On October 2, 2014, the Monetary Authority of Singapore (MAS) issued a consultation paper entitled “Consultation on: (1) Draft Legislation and Proposed Legislative Amendments to Effect the Policy Proposals under the Financial Advisory Industry Review; and (2) Proposed Legislative Amendments to Authorize Inspections by Foreign Regulatory Authorities under the Financial Advisers Act” (the Consultation Paper), which proposes substantial amendments across a broad range of legislation that would impact the financial advisory industry, including exempt financial advisers (FAs).
This briefing is meant for Singapore fund managers who are holders of a capital markets services license, and who have invoked the exemption under section 23(1)(d) of the Financial Advisers Act, Chapter 110 of Singapore, to act as exempt FAs.
We set out below a summary of the key amendments proposed in the Consultation Paper that would impact such licensed fund managers who are also exempt FAs. This briefing does not discuss the requirements that apply only to licensed FAs.
KEY AMENDMENTS PROPOSED AFFECTING EXEMPT FAs
|Notice on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers
(Notice FAA – N13)
- Minimum of 30 hours of structured continuing professional development (CPD) training for financial advisory representatives annually.
- Out of the 30 hours of CPD training, a minimum of four hours must be in ethics, and a minimum of eight hours must be in rules and regulations1.
|Notice on Appointment and Use of Introducers by Financial Advisers
(Notice FAA – N02)
- FAs to institute adequate policies and procedures to ensure:
o the proper conduct of the introducer, including ensuring that the introducer does not provide any financial advisory service other than to the extent of carrying out introducing activities;
o the appointment of an introducer will not give rise to any conflicts of interest to the FA or its customers, and will not tarnish the image of the FA or the financial advisory industry.
- Introducers disallowed from providing product information to customers.
- FAs prohibited from acting as introducers in respect of investment products for which they are permitted to provide advice, unless a customer initiates an enquiry on that class of investment products or a specific product within that class.
- FAs to prepare a client acknowledgement form (CAF) containing all the information which the introducer is required to disclose to the customer and which must be used as a script when carrying out introducing activities. A template CAF has been provided in the Notice, which shall serve as the minimum standard that FAs must adhere to.
|New Financial Advisers (Remuneration and Incentive) Regulations
- Restriction on provision of incentives by FAs to their representatives and supervisors or other FAs, in relation to provision of any financial advisory service to any client who is not an accredited investor, an expert investor or an institutional investor (i.e. retail client).
|New Notice on Requirements for the Balanced Scorecard Framework and Independent Sales Audit Unit
New Guidelines on the Balanced Scorecard Framework, Reference Checks and Pre-transaction Checks
- Notice requires FAs to:
o implement a balanced score card (BSC) framework in remuneration structures for representatives and supervisors, the main components of which include the types of key performance indicators that are not related to sales, proportion of variable income subject to the BSC framework, assignment of BSC grades and responsibilities of board and senior management; and
o have an independent sales audit unit competent in reviewing and assessing the quality of the financial advisory services provided by the representatives of the FA, against the non-sales key performance indicators, and determining if any infractions have been committed.
- Guidelines to provide further information on the documentation review and customer surveys that FAs will be required to conduct as well as examples of infractions that will be taken into account under the BSC framework.
|Amendments to the Financial Advisers Regulations
- FAs to assess and monitor non-financial advisory activities of their representatives to ensure that:
o the activities do not conflict with the FA’s business;
o the activities do not tarnish the image of the financial advisory industry; and
o the conduct of the activities by the representatives will not lead to neglect of his or her FA role.
- FA representatives will be prohibited from conducting the following activities:
o carrying on money lending business;
o promoting junkets for casinos;
o acting as real estate agents; and
o marketing products that are not investment products.
Fund managers that are accredited/institutional licensed fund management companies (A/I LFMCs) should note that the Consultation Paper has provided for various exemptions from the above requirements for providing financial advisory services to accredited and institutional investors. For further details on these exemptions, please contact Han Ming Ho (+65.6230.3966, email@example.com) or Josephine Law (+65.6230.3916, firstname.lastname@example.org).
Invitation for comments
Please refer to the Consultation Paper for the complete set of proposals. The deadline for comments and feedback to be submitted to the MAS is November 3, 2014. We are collating comments from clients and industry participants for submission to the MAS. If you have any comments on the proposals that you would like us to submit on your behalf, please contact Han Ming Ho (+65.6230.3966, email@example.com) or Josephine Law (+65.6230.3916, firstname.lastname@example.org).
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work.
1 Only a training course accredited by the Institute of Banking and Finance may be counted towards meeting the minimum CPD hours in ethics and rules and regulations.
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