INVESTMENT FUNDS UPDATE

Monetary Authority of Singapore Issues Consultation on Anti-Money-Laundering Rules for Cross-Border Arrangements of Capital Markets Intermediaries

June 8, 2021

On May 12, 2021, the Monetary Authority of Singapore (MAS) issued its Consultation Paper on Proposed AML Notices for Cross-Border Business Arrangements of Capital Markets Intermediaries under Proposed Exemption Frameworks (Third Consultation Paper).

The Third Consultation Paper follows earlier consultations published by MAS and sets out the proposed draft Notices on Prevention of Money Laundering and Countering the Financing of Terrorism (AML Notices). The draft AML Notices set out the proposed anti-money laundering and countering the financing of terrorism (AML/CFT) requirements applicable to cross-border business arrangements between capital markets intermediaries and their foreign related corporations (FRC) or their foreign head offices or foreign branches under the Singapore Securities and Futures Act (SFA) and Financial Advisers Act (FAA).

This briefing focuses on the key rules to be put in place under the AML Notice as applicable to cross-border business arrangements under the SFA between Singapore fund management companies that hold a capital markets services license (LFMC) and their FRCs.

Background

MAS published the first consultation, the Consultation Paper on Proposed Revisions to the Exemption Framework for Cross-Border Business Arrangements of Capital Markets Intermediaries (First Consultation Paper), on December 4, 2018. The First Consultation Paper sought to revise the existing prior approval–based exemption framework for cross-border business arrangements between capital markets intermediaries and their FRCs (FRC Framework), commonly known in the industry as the “para 9 exemption” (SFA) or “para 11 exemption” (FAA), to a more streamlined notification framework. MAS issued its response to feedback received on the First Consultation Paper on June 5, 2020, and indicated that it would proceed generally with the majority of the proposals in the First Consultation Paper.

Following the First Consultation Paper, MAS published its Consultation Paper on Proposed Exemption Framework for Cross-Border Business Arrangements of Capital Markets Intermediaries Involving Foreign Offices (Second Consultation Paper) on March 15, 2021, seeking comments on the proposed draft regulations and notices for the revised notified FRC Framework as well as the notification forms to be submitted. The Second Consultation Paper also sets out MAS’s proposals on introducing a new exemption framework to cover cross-border business arrangements of capital markets intermediaries with their foreign head offices or foreign branches (Branch Framework). Please click here to view our client briefing on the second consultation paper issued on April 8, 2021.

The Third Consultation Paper is a follow up to the Second Consultation Paper and sets out the proposed AML/CFT rules to be introduced for the notified FRC Framework and new Branch Framework under the SFA and FAA. The AML Notices for the Branch Framework is substantially similar to the AML Notices for the FRC Framework and is not the focus of this briefing.

Proposed AML/CFT requirements for FRC Framework

The proposed AML Notice for the FRC Framework under the SFA applies to the LFMC in relation to its cross-border arrangement with its FRC.

The table below sets out a high-level summary of the proposed AML/CFT requirements:

Topic	Requirements
Record Keeping	The LFMC must keep or cause to be kept all data, documents, and information relating to any customer due diligence (CDD) performed on customers of the FRC by the FRC. All CDD and transaction information must generally be retained for at least five years following the termination of business relations or completion of transactions by the FRC. The information may be retained in electronic format provided that they are admissible as evidence in a Singapore court of law.
Internal Policies	The LFMC must put in place adequate internal policies to: ensure that the CDD measures performed by the FRC on the FRC’s customers are consistent with the AML/CFT requirements as applicable to the LFMC as a capital markets services license holder¹; and monitor on an ongoing basis that the following boundary conditions of the notified FRC Framework continue to be satisfied: the FRC is (i) subject to AML/CFT requirements in the foreign jurisdiction that are consistent with the standards set by the Financial Action Task Force and (ii) is supervised by a foreign regulatory authority in that foreign jurisdiction in respect of compliance with the AML/CFT requirements; and the foreign jurisdiction (i) is not subject to any sanction imposed pursuant to a Resolution of the Security Council of the United Nations or (ii) is subject to a sanction, but MAS has given its approval in writing for the commencement or continuation of the cross-border arrangement.
Provision of Records Upon Request	Upon the request of MAS, a LFMC must provide MAS with: any of the CDD information that a LFMC is required to maintain under the AML Notice (see “Record Keeping” above); and copies of the internal policies that a LFMC is required to put in place under the AML Notice (see “Internal Policies” above).

Commencement Date

The notified FRC Framework, including the AML Notices, is targeted to commence on Saturday, October 9, 2021.

Transitional Arrangements

LFMCs and their FRCs currently carrying out regulated activities under existing MAS-approved cross-border arrangements under the current FRC Framework will be provided with a transition time of six months to comply with the new boundary requirements of the revised FRC Framework. These LFMCs will have up to Friday, April 8, 2022, to submit an initial commencement notification to MAS. For such LFMCs, the AML Notice will take effect from the date of lodgement of the commencement notification.

Invitation for Comments

Please refer to the Third Consultation Paper for full details on the proposed AML/CFT requirements under the FRC Framework. The deadline for comments and feedback to be submitted to the MAS is Friday, June 11, 2021.

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 For LFMCs, the AML/CFT requirements are set out in SFA04-N02 Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Capital Markets Intermediaries.

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