Singapore MAS Consults On The AML/CFT Framework For Variable Capital Companies.

On 1 October 2018, the Variable Capital Companies Act 2018 (“VCC Act”), which will introduce a new corporate structure in Singapore designed for collective investment schemes, was passed by the Singapore Parliament. While the Accounting and Corporate Regulatory Authority (“ACRA”) will be the Registrar for variable capital companies (“VCCs”) and will administer the VCC Act and its subsidiary legislation, the anti-money laundering and countering the financing of terrorism (“AML/CFT”) obligations of VCCs will come under the purview of the Monetary Authority of Singapore (“MAS”).

 

This update outlines the key elements in MAS’s public consultation on the proposed AML/CFT framework applicable to VCCs.

 

Introduction

 

Following proposals in the 2017 public consultation on the draft VCC Act, MAS will proceed to introduce the AML/CFT framework for VCCs, which will be contained in a MAS issued notice (“VCC AML/CFT Notice”). The VCC AML/CFT Notice – to be issued pursuant to section 84 of the VCC Act which confers on MAS powers to impose AML/CFT measures on VCCs, will reflect AML/CFT policy outcomes and impose requirements similar to that on existing MAS regulated entities, with some differences as elaborated below.

 

Engagement of an eligible financial institution (“EFI”)

 

In general, MAS regulated entities do not need to engage a third party to aid in its compliance with AML/CFT requirements.

 

However, it will be mandatory for a VCC to engage an EFI (which are generally MAS regulated entities such as licensed banks, brokers, fund managers and insurers), to conduct the necessary checks and perform measures in order for the VCC to comply with the majority of the requirements in the VCC AML/CFT Notice.

 

This, as noted by MAS, would likely result in the VCC largely adapting the policies and procedures of the EFI and tapping on the internal audit and compliance resources of the EFI.

 

Practically speaking, VCCs would likely engage their own fund managers for AML/CFT compliance, given that their assets must currently be managed by a fund management company that is licensed or registered by MAS, or is an exempt financial institution in Singapore.

 

That being said, a VCC cannot delegate all AML/CFT responsibilities and liabilities to its fund manager. The directors and employees of a VCC will be expected to be adequately trained on applicable AML/CFT obligations, and MAS will still ultimately hold the VCC accountable for fulfilling all of its AML/CFT obligations.

 

Where a VCC fails to do so due to the fault of its fund manager, MAS may, taking into account relevant facts and circumstances, take supervisory action or sanction against the VCC and/or its directors.

 

Definitions of “business relations” and “customers”

 

The definitions of “business relations” and “customer” under the VCC AML/CFT Notice would determine the individuals and entities on which a VCC should perform customer due diligence (“CDD”). In this regard, MAS expects CDD to be conducted on all the VCC’s members (including prospective members), whether at a fund or sub-fund level. A VCC must also conduct due diligence on the beneficial owners of its customers, connected parties to its customers, as well as natural persons appointed to act on behalf of its customers. In practice, these would be performed by the EFI that the VCC has engaged.

 

In this regard, for the purposes of the VCC AML/CFT Notice, MAS has proposed the following definitions:

 

(a) “business relations” means any direct or indirect contact between a VCC and a person (whether a natural person, legal person or legal arrangement) that results in the entering or maintaining of such person’s particulars in the register of members under section 17 of the VCC Act; and

 

(b) “customer” in relation to a VCC, means a person (whether a natural person, legal person or legal arrangement) with whom the VCC establishes or intends to establish business relations.

 

These definitions stand in contrast with those under the AML/CFT Notices applicable to other MAS regulated entities in that there is no account opening element. This makes practical sense, as MAS recognised in the later part of its consultation, while a VCC would have members who hold shares/units in the VCC, these members would not have “accounts” with the VCC. Opening or maintenance of accounts, if any, would likely be with the VCC’s fund manager, who would be subject to its own AML/CFT requirements.

 

Register of beneficial owners and nominee directors

 

MAS regulated entities are generally not required under the AML/CFT Notices to maintain registers of beneficial owners and nominee directors. However, similar to the requirements recently introduced for companies under the Companies Act to enhance transparency, a VCC will, subject to certain exceptions, be required to maintain registers of beneficial owners and nominee directors. While MAS will not require these registers to be made public, they must be made available to ACRA, MAS and other law enforcement authorities, as required by law.

 

In this regard, a VCC will have to obtain requisite information for the purposes of maintaining the registers, and ensure that the registers:

 

1. (a)  are kept up to date and held at the registered office of the VCC itself, its appointed fund manager, or the EFI; and

2. (b)  contain particulars of the VCC’s beneficial owners and persons for which the directors are nominees, including their names and aliases, dates of birth/incorporation, unique identity numbers, addresses, nationalities/places of incorporation, as well as the start and end dates of beneficial ownership or the nominee directorship arrangement.

 

Reliance on measures already performed by acquired entity

 

As a VCC may, in line with its investment objectives, acquire another VCC or a fund, MAS has proposed to allow a VCC to rely on CDD measures already performed by the acquired entity on its customers, where the VCC acquires, in whole or in part, the business or shares of another VCC, a fund, or their equivalent.

 

Of course, such reliance would not be allowed should the VCC have doubts or concerns as to the veracity or adequacy of the CDD information obtained by the acquired entity, or the adequacy of AML/CFT measures previously adopted by the acquired entity.

 

This is largely similar to the approach taken by MAS in respect of MAS regulated entities who acquire financial institutions.

 

Other key differences

 

As mentioned above, the concept of “accounts” would not be relevant in the context of VCCs. Accordingly, the requirements relating to “accounts” and “correspondent accounts” which are typically found in existing AML/CFT Notices are not included in the VCC AML/CFT Notice.

 

In addition, because a VCC would not provide services to, or undertake transactions for non-members, the AML/CFT requirements with regards to dealings with non-customers (which is also typically found in existing AML/CFT Notices) are thus also excluded from the VCC AML/CFT Notice.

Consultation Period

 

The consultation closes on 30 May 2019.

 

A copy of the consultation paper can be assessed here and the draft VCC AML/CFT Notice here.