Singapore Proposes New Fund Management Exemption Framework for Single Family Offices

On July 31, 2023, MAS issued a consultation paper proposing a new exemption framework for SFOs in Singapore to tackle potential money laundering risks in light of the strong growth of SFOs in Singapore. The new measures are meant to ensure that MAS-regulated financial institutions address money laundering risks that SFOs may bring to Singapore, similar to those of their other high-net-worth or private banking customers.

Qualifying Criteria for Class Exemption

A SFO is typically an entity which manages wealth for, or on behalf of, one family and is wholly owned or controlled by members of the same family. As SFOs generally do not serve any third-party customers or manage third-party monies, currently they may rely on existing class licensing exemptions under the Securities and Futures Act 2001, or seek case-by-case licensing exemption from MAS.

Under the proposed framework, a new class licensing exemption for SFOs will be introduced, removing the need for case-by-case licensing exemptions. To qualify under the proposed class exemption, the SFO must meet the following criteria:

(a) the SFO must be a Singapore incorporated company;
(b) the SFO must be wholly owned (directly or indirectly) by members of a single family;
(c) the SFO must carry on fund management business for or on behalf of:

(i) family members;
(ii) corporations wholly owned by family members, where fund management carried on by the SFO is for the sole benefit of such family members;
(iii) express trusts where each settlor and beneficiary is a family member; or
(iv) charities which are funded exclusively by those mentioned in sub-paragraphs (i) to (iii) above;

(d) the SFO may not carry on fund management business for any person other than those mentioned in point (c) above or the chief executive officer or executive director of the SFO;
(e) the SFO must establish and maintain business relations with at least one MAS-regulated financial institution; and
(f) the SFO must at all times have an employee who is resident in Singapore as the designated point of contact between the SFO and MAS.

The requirement for the SFO to be a Singapore incorporated company will ensure that the SFO is subject to the corporate beneficial ownership reporting requirements under the Companies Act 1967, as administered by the Accounting and Corporate Regulatory Authority of Singapore (ACRA). In addition, where the SFO seeks to establish and maintain business relations with a MAS-regulated financial institution, the SFO will also be subject to the anti-money laundering checks and controls of the financial institution.

MAS has indicated that it does not intend to grant case-by-case exemptions to SFOs that do not meet the above qualifying criteria. Thus, SFOs that do not meet the qualifying criteria will have to cease fund management business in Singapore.

Reporting Requirements

Under the proposed exemption framework, new SFOs will have to submit a commencement notification to MAS within seven days of commencement of fund management business in Singapore. As part of the notification, a SFO will have to provide an affirmation to MAS that it has obtained a legal opinion confirming that it satisfies the qualifying criteria stated under points (b) and (c) above.

In addition, a SFO will also have to submit an annual return to MAS to report its total assets under management as well as the names of the MAS-regulated financial institutions which it has established and maintained business relations with.

Transitional Arrangements for Existing SFOs

MAS has proposed to provide a transitional period of six months for existing SFOs operating in Singapore to comply with the proposed exemption framework. These SFOs will be required to submit the commencement notification to MAS within six months from the effective date of the proposed exemption framework. SFOs that have filed the commencement notification may continue to operate in Singapore without the need to obtain MAS’ acknowledgement.

The existing licensing exemption that a SFO has been relying on would be withdrawn when the SFO files the commencement notification with MAS, or at the end of the six-month period, whichever is earlier.

Where a SFO has applied for tax incentives under Section 13O or Section 13U of the Income Tax Act 1947, and furnished a legal opinion to MAS as part of its application, the SFO will be required to obtain a new legal opinion that the SFO qualifies under the proposed class exemption criteria.

Consultation Period

A copy of the consultation paper is available here. Interested parties are invited to provide their comments by September 30, 2023.