The Monetary Authority of Singapore (“MAS”) has on 15 March 2021 published a consultation paper relating to a proposal to introduce an exemption framework under the Securities and Futures Act (“SFA”) and Financial Advisers Act (“FAA”) for cross-border business arrangements between certain types of financial institutions in Singapore (each a “local FI”) and their foreign head offices and/or branches.

Preface

In December 2018, MAS had issued a consultation paper to propose an ex-post notification framework to replace the current ex-ante approval regimes under paragraph 9 of the Third Schedule of the SFA and under paragraph 11 of the First Schedule of the FAA for cross-border business arrangements between a local FI and its foreign related corporation. MAS had also on 5 June 2020 published their responses to the feedback received from this first consultation paper. 

Our previous commentary on this initial policy proposal may be found here.

Because of the specific statutory wording, the current ex-ante approval regimes under both the SFA and under the FAA are only applicable to cross-border business arrangements that involve two separate legal entities (ie. the local FI and its foreign related corporation) and are not available where the arrangement involves two branches of the same legal entity. The present Consultation Paper seeks to build upon the December 2018 policy consultation by proposing to establish a similar ex-post notification framework for cross-border business arrangements between two branches of the same legal entity, ie. a local FI and its foreign head office or sister branch in a foreign country. For simplicity, we will use the term “foreign branch” to refer to both the foreign head office or the foreign branch.

Scope of the Proposed Cross-Border Business Arrangement Framework for a local FI and its Foreign Branch

The following classes of local FIs will be able to enter into cross-border business arrangements with their foreign branches:

  1. All capital markets intermediaries licensed under section 82(1) of the SFA (with the exception of licensed venture capital fund managers);
  2. Licensed banks, approved merchant banks, licensed finance companies and licensed insurance companies, which have the requisite exempt status under section 99(1)(a) to (d) of the SFA to conduct the relevant capital markets activities in Singapore;
  3. All financial advisers licensed under section 6(1 )of the FAA;
  4. Licensed banks, approved merchant banks, licensed insurance companies, licensed capital markets intermediaries and licensed finance companies, which have the requisite exempt status under section 23(1)(a) to (e) of the FAA to offer the relevant financial advisory services in Singapore; and
  5. Certain non-retail futures brokers who are exempt from licensing under paragraphs 3(1)(d) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations and certain non-retail OTC derivatives brokers who are exempt from licensing under paragraph 3A(1)(d) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.

Presently, cross-border business arrangements for the local distribution of foreign generated research reports do not have to be approved under paragraph 11 of the First Schedule of the FAA, as reliance can be placed on the existing exemption for foreign research houses in regulation 32C of the Financial Advisers Regulations (“FAR”).

MAS proposes to expand the scope of regulation 32C of the FAR to also include foreign research houses that are foreign branches of the local FI.

Proposed notification requirements and boundary conditions

The proposed notification requirement and boundary conditions under the proposed cross-border business arrangement framework for foreign branches will be similar to those under the notification framework for foreign related corporations.

With regards to the notification requirements, local FIs and their foreign branches can enter into cross-border business arrangements, without having to seek prior approval from MAS, provided that MAS is notified within 14 days of the commencement of the arrangement and that a pre-defined set of boundary conditions are observed.

The boundary conditions will broadly cover the following aspects:

  1. MAS to be notified within 14 days of commencement of the arrangement, and also to be notified within 14 days of any material changes to the arrangement;
  2. the local FI and the foreign branch must, in general, be appropriately licensed or authorised by exemption to conduct the relevant activity;
  3. the clientele served under the arrangement must be non-retail customers;
  4. there must be appropriate internal controls through which the local FI is able to oversee the conduct of the foreign branch and of their staff;
  5. there must be an annual certification by external auditors that the boundary conditions are observed; and
  6. there must be annual reporting of relevant metrics to MAS to facilitate effective, risk-based oversight by MAS.

Extension of Branch Framework to Foreign Branches dealing in Over-the-counter Derivatives Contracts

Presently, local FIs that have been dealing in or advising on OTC derivatives contracts prior to 8 October 2018 have the benefit of a transitional protection and are not required to comply with the applicable SFA conduct requirements in relation to the regulated activity of dealing in OTC derivatives contracts until after 8 October 2021. This would also be extended to foreign branches dealing in or advising on OTC derivatives.

To this end, MAS proposes to implement the new cross-border business arrangement regimes for OTC derivatives only after the end of the current transitional period for OTC derivatives. In addition, FIs will be given an additional transition period of six months to comply with the proposed notification requirements and boundary conditions in respect of their cross-border arrangements involving OTC derivatives.

Impact assessment

The alignment of regulatory treatment of both foreign related corporations and foreign branches is timely, and it would hopefully level the playing field for all financial institutions in Singapore.

In terms of implementation timeline, the draft subsidiary legislation that will put in place the proposed notification frameworks for cross-border business arrangements involving foreign related corporations or foreign branches is currently stipulated to come into operation on 9 October 2021.

A copy of the consultation paper may be obtained here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.