10 October, 2017
On 25 September 2017, the Monetary Authority of Singapore (MAS) issued: (a) a consultation paper proposing changes to the notification requirements for representatives serving only non-retail customers1 (Consultation Paper); and (b) response to feedback received on MAS' earlier consultation paper proposing amendments to the competency requirements for notified representatives(Response)2.
(1) Consultation on changes to the notification requirements for representatives serving only non-retail customers
MAS proposes that financial institutions (FIs) will no longer be required to lodge notifications for representatives who perform regulated activities under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA), if these representatives serve only non-retail customers. Financial institutions (FIs) may, however, choose to lodge notifications for representatives who serve only non retail customers if they prefer to do so.
Accredited and institutional investors will be considered non-retail customers for this purpose. MAS is seeking public feedback on whether to also include expert investors as non-retail customers.
The exemption from notification will apply to newly engaged representatives. For existing notified representatives who serve only nonretail customers, MAS will remove the representatives from their register, only if the FI requests MAS to do so.
Notified representatives will need to comply with the entry, exam and ongoing requirements, whereas these requirements are not mandatory for representatives who are not notified. Notified representatives will include those who serve non-retail customers and are notified because their principals choose to maintain the registration or lodge the notification. There will also be changes to the existing exam and ongoing requirements (see Section 2 below).
Regardless of the need for notification, MAS expects financial institutions to undertake appropriate due diligence and be satisfied that all their representatives are fit and proper, including assessing their competence and capability.
FIs are also expected to put in place compliance functions and internal controls to ensure that their representatives comply with all applicable laws, codes of conduct and standards of good practice.
MAS proposes to retain its power to issue prohibition orders against all representatives, including those who are not notified representatives, if they engage in improper conduct.
Timing wise, MAS intends to implement the above proposals after the opt-in regime for accredited investors takes effect, which is likely to be in 2018.
MAS is seeking public feedback on the proposals. The public consultation will close on 27 October 2017.
(2) Changes to the competency requirements for notified representatives
In the Response, MAS confirms the changes that will be adopted for the exam and competency requirements for notified representatives, following the public consultation. The changes include:
- New rules, ethics and skills modules. MAS will introduce ethics and skills to the current Capital Markets and Financial Advisory Services (CMFAS) modules on rules and regulations, to form the Rules, Ethics and Skills (RES) modules. The RES modules will be role-based, tailored according to the job functions of representatives.
- Applicable RES modules to be based on roles performed. The applicable RES modules that will apply to representatives will be based on the roles they perform, rather than the list of regulated activities they engage in. In general, the applicable RES module for a representative should be aligned with the primary regulated activity of his principal, and the types of regulatory knowledge and skills he should be equipped with to perform his roles effectively. For example, securities dealers who provide execution related advice will be required to take RES1A or RES1B, but will not be required take RES5 for financial advisers. Fund managers who are deemed to be providing financial advisory services when they provide customised information on investment fund products will be required to take RES3 for fund managers, but will not be required to take RES5 for financial advisers. Relevant contents on the ancillary activities (e.g. execution related advice and financial advice in the above two examples will be included in the RES modules for the primary activities).
- Streamlining of RES modules for representatives of exchange and non-exchange member firms. Exchange related contents related to the same type of instruments which are traded on different exchanges will be streamlined into a common exchange related module. Going forward, the Institute of Banking and Finance (IBF) will offer securities exchange rules (RES1A) and derivatives exchange rules (RES2A). Appointed representatives who conduct the same regulated activity but trade on multiple exchanges would only need to take a single RES module. MAS will also introduce an add-on exchange module for each approved exchange, thus allowing representatives to be tested on contents more relevant to them, depending on the exchanges that they will be trading on. Representatives of non-exchange member firms will be given the option to take a combined RES module on securities and derivatives.
- Product modules. The existing product knowledge modules will be redesigned to be aligned with the proposed amendments to the SFA, which will introduce OTC derivative contracts as a regulated product and re-classify the existing list of regulated products under the SFA. MAS will also introduce 4 additional combined product knowledge modules to give appointed representatives who wish to deal in multiple products the option to sit for fewer exams.
- Continuing Professional Development (CPD) requirements for FAA representatives. Currently, FAA appointed representatives are required to meet a minimum of 30 hours of CPD training, of which a minimum of 12 hours must be in accredited courses. Of the 12 hours, a minimum of 4 hours must be on ethics, and 8 hours on rules and regulations. Going forward, the minimum of 30 hours CPD training will remain, but MAS will be reducing the requirement for a minimum of 12 hours in accredited courses to 6 hours instead. Also, there will no longer be any prescribed minimum number of hours for ethics or rules and regulations – in other words, the 6 hours of accredited training can be either on rules or ethics, or both. The remaining 24 hours can be on structured training courses relevant to the type of financial advisory services provided.
- CPD requirements for SFA representatives. For SFA appointed representatives, MAS will introduce a total of 9 hours of CDP training requirements, with a minimum of 6 hours in accredited courses in rules or ethics. The remaining 3 hours can include other relevant courses on product knowledge or skills.
- Timeline. Save for the CPD requirements for representatives appointed under the SFA, the above changes are expected to take effect in 2018, when the proposed amendments to the SFA take effect. The CPD requirements for SFA appointed representatives are expected to take effect on 1 January 2019.
- Grandfathering. Specified categories of representatives will also be grandfathered and will not be required to take the revised CMFAS examinations. These include existing appointed representatives who continue with their current roles or change principals with no change in scope of regulated activities and individuals who deal in or advise on OTC derivatives (a 2-year transition period for notifying the representatives will still apply).
For further information, please contact:
Stephanie Magnus, Principal, Baker McKenzie.Wong & Leow
stephanie.magnus@bakermckenzie.com
