Singapore Investment Management Update (August 2022)

1. MAS Enforcement Priorities for 2022-23
2. ESG Developments
3. Revised Business Continuity Management Guidelines
4. Consultation Paper on Revised Misconduct Reporting Notices

1. MAS Enforcement Priorities for 2022-23

On April 27, 2022, the Monetary Authority of Singapore (MAS) published its Enforcement Report covering July 2020 to December 2021 (Enforcement Report). Over this period, MAS imposed S$2.4 million in composition penalties against four financial institutions for control breaches relating to anti-money laundering and countering the financing of terrorism (AML/CFT) and S$150,000 in civil penalties in relation to market rigging by two former trading representatives. Twenty prohibition orders were issued against unfit representatives banning them from re-entering the financial industry, and the licence issued to one fund management company (FMC) was revoked.

The enforcement priorities of MAS for 2022-23 are as follows:

• Corporate disclosures: MAS will enhance effectiveness in pursuing corporate disclosure breaches, including through collaboration with key regulatory and enforcement partners.
• Business conduct: MAS will step up focus on FMCs that fail to comply with business conduct requirements.
• AML/CFT compliance: MAS will pursue strong enforcement actions against financial institutions for serious lapses in AML/CFT systems and controls.
• Investor compensation: MAS will study options for enhancing investors’ recourse for losses due to securities market misconduct.
• Senior management accountability: MAS will strengthen its focus on holding senior managers accountable for breaches by their financial institutions or subordinates.

A copy of the Enforcement Report is available here.

2. ESG Developments

Environmental, social, and governance (ESG) issues continue to be a prominent feature in regulatory developments in Singapore as MAS pushes forward with its ongoing efforts to make sustainable finance a defining feature of Singapore’s role as an international financial centre.

Retail ESG Funds — Disclosure and Reporting Guidelines

On 28 July 2022, MAS issued Circular CFC 02/2022 Disclosure and Reporting Guidelines for Retail ESG Funds (Circular) to all licensed FMCs. The Circular sets out MAS’ expectations on how existing requirements under the Code on Collective Investment Schemes and the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations apply to retail ESG funds and the disclosure and reporting guidelines applicable to these funds.

The Circular applies to a collective investment scheme that:

(a) is authorised or recognised by MAS under the Securities and Futures Act 2001 for offers to retail investors in Singapore;
(b) uses or includes ESG factors as its key investment focus and strategy (i.e., ESG factors significantly influence the scheme’s selection of investment assets); and
(c) represents itself as an ESG-focused fund.

In relation to MAS-recognised schemes, MAS will consider the schemes’ compliance with the relevant ESG rules in their home jurisdictions, if any. In particular, UCITS schemes that fall within the scope of the above will be deemed to have complied with the disclosure requirements in the Circular if they are classified as falling under Article 8 or 9 of the European Union Sustainable Finance Disclosure Regulations¹.

The Circular takes effect on January 1, 2023.

Information Paper on Environmental Risk Management (Asset Managers)

On May 31, 2022, MAS issued the Information Paper on Environmental Risk Management (Asset Managers) (Information Paper). The Information Paper complements the Guidelines on Environmental Risk Management for Asset Managers (ERM Guidelines) that took effect in June 2022. The Information Paper highlights emerging and/or good environmental risk management practices by asset managers and identifies areas where further work is needed, based on a thematic review of selected asset managers in 2021.

Sidley had conducted a joint webinar with CDP Global where we considered the requirements of the ERM Guidelines, MAS’ observations under the Information Paper, and the environmental risk reporting framework of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD). A recording of the program may be viewed here.

Mandatory Climate-Related Financial Disclosures Against a Single Standard

Currently, financial institutions are required under the ERM Guidelines to make climate-related disclosures in accordance with international reporting frameworks such as the TCFD recommendations.

In the MAS Sustainability Report 2021-22 issued in July 2022, MAS stated that it will continue to take steps to enhance environmental and climate-related disclosure standards to promote market transparency and facilitate the reallocation of capital toward sustainable outcomes. Given the interconnected nature of the global financial system, it is of paramount importance that Singapore financial institutions align their sustainability reporting practices with recognised international frameworks and standards, such as the TCFD recommendations and the upcoming International Sustainability Standards Board (ISSB) standards, to ensure comparable and consistent disclosures globally.

To this end, MAS is setting out a roadmap for mandatory climate-related disclosures by financial institutions against a single, internationally aligned standard. For mandatory reporting, rather than adopt the TCFD recommendations and then move to the ISSB standard, MAS has judged that a seamless move to the ISSB standard would be more efficient. MAS will consult on introducing mandatory disclosure requirements for financial institutions as soon as a global baseline sustainability reporting standard is established by the ISSB, as expected by the end of this year.

Development of Industry-Led Taxonomy

The Green Finance Industry Taskforce (GFIT), a taskforce convened by MAS comprising representatives from financial institutions, corporates, non-governmental organisations, and financial industry associations, continues to lead efforts in Singapore to develop a system of classification or standards that would help financial market participants and their stakeholders communicate through a shared understanding.

Building on GFIT’s proposed taxonomy issued in January 2021, GFIT issued a second public consultation in May 2022 setting out detailed thresholds and criteria to classify activities as green or amber for economic activities in the energy, real estate, and transportation sectors. The second paper expands on the traffic-light approach proposed in the first consultation paper and adds granularity to the application and thresholds for classification, supported by science and data. It also incorporates a user guide for financial institutions and companies to apply the taxonomy.

GFIT will release the criteria and thresholds for the remaining five sectors (agriculture and forestry/land use, industrial, information and communications technology, waste/circular economy, and carbon capture and sequestration) for public consultation in late 2022 and will finalise the full taxonomy in 2023.

3. Revised Business Continuity Management Guidelines

On June 6, 2022, MAS issued the revised Business Continuity Management Guidelines (BCM Guidelines). The revised BCM Guidelines were issued after two rounds of public consultation conducted by MAS.

One key change to the revised BCM Guidelines is that FMCs will have to identify “critical business services” and “critical business functions”. A critical business service is an external-facing service that, if disrupted, is likely to have significant impact on the FMC’s safety and soundness, its customers, or other financial institutions that depend on the business service. A critical business function is a business function that, if disrupted, is likely to have a significant impact on the FMC, whether financially or non-financially.

Under the revised BCM Guidelines, an FMC is required to establish a service recovery time objective for each critical business service identified and map end-to-end dependencies covering people, processes, technology, and other resources that support each critical business services.

There is also a new requirement on audit, whereby an FMC is required to audit its overall business continuity management framework and the business continuity management of each of its critical business services at least once every three years.

In terms of timing for implementation of the revised BCM Guidelines, MAS has indicated that FMCs should meet the Guidelines within 12 months of its issuance, that is, by June 6, 2023. FMCs should establish their audit plan within 12 months (i.e., by June 6, 2023), and the first audit should be conducted within 24 months of the issuance of the revised BCM Guidelines, that is, by June 6, 2024.

4. Consultation Paper on Revised Misconduct Reporting Notices

On April 19, 2022, MAS issued the Consultation Paper on Revised Notices on Misconduct Reporting Requirements under the Financial Advisers Act, Insurance Act, and Securities and Futures Act (Consultation Paper). The Consultation Paper sets out the proposed legal amendments to the current Notice SFA04-N11 on Reporting of Misconduct of Representative by Holders of Capital Markets Services Licence and Exempt Financial Institutions (Misconduct Notice).

The Consultation Paper is a follow-up to an earlier consultation issued by MAS in 2018 (2018 Consultation). The 2018 Consultation contained general policy proposals to revise the regulatory reporting requirements relating to misconduct committed by representatives of financial institutions. Further to the 2018 Consultation, MAS issued the Consultation Paper to consult on the specific legal amendments to be made to the Misconduct Notice.

The consultation period for the Consultation Paper closed on May 21, 2022. For further details on the changes as proposed in the Consultation Paper, please refer to our Sidley update available here.

¹ Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector.