Investment Funds Update

Monetary Authority of Singapore Issues Second Consultation on Proposed Guidelines on Individual Accountability and Conduct

June 21, 2019

On April 26, 2018, the Monetary Authority of Singapore (MAS) issued a Consultation Paper on Proposed Guidelines on Individual Accountability and Conduct (First Consultation Paper) where the MAS proposed to issue a set of guidelines (Proposed Guidelines) to promote the individual accountability of senior managers, strengthen oversight of material risk personnel and reinforce standards of proper conduct among all employees of financial institutions (FIs). The Proposed Guidelines set out five accountability and conduct outcomes (Outcomes) that FIs are expected to work toward (see Annex A below). Please click here to view our client briefing on the First Consultation Paper issued on May 23, 2018.

On June 6, 2019, MAS issued its response to the feedback received on the First Consultation Paper, particularly in relation to the scope and application of the Proposed Guidelines. On the same date, MAS issued a separate consultation paper (Second Consultation Paper) setting out the proposed applicability of the Proposed Guidelines and revised list of core management functions (i.e., core functions relating to the management of a FI’s day-to-day affairs that MAS would normally consider to be performed by senior managers).

This briefing focuses on the key updates pursuant to the MAS responses and Second Consultation Paper that may affect Singapore fund management companies (FMCs), including FMCs that hold a capital markets services license (CMS Licensees) and registered fund management companies¹ (RFMCs)². We set out in the table below a summary of the key updates.

Key Updates Pursuant to the MAS Responses to Feedback and the Second Consultation Paper

	Proposal	Summary
1	Scope of application	In addition to the initial list of FIs set out in the First Consultation Paper, which covered FMCs that are CMS Licensees, the Proposed Guidelines will be applicable to all FIs regulated by MAS unless exempted, including RFMCs.
2	Proportionate application	MAS clarified that the outcomes-based approach of the Proposed Guidelines gives FIs flexibility to establish policies and procedures to achieve the five Outcomes in the Proposed Guidelines (reproduced in Annex A below) as appropriate to the nature, size and complexity of each FI’s operations and that MAS will take a proportionate approach in engaging FIs on their implementation of the Proposed Guidelines. Smaller scale FIs, such as those with a headcount of less than 20 (for CMSL Licensees, this headcount should include the number of local and overseas-based representatives), are not expected by MAS to adopt the specific guidance described under the five Outcomes. MAS may specifically require such smaller FIs to adopt the specific guidance under any of the five Outcomes as necessary after taking into account factors such as the nature and complexity of the FI’s operations. The Proposed Guidelines do not supersede existing laws, and all requirements in the relevant legislation administered by MAS on directors and key executives of FIs will continue to apply.
3	Refined Definition of Senior Manager	Outcome 1 of the Proposed Guidelines requires senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations to be clearly identified. In response to feedback, MAS refined the definition of “senior managers” in the Proposed Guidelines as follows (changes underlined): “Senior managers” refer to individuals who are employed by, or acting for or by arrangement with, the FI, and are principally responsible for the day-to-day management of the FI. Note that the definition of senior manager is not circumscribed to members of the FI’s executive or management committee. In addition, senior managers may not necessarily be employees of the FI in Singapore.
4	Revised List of Core Management Functions	FIs should clearly identify senior managers who have responsibility for functions that are core to the management of the FI’s affairs, including the list of core management functions set out in Annex B of the First Consultation Paper. The Second Consultation Paper revises the list of core management functions (see Annex A of the Second Consultation Paper) to include, among others, under the “head of business function” in relation to a RFMC, the functions involving the regulated activity of fund management as defined in the Securities and Futures Act, and any other material function.
5	Refined Definition of Head of Compliance	One of the core management functions is the “head of compliance”. MAS has refined the definition of “head of compliance” in the Proposed Guidelines as follows (changes underlined): “head of compliance”, who is principally responsible for monitoring and managing the financial institution’s compliance with regulatory requirements under the applicable laws and regulations, as well as internal policies and procedures.
6	Material Risk Personnel	Outcome 4 previously referred to “employees in material risk functions” needing to be fit and proper and subject to effective risk governance, and some respondents to the First Consultation Paper sought clarity whether this referred to the functional unit or individual personnel. MAS has clarified that Outcome 4 refers to individuals performing material risk functions, that is, personnel whose decisions or activities could materially impact an FI’s risk profile. Therefore, the term “employees in material risk functions” has been revised to “material risk personnel” (MRP) to clarify that it is the individual, rather than functional units, that forms the basis for identifying personnel in material risk functions. Note that MRPs are individuals who are not senior managers.
7	Annual Reviews of Fitness and Propriety	As a general guide, MAS expects reviews of senior managers’ and MRPs’ fitness and propriety to be conducted on an annual basis minimally or as and when any matters arise that could have implications on or call into question a senior manager’s/MRP’s fitness and propriety.
8	Whistleblowing Programme	To provide greater clarity on the expectations of FIs in relation to the whistleblowing policy that FIs are expected to put in place, MAS refined the previous guidance set out in the First Consultation Paper³ as follows (changes underlined): A formalised whistleblowing programme, including the whistleblowing channel(s) available to employees, procedures to ensure anonymity and adequate protection of employees who raise concerns over the FI’s policies, practices, or activities via these channel(s), and procedures for handling whistleblower complaints. The whistleblowing channel may be internally managed by an independent unit within the FI, centralised at the head office level or externally managed by a third-party service provider.
9	Implementation Timeline	MAS will implement the Proposed Guidelines with a transitional period of one year (i.e., one year after the Proposed Guidelines are published). The effective date will be announced after the conclusion of the public consultation on MAS’ revised proposals in the Second Consultation Paper.

Invitation for Comments

Please refer to the Second Consultation Paper for full details on the Proposed Guidelines. The deadline for comments and feedback to be submitted to the MAS is July 22, 2019.

We are collating comments from clients and industry participants for submission to the MAS. If you have comments on the proposals that you would like us to submit on your behalf, please contact any of the lawyers listed below.

¹ RFMCs are registered fund management companies exempted from holding a capital markets services license under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.

² This briefing is not exhaustive as it focuses on CMS Licensees and RFMCs.

³ Refer to paragraph 5.19(iii)(d) of the First Consultation Paper.

ANNEX A

Outcomes under the Proposed Guidelines

Outcome 1	Senior managers who have responsibility for the management and conduct of functions that are core to the FI’s operations are clearly identified.
Outcome 2	Senior managers are fit and proper for their roles and held responsible for the actions of their staff and the conduct of the business under their purview.
Outcome 3	The FI’s governance framework is supportive of and conducive to senior managers’ performance of their roles and responsibilities. The FI’s overall management structure and reporting relationships are clear and transparent.
Outcome 4	Material Risk Personnel are fit and proper for their roles and subject to effective risk governance as well as the appropriate standards of conduct and incentive structure.
Outcome 5	The FI has a framework that promotes and sustains the desired conduct among all employees.

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