Monetary Authority of Singapore Consults on Enhancements to Regulatory Requirements on Protection of Customer’s Moneys and Assets

Key Proposals in the Consultation Paper 

Proposal

Summary

• The definition will be expanded to cover contractual rights arising from transactions entered into by the CMS Licensees on behalf of a customer (e.g., futures contracts) or with a customer (e.g., contract for differences).

• CMS Licensees will be required:
  • to conduct due diligence on the suitability of the deposit-taking financial institutions with whom CMS Licensees intend to deposit customer moneys, prior to opening a customer trust account (this is in addition to the existing requirement for CMS Licensees to conduct due diligence on third-party custodians with whom they maintain customer custody accounts); and
  • to carry out periodic reviews of the suitability of such deposit-taking financial institutions and custodians with whom they maintain the customer trust accounts and custody accounts, respectively.

• Currently CMS Licensees are required to obtain an acknowledgement from domestic financial institutions¹, confirming that (i) the accounts in which their customers’ moneys and assets are deposited are designated as customer trust accounts; (ii) the moneys and assets are held on trust for the customers and segregated from the CMS Licensees’ own moneys and assets; and (iii) the domestic financial institution will not use the moneys and assets in those accounts to set off against any debt owed by the CMS Licensee to the domestic financial institution.
• The above requirement will be extended to situations where the CMS Licensees place their customers’ moneys and assets with overseas financial institutions.

• A new requirement will be introduced for CMS Licensees to maintain information systems and controls that can promptly produce, both in normal times and in the event of resolution or insolvency, information on:
  • the location of customer moneys and assets, how the assets are held (e.g., by the CMS Licensee, affiliate or third party) and the identity of all relevant depositories;
  • the type of segregation at all levels of a holding chain (e.g., omnibus or individual) and its effects on customer ownership rights;
  • the applicable customer moneys and assets protection rules and, in foreign jurisdictions, the resolution or insolvency regime; and
  • outstanding loans of customers’ securities arranged by the CMS licensee.

• CMS Licensees will be required to disclose, in advance, to customers:
  • the manner in which the CMS Licensees hold customer moneys and assets, including the type of segregation, the existence of any holding chain and the risks associated with the arrangements adopted by the CMS Licensees; and
  • where the customer’s moneys and assets are held in a foreign jurisdiction, the material differences between the customer moneys and asset protection regimes in Singapore and the foreign jurisdiction where the customer’s moneys and assets are held, and the potential consequences of such differences.

• Under Regulation 37 of the LCB Regulations, a CMS Licensee that trades in futures contracts or carries out leveraged foreign exchange trading is required to perform daily computation of the customer trust accounts or custody accounts.
• This daily computation requirement will be extended to all CMS Licensees holding customer moneys and assets.

• CMS Licensees will be required to provide risk disclosure to, and obtain consent from, the customers prior to using the customers’ assets, including mortgaging, charging, pledging or re-hypothecating the customers’ assets.
• The risk disclosure will be allowed to be provided in, and requisite customer consent to be obtained through, the customer account agreement.

• CMS Licensees will be required to respond reasonably promptly to customers who make a request for their statements of accounts.