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Client Update: Singapore – 10 April 2008
Singapore legislates to maintain progressive securities industry
In brief: The
regulator of Singapore's securities industry, the Monetary Authority of
Singapore, has undertaken consultation with a wide range of stakeholders on
proposed amendments to the principal legislation governing the securities
industry – the Securities and Futures Act and the Financial
Advisors Act. AAR
TSMP Partners Robert Clarke (view CV) and Stefanie Yuen Thio, and Senior Associate Krista
Bowie, provide a brief overview of the proposed legislative amendments, which aim
to maintain a regulatory framework that is responsive to market innovation.
Background
Over the past three decades, the Singaporean government
has consistently implemented measures designed to ensure that the city/state is
recognised internationally as the premier financial centre of Asia. The
Monetary Authority of Singapore (the MAS) is responsible for overseeing the continuous
development of Singapore as a sound and progressive international centre of
finance. This can be contrasted with the laissez-faire approach adopted by
neighbour (and competitor in this arena) Hong Kong, where market forces have
shaped the direction of the economy.
Singapore continuously strives to maintain its reputation
as a pro-business environment supported by streamlined and consistent regulatory
frameworks, and this most recent review of the Securities and Futures
Act (the SFA) and the Financial Advisors
Act (the FAA) is further evidence of that effort.
The amendments
The draft Bills setting out the proposed amendments to the SFA and FAA were
released on 11 October 2007 and it is anticipated that the amendments will be
passed and come into effect some time this year.
In summary, the proposed amendments include the following:
- A requirement to obtain MAS approval before entering
into any arrangement that, if carried out, would entitle a person to obtain
'effective control' of an entity that holds a Capital Markets Services Licence
(CMS Licence) under the SFA, or a Financial Advisory
Licence (FA Licence) under the FAA. These
provisions have extra-territorial application, and 'effective control' is
defined as direct or indirect control of not less than 20 per cent of:
- the voting power; or
- the issued shares of an entity.
- A perpetual licensing regime for corporations holding
a CMS Licence or FA Licence. This removes the administrative burden of
having to renew such licences every three years.
- The introduction of a public register of
representatives who are entitled to undertake regulated activities in
Singapore that will:
- apply to both licensed and exempt representatives;
and
- contain all representatives' details (including the regulated activities
that the representative is permitted to undertake, and any formal regulatory
actions taken by the MAS against the representative) enabling probity checks
to be undertaken.
- Clarification that Representative Offices are not
permitted to engage in activities regulated by the SFA or FAA.
- Clarification of the meaning of 'qualified investors'
under the existing CMS Licence exemption available to a fund manager if it
manages not more than 30 'qualified investors'. The amendment provides
that an entity will only be regarded as one 'qualified investor' if all of its
underlying investors are 'accredited investors'.
- A reduction in the minimum investment amount required
in order to rely on the 'Offer to accredited investors and certain other
persons' exemptions from the requirements to issue a prospectus under the
SFA. In respect of each of the relevant exemptions (ie sections 275,
282Z and 305 of the SFA), this amount has been halved to SG$100,000.
- Rationalisation of the substantial holding
notification rules, such that:
- substantial shareholders are no longer required to
notify the Singapore Stock Exchange of certain changes;
- substantial unitholders in a Real Estate Investment
Trust (REIT) are now required to notify both the
trustee and the manager of certain changes; and
- a shareholder in a manager of a REIT or business trust will be required
to notify the manager when its shareholding exceeds the following thresholds
– 15, 30, 50 and 75 per cent.
- Clarification of the rules applicable to clearing
houses, including:
- the circumstances in which customers' funds may be
used; and
- in relation to the management of customers' funds, so that such money is
held on trust, there is no commingling of customers' funds and separate
records are maintained.
- A number of significant changes to market conduct rules, in particular
regarding corporate derivative liability. The aim of these amendments is to
enhance compliance with internal policies and procedures designed to prevent
and detect market misconduct. The amendments provide for a company to be
liable, in certain circumstances, for employees' misconduct if such acts were
executed for the benefit of the company, and such acts were committed with the
consent, or attributable to the neglect, of the company.
Conclusion
This most recent review of the SFA and FAA undertaken by the MAS to
facilitate industry feedback and developments, correct inconsistencies and
provide greater clarity, is a further example of MAS' ongoing efforts to ensure
the regulatory framework for the securities industry continues to operate
smoothly and evolve in line with market practice.
For further information, please contact:
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