuse, such as market manipulation and insider trading.
Proposed new requirements
The proposed requirements will be set out in a new Notice on Controls against Market Abuse ("Notice"), and will apply to capital markets services licence holder and exempt financial institutions1 that undertake the regulated activity of dealing in capital markets products (collectively the "FIs").
The proposed requirements are summarised below:
(1) Client identification rule:
FIs must establish arrangements with its clients to facilitate the provision of information on the ultimate beneficial owners ("UBOs") of orders and trades ("O&T") executed in omnibus accounts, to MAS or any other law enforcement agency, within five business days upon request.
While FIs are not expected to record information on the UBOs at the time of the transaction if this is permitted under the Notice on Prevention of Money Laundering and Countering of Financing Terrorism ("AML Notice"), FIs must put in place sufficient measures to comply with the above client identification rule. Client agreements should specify client's obligation and consent to provide the UBO information upon request, notwithstanding any privacy or secrecy law in the jurisdiction where the client resides or operates.
Where there are practical difficulties in obtaining UBO information (e.g. where the FI's client does not wish to disclose the identities of the underlying clients), it is acceptable if the FIs have agreements with their clients to provide the UBO information directly to the requesting law enforcement agency.
(2) Records of communication on O&Ts for broker-assisted trades:
FIs must record all communication between their trading representatives and the person instructing the O&T for any capital markets products, even if such communication does not result in an actual transaction. Keeping written record of the customer's order (which is an existing statutory requirement), without the communication on the instructions will not be sufficient.
Personal electronic devices may be used for communicating O&T if (i) the FI is able to record and retain the original communication, including instant messages, or (ii) the trading representatives perform a call back to the person who instructed the O&T on the FI’s recorded telephone line for each O&T.
All records are to be kept for 5 years, in accordance with the record- keeping retention period under section 102(3) of the Securities and Futures Act, Cap 289 ("SFA").
(3) Client device identification rules for O&T executed via mobile trading applications:
For FIs who offer trading via mobile applications, FIs are required to capture and record the "Device ID"2 for O&T executed via the mobile applications.
As the Device IDs vary on different operating systems, MAS will not prescribe the specific Device ID to be recorded, but allow the FIs to customise their own systems.
(4) Register of Cash and Third Party Payments
The AML Notice will be augmented by requiring FIs to maintain a centralised, electronic register of all payments received in cash or from third parties by the FIs into their customers’ accounts. The register must be produced to MAS or other law enforcement agency upon request.
The register should contain the following information:
(a) for all payments received in cash, the FI should record (i) the identity of the payer, including national identity number, residential address and contact number, (ii) the reason for paying in cash and (iii) the source of funds. If such cash payments are made by a third party, the FI should record (i) the relationship of the third party with the account holder, (ii) whether the third party exercises trading authority over the account and (iii) the reason for making payment on behalf of the account holder; and
(b) for non-cash payments made by a third party, the FIs should document all available details such as mode of payment, name of counterparty bank and account holder, and conduct due diligence checks if the amounts exceed S$20,000 in a single instance or over several instances within a rolling one- month period. As part of the due diligence check, the FIs should obtain information on (i) the identity of the third party, including national identity number, residential address and contact number, (ii) the relationship with the account holder, (iii) whether the third party exercises trading authority over the account, and (iv) the reason for making payment on behalf of the account holder.
When will the new requirements be implemented?
MAS is seeking public feedback on the Consultation Paper and the public consultation will close on 5 September 2019.
FIs will have a 6 month transitional period to implement the new requirements, as MAS has proposed that the Notice will take effect 6 months from the date of issuance.
For further information, please contact:
Stephanie Magnus, Principal, Baker & McKenzie.Wong & Leow
stephanie.magnus@bakermckenzie.com
1 Exempt financial institutions refer to banks, merchant banks and finance companies which are exempt from holding a capital markets services licence under section 99(1)(a), (b) and (c) of the Securities and Futures Act.
2 This refers to the alphanumerical identified that is unique to the device on which the mobile application is installed
