## _cr13344 ## Source details **Canonical URL:** [_cr13344](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13344.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13344.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13344.pdf.json) --- ### Executive summary — key findings - Overall compliance with the International Organization of Securities Commissions (IOSCO) Principles is generally high; assessors identified vulnerabilities requiring resolution. - MAS enforcement philosophy is cogent, outcomes-focused and well developed; enforcement statistics indicate a reasonable success rate. - Securities and Futures Act (Cap. 289) (SFA) provides effective legal framework for information sharing and cooperation with foreign regulators. - Shareholder protection level reasonable; accounting and auditing standards are high. - MAS emphasizes a gatekeeper role for collective investment schemes (CIS), including hedge funds managed from and offered for sale in Singapore. - Self-regulation by exchanges remains integral; three approved exchanges act as SROs. - No restrictions on foreign firms operating in Singapore; since 2006 new licensees must incorporate in Singapore and are regulated under same requirements as local intermediaries. - Retail securities market model is primarily agency trading; most intermediaries retain capital in excess of minimum requirements. ### Assessment methodology and scope - Assessment period: April 3–17, 2013. - Assessors: Martin Kinsky and Richard Britton, external MCM experts. - Assessment basis: - IOSCO Principles and Objectives of Securities Regulation approved in 2010 and Methodology updated in 2011. - Principle 38 not assessed. - Evidence reviewed: - MAS self-assessment; legislation; MAS and other authorities’ publications; meetings with MAS, ACRA, ASC, CAD, SIC, and private sector (brokers, fund managers, exchanges, AIMA, auditors, Law Society, SIAS). - Emphasis on legal/regulatory framework and implementation in practice (inspection programs, cycle, scope, quality, follow-up and enforcement). ### Regulatory structure and governance - MAS established under Monetary Authority of Singapore Act (MAS Act) with integrated supervisory and central bank functions. - Financial Sector Development Fund net assets for year ended March 31, 2012: S$1,090,400. - MAS assigned to Prime Minister’s office; Minister-in-charge is Deputy Prime Minister who is also Chairman of MAS Board and recipient of certain appeals. - Other authorities with roles: ACRA, ASC, Competition Commission of Singapore, SIC. ### Legal framework and licensing - Principal legislative acts: SFA and Financial Advisors Act (Cap. 110) (FAA); Companies Act (Cap. 50) contains investor rights and directors’ duties. - Market intermediaries must obtain a Capital Markets Services License (CMSL) or Financial Adviser’s License (FAL) unless exempt. - MAS may grant exemptive relief from parts of the SFA; class orders published quarterly with anonymized lists of exemptions. ### Market intermediaries and exchanges — key statistics (as of dates indicated) - Total market intermediaries supervised by MAS: 1,110 (as of December 31, 2012). - CMS licensees: 2008: 224; 2009: 223; 2010: 251; 2011: 251; 2012: 273. - Licensed FA: 2008: 71; 2009: 70; 2010: 68; 2011: 65; 2012: 62. - Banks and Insurers conducting capital markets services and providing financial advice: 2008: 126; 2009: 127; 2010: 129; 2011: 132; 2012: 128. - Exempt Fund Managers (EFM): 2008: 553; 2009: 486; 2010: 522; 2011: 562; 2012: 517. - RFMCs (introduced in 2012): 2012: 23. - SGX membership totals (Total members): 12/31/12: 48; 12/31/11: 53; 12/31/10: 52. - SMX membership totals: As of 12/31/2012: 65; As of 12/31/2011: 50; As of 12/31/2010: 46. ### Markets activity snapshots - SGX—Catalist: - Trading Volume (million shares) — 12/31/12: 87,142. - Trading Value (S$ millions) — 12/31/12: 7,869. - Market Capitalization (S$ millions) — 12/31/12: 6,782. - Number of listed companies — Catalist: 12/31/12: 139. - SGX—Mainboard: - Trading Volume (million shares) — 12/31/12: 364,538. - Trading Value (S$ millions) — 12/31/12: 307,314. - Market Capitalization (S$ millions) — 12/31/12: 653,621. - Number of listed companies — Mainboard: 12/31/12: 637. - SMX turnover and size: - 2010 (Oct 31–year end): Total Volume: 8,333; Total Turnover (U.S. dollars): 405.73. - 2011: Total Volume: 1,857,798; Total Turnover: 63,172.03. - 2012: Total Volume: 2,108,914; Total Turnover: 71,262.13. - 2013 (to June 17, 2013): Total Volume: 281,058; Total Turnover: 12,124.48. ### Collective Investment Schemes (CIS) — scale and structure - AUM for CIS managed in Singapore: S$28 billion (aggregate Authorized CIS AUM as of 10/30/2012). - Funds under management on a discretionary basis in Singapore: S$727 billion (2010 MAS survey). - Number of Authorized CIS: 2007: 402; 2008: 355; 2009: 346; 2010: 347; 2011: 328; 2012: 310. - Number of Recognized CIS: 2007: 546; 2008: 675; 2009: 711; 2010: 779; 2011: 787; 2012: 817. - Total CIS: 2007: 948; 2008: 1,030; 2009: 1,057; 2010: 1,126; 2011: 1,115; 2012: 1,127. - Restricted Schemes notified to MAS (end-2012): 4,049 with total AUM of S$24.8 billion. - 400 schemes identified as hedge funds (AUM S$2.65 billion). - 99 money market funds (AUM S$1.2 billion). - Only 30 of the Restricted Schemes are managed in Singapore. - MAS-defined hedge funds AUM managed in Singapore: S$60.9 billion (components include CIS S$29.4 billion; closed end funds S$25.6 billion). - Regulatory change: all closed end funds constituted on or after July 1, 2013 will be classified and regulated as CIS. ### CIS and fund statistics (selected exact figures, S$ millions, as of 10/30/2012) - Authorized CIS Sub-total: As of 10/30/2012: 28,000. - Recognized CIS Sub-total: As of 10/30/2012: 22,115. - Total AUM (Authorized + Recognized): As of 10/30/2012: 50,115. - ETFs — Total: - 2008: 1,929; 2009: 3,261; 2010: 4,766; 2011: 4,113; 2012: 5,037. - REITs — Authorized / Total: - 2012: 51,036. ### IOSCO Principles implementation — summary tallies and selected core ratings - Overall implementation status counts: - Fully Implemented (FI): 28 - Broadly Implemented (BI): 8 - Partly Implemented (PI): 1 - Not Implemented (NI): 0 - Not Applicable (NA): 0 - Examples of principle assessments: - Principle 1: FI — MAS responsibilities, powers and authority detailed in SFA, FAA and subsidiary legislation. - Principle 2: PI — No evidence of political/commercial influence to date; concerns over Board composition and appeal routes. - Principle 3: FI — CMG receives funding and appears resourced. - Principle 4: BI — High quality processes, but procedural fairness in appeals downgraded. - Principle 11: FI — Comprehensive enforcement powers; omission: lack of administrative fining power. - Principle 12: BI — Enforcement effective but inspection frequency vulnerabilities (ties to Principles 24 and 31). - Principle 24 (CIS): BI — Authorization/recognition and notification regimes provide MAS information; supervision relies heavily on periodic reporting and desk surveillance; in-depth onsite inspections insufficiently frequent. - Principle 27: FI — Robust valuation, pricing and redemption disclosure and obligations. - Principle 28 (Hedge funds): BI — Authorization and registration meet standards; ongoing supervision vulnerable due to inspection frequency. - Principle 31: BI — Licensees required to maintain written policies and compliance; downgrade due to inspection frequency gaps. - Key numeric references preserved: - MAS composition powers can be as small as S$500. - Record retention requirement: not less than five years. - AGM notice period: 14 days; extended to 21 days when a special resolution is to be voted upon. - Implementation tallies: FI (28), BI (8), PI (1), NI (0), NA (0). ### Main supervisory findings and implementation vulnerabilities - MAS has extensive inspection, investigation and surveillance powers; no legal impediment to onsite inspections without notice. - Vulnerability: cycle and frequency of in-depth onsite inspections assessed as insufficient for certain high/medium-high risk entities (notably CIS operators and approved trustees). - Reliance on approved trustees for unit trusts is high; MAS inspected each of two largest approved trustees only once in last four years; supervisory intensity for trustees should be increased. - MAS lacks a general administrative power to issue fines (beyond late filing fees); composition powers and civil/court penalties used instead; assessors recommend keeping the absence of administrative fines under review. ### Enforcement, prosecutions and outcomes (selected exact figures) - CMG professional head count: 176 (within FSG total headcount 496). - MAS had over 170 officers in CMG as at February 1 2013, with a dedicated enforcement team of 14. - Criminal prosecutions and convictions (selected data 2008–2012): - 2008–2012: criminal prosecutions and convictions varied; examples: - 2012: No. of Criminal Enforcement Prosecution/Convictions 4/2; Civil Penalty Enforcement Actions (Settlement/Court Actions) 5/0. - 2011: Criminal Enforcement Prosecution/Convictions 4/4; Civil Penalty Enforcement Actions 3/3. - 2010: Criminal Enforcement Prosecution/Convictions 10/10; Civil Penalty Enforcement Actions 1/0. - From 2008 to 2012, civil penalties paid ranged from $50,000 to $320,000. - Imprisonment sentences ranged from three weeks to eight months in 2008–2012. - MAS composition and settlement practice: all civil penalty settlements include admission of liability and have been published on MAS website. ### Inspections, SROs and publication of actions - Number of inspections conducted (selected): - MAS onsite inspections: 2010: 5; 2011: 8; 2012: 8. - SGX inspections: 2010: 8; 2011: 7; 2012: 10. - SMX inspections: 2011: 2; 2012: 3. - Exchanges conduct risk-based inspections; SGX targets 10 firms per year with a cycle of two to four years. - Publication practices: - MAS publishes enforcement actions and generally publishes reprimands for market conduct breaches. - Majority of regulatory actions taken by exchanges under SRO obligations are not made public; assessors recommend greater transparency. ### MAS governance, independence, accountability and resources - MAS legal protections: Section 22 MAS Act provides legal protection for MAS officers acting in good faith; MAS provides legal aid on a full indemnity basis. - Appointment/removal: - Chairman appointed by President on Cabinet recommendation; other directors by President on Minister-in-charge recommendation. - President may refuse to appoint or revoke appointments in his discretion. - Reporting: - Section 34 MAS Act requires MAS Annual Report to President and Parliament within six months of financial year end; audited financial statements by Auditor-General. - Staffing and budgets: - Financial Supervision Group (FSG) professional head count: 496. - Banking and Insurance Group: 229. - Policy, Risk and Surveillance Group: 91. - Capital Markets Group (CMG): 176. - Managing Director (MD) role: - Section 9(3) MAS Act: MD entrusted with day-to-day administration and may exercise all powers subject to the Act. - MFSC (Financial Supervision Committee) chaired by DMD (Financial Supervision) makes supervisory decisions; MFSC membership includes Assistant MDs and department heads. ### Investor education and outreach - MoneySENSE program: national financial education program chaired by MAS. - Program reach: 2.2 million. - Activities: published over 253 educational articles; organized talks/seminars/workshops attracting over 93,000 participants; issued 29 consumer guides with circulation exceeding 2.2 million. - Assessment: Fully Implemented for investor education. ### Accounting, auditing and audit oversight - Accounting standards: - ASC issued Singapore Financial Reporting Standards (SFRS) based on IFRS with minor modifications. - Assessment: Fully Implemented for Principle 18. - ACRA and PMP: - ACRA formed in 2004; Practice Monitoring Program (PMP) inspects audits. - In 12 months ended March 2012, ACRA inspected 26 public accountants in PIE segment and 159 in non-PIE segment (outsourced). - In April 2010–March 2012, ACRA issued 11 suspensions and cancellations (publicly available). - Recommendation: Increase transparency of PMP outcomes for those not fully satisfying requirements. ### Key recommended action plan (selected recommendations preserved verbatim where numeric/precise) - Principle 2: - Reconsider President’s discretionary power to refuse appointments and minister’s power to call for information and appoint inspectors; set out Code of Conduct for MAS Board members on MAS website. - Principle 4: - Permit those subject to a negative decision to present their case in person; replace appeals to the minister with a more demonstrably independent process (options: minister surrenders right to reject AAC advice, or bring AAC “in house” to MAS with final decisions subject to judicial review). - Principle 9: - Encourage approved exchanges to publish promptly outcomes of regulatory actions against their members, including identifying parties and behavior sanctioned. - Principle 11: - Keep under review absence of administrative fining power for MAS and seek change if arrangements prove inadequate. - Principle 12 / Principle 24 / Principle 31: - Increase frequency of in-depth onsite inspections of CIS and intermediaries rated high or medium high risk; increase supervision of main CIS trustees; carry out more random detailed inspections and thematic visits. - Principle 16: - Consider imposing obligation on unlisted public companies using prospectus exemptions to notify MAS of the offer, funds raised and number/type of new shareholders; replace reliance on ACRA moral suasion with statutory requirement for timely disclosure. - Principle 17: - Extend shareholding disclosure requirements to senior managers beyond general 5 percent rule. - Principle 19 / Principle 20: - ACRA to publish more detailed PMP outcomes and correct gap permitting PAOC to impose monetary penalties only following complaint, not PMP outcome. - Principle 27: - Review market practice on pricing unquoted or illiquid assets and consider enhancements to regulatory requirements. - Principle 28: - Increase frequency of onsite inspections of hedge fund operators and consider up-rating some operators currently below High Risk. - Principle 29: - Reconsider MAS policy permitting non-publication of sanctions except in extraordinary cases; publicly confirm unpublished sanctions will only be used in extraordinary cases. - Principle 34: - Encourage ongoing dialogue hosted by MAS involving MAS, SGX and SMX on emerging market developments, risks and exposures of clearing members common to both exchanges. - Principle 37: - Consider lowering threshold for reporting by exchange members of large exposures to customers (currently set at exceeding 20 percent of Average Aggregate Resources of the intermediary). ### Authorities’ responses and follow-up actions - Authorities welcome assessment and acknowledge high level of compliance; steps taken or under review include: - ACRA reviewing Accountants Act elements (transparency of audit inspections, imposition of financial penalties). - MAS reviewing clarity on Minister-in-charge’s power to appoint inspectors under section 151 SFA. - MAS will keep checks and balances under review to ensure operational independence. - MAS responses on specific recommendations: - Will consider increasing inspection frequency of licensed intermediaries and CIS operators. - Considers current supervisory and inspection program for approved trustees effective; highlights that in last three years MAS conducted onsite inspections on trustees aggregating to more than 75 percent of authorized CIS by assets. ### Selected statutory and procedural precisions (exact text-level figures and timeframes) - Record retention requirement: regulated entities must maintain books and information "for a period of not less than five years" (section 102 SFA; regulation 5 SF(M)R; regulation 26 FAR). - MAS composition powers can be as small as S$500 (composition requires admission of liability). - Criminal penalties for market misconduct contraventions (sections 204, 213, 221 SFA): maximum fine of S$250,000 or imprisonment of up to seven years or both. - Maximum civil penalty: not exceeding three times profit gained or loss avoided, subject to a minimum of S$50,000 (if person is not a corporation) or S$100,000 (if corporation); where no profit/loss avoided, penalty of not less than S$50,000 and not more than S$2 million. - Prospectus registration timing (Section 240(8) SFA): MAS may register a prospectus between the 7th and 21st day of lodgement and no later than the 28th day if extension ordered by MAS. - Offer Information Statement and ongoing reporting timing for listed issuers: - Quarterly unaudited results deadline: 45 days after quarter end (for issuers with market capitalization exceeding S$75 million apply to first three quarters; smaller issuers: half-year within 45 days). - Annual report: annual report to be presented within four months of financial year end for listed issuers; Companies Act for other companies: accounts must be laid at AGM within six months of financial year end. - MoneySENSE program reach: 2.2 million; MoneySENSE outputs: over 253 articles; over 93,000 participants in events; 29 consumer guides. *Source: INTRODUCTION and selected sections, _cr13344 — IMF FSAP assessment (April 3–17, 2013) — content as provided.* ### INTRODUCTION __________________________________________________________________________________ 6 ### INTRODUCTION ### Executive summary — key findings - Overall compliance with the International Organization of Securities Commissions (IOSCO) Principles is generally high, although the assessors identified some vulnerabilities which need to be resolved. - The Monetary Authority of Singapore’s (MAS') enforcement philosophy as regards securities markets and financial intermediaries is described as cogent, outcomes-focused and well developed. - MAS’ enforcement statistics indicate that it has a reasonable success rate in the cases it brings. - The Securities and Futures Act (Cap. 289) (SFA) provides an effective framework to enable the sharing of information and cooperation between MAS and foreign regulators on supervisory and enforcement matters. - There is a reasonable level of protection of shareholders in Singapore and accounting and auditing standards are high. - MAS emphasizes a gatekeeper role in the regulation of collective investment schemes and seeks to be well informed about all sectors of this market including hedge funds managed from and offered for sale in Singapore. - Self-regulation by exchanges remains an integral part of the regulatory framework. - There are no restrictions on foreign firms operating in Singapore; since 2007 foreign firms must incorporate in Singapore but are regulated under the same requirements as local intermediaries. - The retail securities market model is primarily based around agency trading in the equities market. - Most intermediaries retain capital in excess of minimum requirements and expected standards of behavior conform to international standards. ### Information methodology used for assessment - Assessment period: April 3–17, 2013. - Assessors: Martin Kinsky and Richard Britton, external MCM experts. - Assessment basis: - IOSCO Principles and Objectives of Securities Regulation approved in 2010 and the Methodology updated in 2011. - Principle 38 was not assessed. - Evidence and materials reviewed: - An extensive self-assessment prepared by MAS staff. - Relevant legislation and MAS and other authorities’ publications. - Meetings with MAS; Accounting and Corporate Regulatory Authority (ACRA); Accounting Standards Council (ASC); Commercial Affairs Department (CAD); Securities Industry Council (SIC). - Meetings with private sector: brokers, fund managers, exchanges, Alternative Investment Management Association (AIMA), auditors, the Law Society, and Securities Investors Association of Singapore (SIAS). - Assessment emphasis: not only legal and regulatory framework but also implementation in practice, including inspection programs, cycle, scope and quality of inspections, follow-up and enforcement actions. ### Regulatory structure - MAS is the supervisor and regulator of the financial services sector and the central bank; established under the Monetary Authority of Singapore Act (MAS Act) as a body corporate. - MAS Act assigns powers, duties and functions including staff hiring and remuneration policies, central bank functions, payment system oversight, and integrated supervision of the financial services sector. - A Financial Sector Development Fund was established under the MAS Act in 1999; the net assets of the fund for the year ended March 31, 2012 were S$1,090,400. - MAS is assigned to the Prime Minister’s office; the current Minister-in-charge of MAS is the Deputy Prime Minister who is also the current Chairman of the MAS Board and is the person to whom certain MAS decisions can be appealed. - Other government-appointed bodies with relevant roles: - ACRA: administers the Companies Act, Business Registration Act, Limited Liability Partnerships Act, Limited Partnerships Act and supervises public accountants. - ASC: formulates financial reporting standards for companies, charities, and cooperative societies. - Competition Commission of Singapore: maintains and enhances efficient market conduct and may intervene in markets supervised by MAS. - SIC: administers the Singapore Code on Take Overs and Mergers. ### Legal framework - Principal legislative acts: Securities and Futures Act (Cap. 289) (SFA) and Financial Advisors Act (Cap. 110) (FAA). - Companies Act (Cap. 50) (CA) contains investor rights in public companies and directors’ duties. - Market intermediaries must obtain a Capital Markets Services License (CMSL) or Financial Adviser’s License (FAL) unless exempt under another MAS-administered Act. - Licensees: licenses are issued for specific itemized activities; individuals conducting licensed activity for a CMS licensee must be registered as appointed representatives. - Authorization required to operate an exchange, clearing facility or trading platform. - MAS has statutory power to grant exemptive relief from parts of the SFA; class order relief must be published; individual relief orders do not have to be published, although MAS policy is generally to publish such exemptions. - MAS publicly provides criteria for granting exemptions and quarterly publishes an anonymized list of exemptions granted. ### Market structure — Market intermediaries (as of December 31, 2012) - Total market intermediaries supervised by MAS: 1,110. - Classification breakdown and five-year data (Table 1): - CMS licensees: 2008: 224; 2009: 223; 2010: 251; 2011: 251; 2012: 273. - Licensed FA: 2008: 71; 2009: 70; 2010: 68; 2011: 65; 2012: 62. - Banks and Insurers conducting capital markets services and providing financial advice: 2008: 126; 2009: 127; 2010: 129; 2011: 132; 2012: 128. - Exempt Corporate Finance advisers: 2008: 55; 2009: 63; 2010: 69; 2011: 78; 2012: 83. - Other financial advisers: 2008: 67; 2009: 75; 2010: 38; 2011: 22; 2012: 24. - EFM (Exempt Fund Managers): 2008: 553; 2009: 486; 2010: 522; 2011: 562; 2012: 517. - RFMCs (introduced in 2012): 2012: 23. - Total: 2008: 1,096; 2009: 1,044; 2010: 1,077; 2011: 1,110; 2012: 1,110. - Regulatory change note: all “Exempt Fund Managers” had to either register with MAS as a Registered Fund Management Company, or apply for a capital markets services license to conduct fund management by February 6, 2013; those that fail to do so will have to cease business. - Since 2006 all new licensees must incorporate in Singapore; no restrictions on the type of business they may conduct; regulated under same requirements as local intermediaries. ### Market structure — Exchanges and membership - Three exchanges operate as self-regulatory organizations (SROs): Singapore Exchange Securities Trading Limited (SGX-ST), Singapore Exchange Derivatives Trading Limited (SGX-DT), and Singapore Mercantile Exchange Pte. Ltd. (SMX). - SGX-ST and SGX-DT are wholly-owned subsidiaries of Singapore Exchange Limited (SGX); SGX is listed on SGX-ST. - SGX-ST and SGX-DT have a total of seven securities, 19 derivatives, and 22 securities and derivatives members while SMX has seven clearing members and over 50 trading members (including proprietary members). - SGX membership figures (Table 2): - Securities members: 12/31/12: 7; 12/31/11: 10; 12/31/10: 12; 12/31/09: 10; 12/31/09: 11. - Derivatives members: 12/31/12: 19; 12/31/11: 22; 12/31/10: 20; 12/31/09: 15; 12/31/09: 16. - Dual members: 12/31/12: 22; 12/31/11: 21; 12/31/10: 20; 12/31/09: 16; 12/31/09: 16. - Total members: 12/31/12: 48; 12/31/11: 53; 12/31/10: 52; 12/31/09: 41; 12/31/09: 43. - Note: 1/ Excludes proprietary, remote, and dormant (ceasing) members. - SGX noted an expansion of business plans by members with existing members taking on additional memberships and converting into dual members; some members rationalized and consolidated businesses into common legal entities. - SMX membership figures (Table 3): - General Clearing/Broker Member: As of 12/31/2012: 6; As of 12/31/2011: 6; As of 12/31/10: 5. - Special Clearing Member: As of 12/31/2012: 1; As of 12/31/2011: 1; As of 12/31/10: 1. - Trade Member: As of 12/31/2012: 56; As of 12/31/2011: 43; As of 12/31/10: 40. - Remote Member: As of 12/31/2012: 2; As of 12/31/2011: 0; As of 12/31/10: 0. - Total: As of 12/31/2012: 65; As of 12/31/2011: 50; As of 12/31/10: 46. - Observations: - Number of clearing members (GCMs and SCMs) stagnated between end 2011 and end-2012. - Membership numbers for other categories showed significant growth, expected to continue in second half of calendar year 2013 due to launch of new products. *Source: INTRODUCTION, _cr13344 — IMF FSAP assessment (April 3–17, 2013) — content as provided.* ### 16. Compared to the funds under management on a discretionary basis in Singapore the ### _cr13344 - 16. Compared to the funds under management on a discretionary basis in Singapore the ### AUM comparison and CIS scale - Assets under management (AUM) for collective investment schemes (CIS) managed in Singapore: S$28 billion. - Funds under management on a discretionary basis in Singapore: S$727 billion (in 2010 according to an MAS survey). ### Number of Authorized and Recognized CIS (offered to retail investors) - No. of Authorized CIS: 2007: 402; 2008: 355; 2009: 346; 2010: 347; 2011: 328; 2012: 310. - No. of Recognized CIS: 2007: 546; 2008: 675; 2009: 711; 2010: 779; 2011: 787; 2012: 817. - Total CIS: 2007: 948; 2008: 1,030; 2009: 1,057; 2010: 1,126; 2011: 1,115; 2012: 1,127. - Source: MAS. ### Restricted Schemes and hedge funds (end-2012 / survey data) - Total Restricted Schemes notified to MAS: 4,049 with total AUM of S$24.8 billion (end-2012). - Of these: - 400 schemes identified as hedge funds. - S$4.6 billion in overseas schemes offered only to institutional investors. - Only 30 of these Restricted Schemes are managed in Singapore. - Detailed breakdown of the 4,049 schemes: - 400 hedge funds (AUM S$2.65 billion). - 99 money market funds (AUM S$1.2 billion). - MAS-defined hedge funds AUM managed in Singapore: S$60.9 billion. - Components include: CIS (S$29.4 billion), closed end funds (S$25.6 billion), and segregated investment mandates. - Of these, S$468 million (11 schemes) are CIS offered to and managed for accredited investors in Singapore. - A further S$2.186 billion (389 schemes) in hedge funds classified as CIS are offered in Singapore to accredited investors. - Regulatory change: All closed end funds constituted on or after July 1, 2013 will be classified and regulated as CIS. - Note: The total AUM and hedge fund figures are based on close to 80 percent responses to MAS’ recent survey. ### AUM by Fund Types (In millions of Singapore dollars, end of year / as of 10/30/2012) - Authorized CIS — selected series by type: - MMF: 2007: 774; 2008: 1,313; 2009: 1,470; 2010: 1,958; 2011: 2,067; As of 10/30/2012: 1,568. - Equity: 2007: 22,306; 2008: 10,260; 2009: 17,379; 2010: 18,620; 2011: 14,343; As of 10/30/2012: 14,136. - Bonds/Fixed Income: 2007: 5,265; 2008: 4,686; 2009: 4,282; 2010: 3,876; 2011: 8,411; As of 10/30/2012: 7,259. - Hedge Fund: 2007: 93; 2008: 48; 2009: 42; 2010: 32; 2011: 14; As of 10/30/2012: 8 (these hedge funds have now closed; No retail hedge funds are currently offered in Singapore as of April 2013). - Others: 2007: 9,379; 2008: 5,528; 2009: 6,783; 2010: 6,430; 2011: 5,216; As of 10/30/2012: 5,029. - Authorized CIS Sub-total: 2007: 37,817; 2008: 21,835; 2009: 29,956; 2010: 30,916; 2011: 30,051; As of 10/30/2012: 28,000. - Recognized CIS — selected series by type: - MMF: 2007: N.A.; 2008: 725; 2009: 13; 2010: 15; 2011: 626; As of 10/30/2012: 386. - Equity: 2007: 7,406; 2008: 3,355; 2009: 5,212; 2010: 6,535; 2011: 6,716; As of 10/30/2012: 9,108. - Bonds/Fixed Income: 2007: 1,137; 2008: 731; 2009: 1,216; 2010: 3,280; 2011: 4,862; As of 10/30/2012: 10,828. - Hedge Fund (recognized): 2007: -; 2008: -; 2009: 2; 2010: 1; 2011: 0.2; As of 10/30/2012: 0.1. - Others: 2007: 602; 2008: 683; 2009: 811; 2010: 2,033; 2011: 1,283; As of 10/30/2012: 2,171. - Recognized CIS Sub-total: 2007: 9,870; 2008: 4,782; 2009: 7,256; 2010: 12,475; 2011: 13,247; As of 10/30/2012: 22,115. - Total AUM (Authorized + Recognized): 2007: 47,687; 2008: 26,617; 2009: 37,212; 2010: 43,391; 2011: 43,298; As of 10/30/2012: 50,115. - Source: MAS. ### ETFs and REITs (In millions of Singapore dollars, end of year) - ETFs — Total: - 2008: 1,929; 2009: 3,261; 2010: 4,766; 2011: 4,113; 2012: 5,037. - Authorized ETFs: 2009: 1,327; 2010: 2,213; 2011: 2,422; 2012: 1,658; Recognized ETFs: 2009: 602; 2010: 1,048; 2011: 2,344; 2012: 2,823. - REITs — Authorized / Total: - 2007: 24,219; 2008: 10,892; 2009: 25,818; 2010: 34,091; 2011: 32,088; 2012: 51,036. - Source: MAS. ### Markets and Exchanges - Singapore has three approved exchanges that conduct SRO functions: SGX (equities market SGX-ST with Mainboard and Catalist, and derivatives market SGX-DT) and SMX (derivatives market). SMX began operation in August 2010. - Market context 2008–2012: - 2008: onset of global economic and financial crisis. - 2009: full impact; STI hit a low around January/February 2009 before recovering to around 3,000 at end-December. - 2010–2011: some recovery; 2012 showed early recovery then turned negative sharply around Q2 with IPO market abandonment; interest returned towards year-end. - Result: decline in IPOs, lower liquidity and value during the period with improvement thereafter. ### SGX—Catalist (as of calendar year-to-date / year-ends) - Catalist Trading Volume (million shares) — 12/31/12: 87,142; 12/31/11: 28,011; 12/31/10: 38,581; 12/31/09: 36,400; 12/31/09 (alternate): 31,241. - Catalist Trading Value (In millions of Singapore dollars) — 12/31/12: 7,869; 12/31/11: 3,536; 12/31/10: 5,100; 12/31/09: 6,098; 12/31/09 (alternate): 3,783. - Catalist Market Capitalization (In millions of Singapore dollars) — 12/31/12: 6,782; 12/31/11: 5,347; 12/31/10: 6,462; 12/31/09: 5,325; 12/31/09 (alternate): 3,562. - Number of listed companies — Catalist: 12/31/12: 139; 12/31/11: 137; 12/31/10: 131; 12/31/09: 134; 12/31/09 (alternate): 134. - Source: SGX. ### SGX—Mainboard (as of calendar year-to-date / year-ends) - Mainboard Trading Volume (million shares) — 12/31/12: 364,538; 12/31/11: 268,677; 12/31/10: 346,923; 12/31/09: 425,578; 12/31/09 (alternate): 305,074. - Mainboard Trading Value (In millions of Singapore dollars) — 12/31/12: 307,314; 12/31/11: 350,133; 12/31/10: 384,718; 12/31/09: 369,945; 12/31/09 (alternate): 379,951. - Mainboard Market Capitalization (In millions of Singapore dollars) — 12/31/12: 653,621; 12/31/11: 539,475; 12/31/10: 663,746; 12/31/09: 670,345; 12/31/09 (alternate): 381,101. - Number of listed companies — Mainboard: 12/31/12: 637; 12/31/11: 636; 12/31/10: 651; 12/31/09: 639; 12/31/09 (alternate): 633. - Source: SGX. ### SMX—Turnover and Size - SMX Total Volume (In lots) and Total Turnover (In U.S. dollars): - 2010 (data from October 31, 2010 till end of calendar year): Total Volume: 8,333; Total Turnover: 405.73. - 2011: Total Volume: 1,857,798; Total Turnover: 63,172.03. - 2012: Total Volume: 2,108,914; Total Turnover: 71,262.13. - 2013 (data until June 17, 2013 from beginning of calendar year): Total Volume: 281,058; Total Turnover: 12,124.48. - Source: SMX. ### Exchange operations, trading practices, and market structure - SMX launched on August 31, 2010 with an initial suite of four products; more products introduced from 2011; moderate year-on-year growth in 2011 and 2012; market volatility and global uncertainty in 2012 hampered growth; 2013 saw subdued trading volumes year-to-date amid improved global certainty. - Exchanges conduct real time surveillance and are responsible for maintaining orderly markets. - There are 25 Recognized Market Operators (RMOs); only three are domestic (two operating bond trading platforms and one trading commodity futures). MAS does not regard RMOs as SROs though they have legal obligations to operate fair, orderly and transparent markets. - Market participants describe the market model as primarily agency trading in equities with little principal trading by exchange members. - Capital adequacy: intermediaries commonly maintain capital buffers in excess of minimum regulatory capital. - Short selling: - Permitted and largely intraday. - Short sales must be tagged and aggregate short volume in individual securities is publicly disclosed daily. - Contracts for difference (CFD) trading: - Not conducted on exchange (no CFDs are listed). - Limited CFD activity is conducted privately between intermediaries and clients. - Bond trading is similarly primarily conducted between intermediaries and clients. - High frequency trading and dark pools are not prevalent in Singapore; electronic markets and direct electronic access via brokers exist but demand for HFT/dark pools has not materialized. - CFD/LFX broker regulatory notes (MAS review 2011): - CFD/LFX trading volume accounts for less than 5 percent of total turnover in cash equity and foreign exchange markets in Singapore. - MAS prescribes minimum margin rates and permissible collateral for CFD/LFX brokers. - MAS requires CFD/LFX brokers to furnish a written risk disclosure statement and to assess customer knowledge and experience; brokers must provide advice where customers lack required knowledge and experience. - CFD/LFX are considered Specified Investment Products (complex products). ### Preconditions for Effective Securities Regulation — Legal framework and institutions - Political/constitutional framework: - Singapore is a republic with a parliamentary government based on the Westminster model. - Legal system: common law underpinned by rule of law and independent judiciary. - Three main sources of law: the Constitution, Legislation (primary and secondary), and common law (judge-made law). - Constitution: - Supreme law; framework for Executive, Legislature, Judiciary. - Amendments to Constitution require two-thirds majority of elected members of Parliament; certain amendments also require at least two-thirds of votes cast in a national referendum for specific provisions. - Constitution provides for an elected President whose primary role includes safeguarding past reserves and approving appointment of key civil service personnel. - Legislature: - Comprises the President and Parliament; responsible for enacting legislation. - Common law: - Singapore supplements legislation with doctrine of judicial precedent (stare decisis). - Judiciary: - Independent; consists of Supreme Court (Court of Appeal and High Court) and Subordinate Courts. - Headed by the Chief Justice; Judges of Appeal, Judges, and Judicial Commissioners appointed by the President. - Alternative dispute resolution: - Common forms: arbitration, mediation, adjudication. - MAS requires financial institutions dealing with retail consumers to be members of an approved dispute resolution scheme. - Financial Industry Disputes Resolution Centre Ltd. (FIDReC) is an approved dispute resolution scheme under the MAS (Dispute Resolution Schemes) Regulations 2007. - Business laws: - Corporate law: Companies Act (Cap. 50); Business Registration Act; Limited Liability Partnership Act; Limited Partnership Act; Business Trust Act. - Insolvency and bankruptcy law: Companies Act (Cap. 50) and Bankruptcy Act (Cap. 20); additional provisions in SFA, Banking Act, Insurance Act for winding up regulated financial institutions. - Contract law: principles rooted in English common law; statutes include Contracts (Rights of Third Parties) Act (Cap. 53B) and Consumer Protection (Fair Trading) Act (Cap. 52A). - Trust law: dual ownership concept (legal and equitable interests); Trust Companies Act (Cap. 336) requires persons carrying on trust business to be licensed and regulated by MAS. - For unit trusts offered in Singapore, MAS requires a trustee approved under the SFA as a condition for authorization. *Source: IMF staff summary of MAS data and observations contained in the provided content.* ### section 289 of the SFA ### section 289 of the SFA ### Consumer protection law - The Consumer Protection (Fair Trading) Act (Cap. 52A) aims to protect consumers, without adding onerous burden to businesses against unfair practices and to enhance consumer rights. - The Act provides the legislative framework to allow consumers aggrieved by unfair practices to have recourse to civil remedies before the courts. - The Act: - provides for a cooling-off period for direct sales and time share contracts; - allows specified bodies to enter voluntary compliance agreements with, or apply for injunction orders against errant traders. ### Legal profession - Admission to the Singapore Bar under the Legal Profession Act (Cap. 161) is confined to “qualified persons.” - Applicants must have passed the relevant legal examinations as prescribed by the Singapore Institute of Legal Education. - Newly-qualified advocates and solicitors are required to meet continuing professional development requirements. - Two statutory bodies serve the legal community in Singapore: The Law Society and the Singapore Academy of Law. - The Legal Profession (Professional Conduct) Rules set out the rules of professional conduct for lawyers who are practitioner members of the Law Society. - Members of the public can make complaints about lawyers under the Legal Profession Act. ### Auditing and accounting - Singapore’s accountancy sector is well-developed and is built on international accounting standards and rules. - Accounting and auditing standards and their enforcement are assessed under Principles 18–21 of this report. - Auditing standards: - Singapore has adopted auditing standards fully based on international standards. - Auditors must be independent of the firms they are auditing. - Audit standards are overseen by ACRA (formed in 2004 as a statutory board comprising not more than 15 senior professionals, of which one member must be a public accountant and one member a non-practicing accountant both nominated by the Institute of Certified Public Accountants (ICPAS)). - ACRA has prescribed a code of ethics based on the code issued by the International Federation of Accountants. - Participation in ACRA’s Practice Management Program (PMP) (i.e., inspections of audits of financial statements) is a condition for a continued right to practice. - Remedial action follows identified failures; serious or repeated failures can lead to restrictions on practice, including suspension or cancellation. ### Main findings (Principles 38–46) - Principles relating to the regulator (Paragraph 38): - The MAS operates to a high standard overall. - Concerns exist regarding its independence from government, most notably in the composition of the Board, and the transparency of some elements of regulatory decision making and appeals therefrom. - The Code of Conduct for staff imposes high standards of personal conduct. - On systemic risk, policing of the perimeter of regulation and conflicts of interest, the Capital Markets Group (CMG) of MAS meets IOSCO requirements. - MAS staffing within the Financial Supervision Group (FSG): - professional head count of 496; - Banking and Insurance Group has 229; - Policy, Risk and Surveillance Group has 91; - CMG has 176. - Principles for self-regulation (Paragraph 39): - The only SROs in the jurisdiction are the three approved exchanges. - Their self-regulatory functions include rules on eligibility, trading, business conduct and qualification, disciplinary actions, and administering investor compensation arrangements for loss due to defalcation or insolvency of members. - They conduct real time front line market surveillance and inspection of members; suspicious market activity is referred to MAS. - Exchanges may conduct disciplinary action against their members for breaches of their rules. - SGX is responsible for approving listings of initial public offerings (IPOs) but MAS must review and register any prospectus relating to an IPO. - For listing of derivatives products on SGX and SMX, as required under SFA section 29, MAS has approved each contract specification before permitting trading. - Principles for the enforcement of securities regulation (Paragraph 40): - MAS has a reasonable record in prosecuting breaches of securities law in the civil courts. - In cooperation with the CAD and the AGC, MAS’s success rate in criminal cases it brings is high. - MAS has an extensive suite of supervision, inspection, surveillance, and sanctioning powers and a thoughtful and coherent enforcement philosophy. - MAS has made a considerable investment in investor education, which MAS believes contributes to enabling retail investors to better protect themselves. - Principles for cooperation in regulation (Paragraph 41): - MAS has the authority to share confidential regulatory information with domestic and foreign regulators, subject to some statutory requirements. - MAS is a full signatory to the IOSCO MMoU (signed in October 2005) and may share information with a bona fide foreign regulator even if that regulator is not a MMoU signatory. - MAS regularly provides information on a timely basis to foreign regulators. - Principles for Issuers (Paragraph 42): - Public companies and listed companies are subject to detailed standards of accurate disclosure in prospectuses, annual and other periodic reports and via the continuous disclosure regime through a combination of CA requirements, SFA legislative and regulatory requirements enforced by MAS and SGX Listing Rules. - Weaknesses exist in the timeliness required of some corporate disclosures relative to emerging global standards and in enforcement of corporate governance on unlisted public companies. - Monitoring and enforcement of the CA by ACRA is appropriately resourced and motivated. - Notice periods: - 14 days’ notice for an annual general meeting (AGM) is noted as short by developing international standards; - the provision that this must be extended to 21 days when a special resolution is to be voted upon mitigates the problem to some extent. - The ASC has issued the Singapore Financial Reporting Standards (SFRS) which are based on IFRS with a small number of modifications; these modifications are not material to the assessment. - Control of takeovers and other change of control transactions appears to work well and protects minority shareholders. - Principles for auditors, credit rating agencies, and other information service providers (Paragraph 43): - Since 2012, credit rating agencies (CRAs) operating in Singapore must be licensed by MAS or recognized (if operating from a foreign location) regardless of whether ratings are to be used for regulatory purposes. - MAS has issued a code of conduct with which CRAs must comply. - Any person providing research advice must be licensed as a financial adviser. - The Code of Conduct for CRAs (the CRA Code) is based on IOSCO requirements of Principle 22. These include: - (i) quality and integrity of the rating process; - (ii) independence and avoidance of conflicts of interest; - (iii) transparency and timeliness of ratings disclosure; and - (iv) treatment of confidential information. - Principles for collective investment schemes (Paragraph 44): - All CIS operators domiciled in Singapore must be licensed by or registered with MAS and are subject to conduct of business, capital and organizational requirements. - Enhancements to the regulatory regime are currently being introduced. - MAS requirements and approval processes for CIS are modeled on the equivalent regime for issuers. - CIS offered to accredited investors and institutional investors are exempt from prospectus requirements, the CIS Code and investment guidelines. - MAS has a comprehensive system for admitting foreign domiciled schemes offered for sale to retail investors and a notification regime, with conditions attached, for schemes offered to accredited investors and institutional investors. - MAS is fully informed and can maintain its gatekeeper role on all operators (and their funds) seeking to do business in Singapore. - There are currently no hedge funds identified as CIS offered to retail investors in Singapore; this appears to be for commercial and not regulatory reasons. - Need to strengthen supervision of CIS operators (Paragraph 45): - Once the transition to a more comprehensive licensing system for fund management companies is completed, there should be a greater emphasis on more frequent in-depth onsite inspections of operators. - The system places great reliance on the performance of approved trustees for unit trusts; in the last four years MAS had inspected each of the two largest approved trustees (which handle about 76 percent of Singapore domiciled CIS) only once and has conducted a supervisory visit on one other. - There is a case for re-examining the risk assessment of some CIS operators, such as those operating hedge funds of a size which, as a group, may create the potential for systemic risk and excessive market volatility, although that is not the case at present according to MAS’s latest survey. - Principles for market intermediaries (Paragraph 46): - Dealing and advisory activities require a capital markets services or financial adviser’s license. - Capital, track record and fitness and propriety are key requirements for a license. - Applicants must demonstrate adequate arrangements for managing conflicts of interest, internal controls, and must establish risk and compliance monitoring functions and maintain professional indemnity insurance. - Minimum capital requirements must be met initially and on an ongoing basis. - Direct market access to markets is permitted subject to risk management and other appropriate controls. - Client money must be deposited in a separate trust account and not be co-mingled with the intermediaries’ own funds. - Regular reporting obligations are required to MAS and the exchanges of which they are a member and monitoring and inspection of them occur by these bodies. *Source: section 289 of the SFA* ### 47. Principles for the secondary markets: Two market types are permitted: Approved ### Principles for the secondary markets: Two market types are permitted: Approved exchanges and recognized market operators (RMOs). ### Overview - Two market types are permitted: Approved exchanges and recognized market operators (RMOs). Licensing requirements apply to both types. - Applicants must be fit and proper to conduct operations, maintain capital, and have rules to ensure they conduct fair, orderly and transparent markets. They also must monitor the conduct of their members. - Access to the markets they run must be fair, and they must comply with MAS requirements for conducting their operations. - The requirements for an approved exchange are more extensive than those for an RMO due to the limited nature of the markets maintained by RMOs, and because they are mainly based offshore. ### Summary assessment of IOSCO Principles (implementation) - Overall implementation status counts: - Fully Implemented (FI): 28 - Broadly Implemented (BI): 8 - Partly Implemented (PI): 1 - Not Implemented (NI): 0 - Not Applicable (NA): 0 - Selected core assessments and findings: - Principle 1 (Responsibilities of the Regulator): FI — MAS’ responsibilities, powers and authority over capital market activities are set out in detail in the SFA, the FAA, and the respective subsidiary legislation. - Principle 2 (Operational independence and accountability): PI — No evidence of political or commercial influence to date; however, the composition of the MAS Board potentially exposes decision making to interference or public perception thereof. The President’s discretionary powers and ministerial powers (including appointment of inspectors and calls for information) are highlighted. - Principle 3 (Powers, resources, capacity): FI — CMG receives funding appropriate to its responsibilities; on a head count basis CMG appears to have necessary resources. - Principle 4 (Clear and consistent regulatory processes): BI — Policies and procedures are high standard, but concerns exist over procedural fairness in appeals procedures for decisions with significant impact. - Principle 6 (Systemic risk monitoring): FI — CMG, as part of integrated regulator and central bank, contributes well-developed processes; legislative change secured for OTC derivatives clearing. - Principle 9 (SROs oversight): FI — MAS relies on approved exchanges for market surveillance; responsibilities are set out in law and monitored; MAS does not delegate its responsibilities except prospectus approvals on SGX’s Catalist market. - Principle 10 (Inspection, investigation, surveillance powers): FI — MAS has comprehensive powers; no legal impediment to onsite inspections without notice; entities must maintain books for not less than five years. - Principle 11 (Enforcement powers): FI — Lack of administrative power to issue fines is an omission internationally; MAS uses composition powers (can be as small as S$500 and require admission of liability); reprimands are not required to be published though policy is generally to publish reprimands for market misconduct. - Principle 12 (Effective use of enforcement & compliance): BI — Downgrade due to gaps under Principles 24 (CIS) and 31 (Intermediaries); cycle of detailed onsite inspections assessed as insufficiently frequent for high or medium high risk entities; enforcement philosophy is cogent and successful in cases brought. - Principle 16 (Disclosure): BI — Detailed standards exist, but weaknesses in timeliness of some corporate disclosures relative to emerging global standards. - Principle 24 (CIS eligibility, governance, organization): BI — Authorization/recognition/notification regime provides MAS information; supervisory approach relies heavily on periodic reporting and desk-based surveillance; in-depth onsite inspections are not sufficiently frequent, especially for high/medium high risk operators and approved trustees. - Principle 25 (CIS legal form and client asset protection): BI — Approved trustee role is critical; intensity of onsite inspection of approved trustees criticized similarly to P24. - Principle 27 (Asset valuation, pricing, redemption): FI — Robust requirements for disclosure of valuation, changes in methodology, and pricing/redemption calculations; rigorous obligations for operators and trustees, including tests for selecting third party valuers. - Principle 28 (Hedge funds oversight): BI — Authorization/registration processes meet standards, but ongoing supervision vulnerable due to onsite inspection frequency. - Principle 29 (Minimum entry standards for intermediaries): FI — Dealing and advising require Capital Markets Services or Financial Adviser’s license; applicants must be “fit and proper”; entry requirements include minimum base capital, track record, risk/compliance systems, and professional indemnity insurance. - Principle 31 (Internal compliance function): BI — Licensees must observe MAS’s Guidelines on Risk Management Practices and maintain written policies; downgrade arises from gaps identified under Principles 12 and 24. - Principle 33–37 (Market operation, supervision, transparency, market misconduct, risk management): FI — Establishment of trading systems requires MAS approval; exchanges conduct real time market surveillance; OTC trading in listed securities is insignificant; civil monetary and criminal sanctions available and used; large exposures/default risk regulated via early warning, default procedures and market disruption rules; short selling permitted but monitored and disclosed. - Principle 38 (Securities settlement systems and CCPs): Not assessed. ### Key statistics and exact numeric references - MAS composition powers can be as small as S$500. - Record retention requirement: regulated entities must maintain relevant books and information for a period of not less than five years. - Disclosure timing example: AGM notice period is 14 days; extended to 21 days when a special resolution is to be voted upon. - Implementation tallies: FI (28), BI (8), PI (1), NI (0), NA (0). ### Recommended action plan (selected recommendations as presented) - Principle 2 - The President’s discretionary power to refuse to appoint any person as Chairman, Director or Managing Director of MAS or to refuse to revoke any such appointment if the President does not concur with the recommendation of the Cabinet or Public Service Commission should be reconsidered as should the minister’s power to call for information on MAS’ duties and functions (without any further narrowing of those broad based terms); and the minister’s power to appoint inspectors to investigate matters which are the responsibility of MAS. - The core principles of the Code of Conduct for MAS Board members should be set out on the MAS website in order to provide the public with confidence that Board members are required to adhere to high standards of personal conduct in the performance of their duties. - Principle 4 - MAS should permit those subject to a negative decision to present their case in person. Subsequent appeals to the minister should be replaced with a more demonstrably independent process prior to judicial review by the court. Alternative solutions are either the minister surrenders his right to reject the advice of the Appeal Advisory Committee or, preferably, that the Committee is brought “in house” to MAS, its decisions are final (subject to judicial review), and the minister is no longer involved in making these decisions. - Principle 9 - Encourage approved exchanges to publish promptly the outcomes of regulatory actions taken against their members, including identifying the parties involved and the behavior being sanctioned. - Principle 11 - The lack of an administrative power of MAS to issue fines should be kept under review and change sought if the current arrangements prove inadequate for effective and proportionate enforcement. - Principle 12 - MAS should increase the frequency of in-depth inspections of CIS and other intermediaries with a high or medium high risk rating as set out in Principles 24 and 31. It should increase its supervision of the main CIS trustees. It should also carry out more random detailed inspection visits on lower rated entities, as well as intensifying thematic visits, mystery shopping, etc. to remind firms that breaches of market conduct or selling practices requirements may have consequences even if clients do not complain to MAS. - Principle 16 - MAS should consider imposing an obligation on unlisted public companies which use the prospectus exemption provision to notify MAS of the offer, the funds raised and the number and type of new shareholders who accepted the offer. - Reliance on moral suasion exerted by ACRA on unlisted public companies regarding specific and timely disclosure should be replaced with a statutory requirement. - MAS should subject monitoring and enforcement of SGX’s continuous disclosure obligations by the exchange and its reliance on private warnings to greater scrutiny. - Principle 17 - MAS should extend shareholding disclosure requirements to senior managers rather than, as at present, subjecting them only to the general 5 percent shareholding disclosure rule applicable to all shareholders. - The assessors support setting out the bankruptcy and insolvency provisions in a separate act as is currently under consideration. - Principle 19 - ACRA should now make detailed transparency available of the outcome of its PMP reviews at the individual level of those who do not fully satisfy ACRA’s requirements, including the nature of the conduct and the names of the parties which engaged in the conduct where weaknesses do not justify suspensions and cancellations. - Principle 20 - Correct the gap in the law that permits the Public Accountants Oversight Committee (PAOC) to impose monetary penalties following a complaint but not following the outcome of a PMP. - Principle 24 - In-depth onsite inspections of CIS operators should be increased in frequency, particularly of operators rate high or medium high risk and also of approved trustees of unit trusts. - MAS should take steps to ensure that those who have not applied for licensing or registration (or who have been declined by MAS) under the new enhanced regulatory regime for fund management companies actually exit the industry (or obtain legitimate employment at other licensed or registered entities). - Principle 27 - MAS should consider reviewing current market practice on pricing unquoted or illiquid assets and, based on its findings, consider whether enhancements to the regulatory requirements are necessary. - Principle 28 - MAS should increase the frequency of onsite inspections of operators of hedge funds and consider whether any hedge fund operators rated below High Risk in the risk based supervision framework should be up-rated. - Principle 29 - Reconsider use of MAS policy which permits it to not disclose publicly the imposition of sanctions against individual institutions on the basis “they are best dealt with in confidence or if the disclosure of regulatory actions could be viewed as unfair or unduly prejudicial to the subject of the action” (MAS Approach for Publishing Market Conduct Regulatory Actions- 2004). Publicly confirm that sanctions which are to be unpublished will only be used in extraordinary cases and not because of reputational impact. - Principle 31 - Increase the frequency (cycle) of full MAS inspections of licensed intermediaries in its inspection program, particularly for entities ranked as high risk or medium/high risk. - Principle 34 - Encourage the commencement of an ongoing dialogue hosted by MAS involving it, SGX and SMX about emerging developments in the markets and the Singapore financial sector, including the sharing of information about the risks and exposures of clearing members common to both exchanges. - Principle 37 - Lower the current threshold for reporting by exchange members of large exposures to customers, currently set at exceeding 20 percent of Average Aggregate Resources of the intermediary. *Source: IMF assessment text as provided in the content unit.* ### 47. The Singapore authorities welcome the assessment of Singapore’s implementation of ### _cr13344 - 47. The Singapore authorities welcome the assessment of Singapore’s implementation of ### Authorities’ overall response and follow-up actions - The authorities welcome the assessment of Singapore’s implementation of the IOSCO Objectives and Principles of Securities Regulation as part of the IMF’s FSAP and view meeting international standards and best practices as a key component when reviewing the regulatory framework. - The authorities acknowledge the IMF’s overall assessment of a generally high level of compliance and note there are some areas that could be improved. Steps taken or under review include: - ACRA is reviewing key areas of the Accountants Act such as transparency of audit inspections and imposition of financial penalties to help enhance audit quality and ensure auditor accountability. - MAS will review how it may provide clarity on the Minister-in-charge’s power to appoint inspectors under section 151 of the SFA. - MAS will keep existing checks and balances under review to ensure continued operational independence. ### Clarifications and institutional safeguards (Principles 2 and 4) - MAS clarifications regarding operational independence and related concerns: - MAS notes assessors’ finding that there had been no instance where MAS’ operational independence was compromised (Principle 2) and reiterates it has operational autonomy in the exercise of its powers and functions. - Assessors commented on the President’s discretionary power to refuse to appoint (or to refuse to revoke) appointments of Chairman, Director or Managing Director of MAS and its implications for due process under Principle 2. MAS clarifies: - The President of Singapore is independent of any political party and is elected in a separate Presidential Election from that of the Parliamentary Election. - The President’s decision could be challenged by Parliament, which may override the President’s decision by a resolution passed by not less than two-thirds of the total number of the elected Members of Parliament. - On appeals to the Minister-in-charge (Principle 4), MAS states: - The avenue for recourse is sufficiently independent and accords procedural fairness to both appellants and authorities. - The Minister is not involved in day-to-day supervisory matters and therefore is an independent party for appeals. - The Appeal Advisory Committee (AAC) comprises independent external experts with financial industry, legal or accounting background, underpinning independence of the appeal process. ### Recommendations under specific IOSCO Principles and authorities’ responses - Principle 16 and 17 (unlisted public companies): - Assessment recommends considering imposing a notification requirement on unlisted public companies that rely on prospectus exemptions to raise funds and reviewing the timeline for unlisted public companies to present their accounts. - Authorities’ response: - Unlisted public companies in Singapore are normally closely-held and tend to operate more like private companies and seldom access the public capital markets for funding. - Private fundraising by such companies relying on prospectus exemptions is expected to be very limited in scale and reach because of restrictive conditions attached to these exemptions. - The public interest element for unlisted public companies is not as strong as that for listed companies; authorities will study the recommendations and, if appropriate, fine-tune requirements applicable to unlisted public companies. - Principles 12, 24, 25, 28, and 31 (inspections of CIS operators and intermediaries): - Assessment recommends increasing the frequency of inspections of CIS operators and other intermediaries (including approved trustees for CIS). - Authorities’ response: - MAS will consider increasing the frequency of inspections of licensed intermediaries and CIS operators. - For approved trustees for CIS, MAS considers its current supervisory and inspection program effective and appropriate; under this program, MAS had over the last three years conducted onsite inspections on trustees which, in aggregate, provide trustee services to more than 75 percent of all authorized CIS. - MAS’ supervisory and inspection program is complemented by offsite reviews, supervisory visits, and engagement and discussions with trustees on industry best practices. ### Appreciation and commitment - The authorities express appreciation to the IMF and its assessors for the assessment and will thoroughly consider IMF recommendations to further strengthen operational practices and policies to achieve the outcomes stated in the FSAP assessment in a manner best suited to Singapore’s circumstances. ### Purpose and methodology of the detailed assessment - Purpose: - To ascertain whether legal and regulatory securities market requirements and the operations of securities regulatory authorities meet the standards set out in the IOSCO Principles, identify gaps, inconsistencies, weaknesses, and areas where further powers or better implementation may be necessary, and establish priorities for improvements. - Assessment categories used: - fully implemented, broadly implemented, partly implemented, not implemented, not applicable. - Benchmarks and definition excerpts provided for each category (fully implemented, broadly implemented, partly implemented, not implemented, not applicable). - Assessment principles on timing: - Assessment should be based on the current situation; envisaged changes should not alter the assessment grade though assessors may elaborate on efforts underway to achieve implementation. ### Selected findings from the detailed assessment (Principles 1 and 2) - Principle 1 (The responsibilities of the regulator should be clear and objectively stated) - Description highlights: - MAS is the regulator for capital market activities in Singapore; responsibilities are clearly and objectively stated in section 4 of the Monetary Authority of Singapore Act (Cap. 186) (MAS Act). - Section 4(2)(b) and section 23(8) of the MAS Act state MAS is responsible for conducting integrated supervision of financial services, including administering the Securities and Futures Act (Cap. 289) (SFA) and the Financial Advisers Act (Cap. 110) (FAA). - MAS has statutory powers to issue regulations, notices, guidelines, codes, policy statements and practice notes under section 321 of the SFA. Section 321 text: “any person who fails to comply with any of the provisions of a code, guideline, policy statement or practice note issued under this section that applies to him shall not of itself render that person liable to criminal proceedings but any such failure may, in any proceedings whether civil or criminal, be relied upon by any party to the proceedings as tending to establish or to negate any liability which is in question in the proceedings.” - MAS has initiated a process of publishing, on a quarterly basis on its website, a list of cases in the preceding quarter where exemptions were granted pursuant to Specific Exemption Powers under the SFA and publishes explanations of the circumstances involved. - Distribution of certain products (insurance products with securities market-like features, structured bank deposits) are subject to the same regulation as conventional securities market instruments; business conduct supervision is carried out by the Capital Markets Group (CMG) within MAS on a consistent basis. - Cross-agency information sharing occurs with CAD, the AGC, the police, and ACRA, subject to permissible disclosures under respective legislation. - Assessment: Fully implemented. - Comments note no evidence that MAS’ exemption powers have been abused and that enhanced transparency is advantageous. - Principle 2 (The regulator should be operationally independent and accountable) - Description highlights: - MAS is established as a body corporate and is legally independent of the executive and legislative branches; constitutionally it operates independently of the government and industry. - Board responsibilities under MAS Act: section 7(1) responsible for policy and general administration; section 7(2) to inform the government of regulatory, supervisory and monetary policies; section 7(4) to furnish the minister with information as required. The minister has power to appoint inspectors (SFA section 151). - The President appoints the Board; the President is directly elected and not affiliated to any political party. - Current Board composition: Chairman is the deputy prime minister and minister for finance; deputy chairman is the Minister for Trade and Industry. At most only two of the ten members are without direct membership of or close affiliation with the government. - The “Chairman’s Meeting” sub-committee decides upon major policy changes that may have significant social or wider economic impact as determined by the Management Financial Supervision Committee (MFSC); Chairman’s Meeting does not make entity specific decisions. - Day-to-day operational decisions are taken by the Managing Director (MD) as set out in section 9(3) of the MAS Act. MFSC, EXCO and MD handle day-to-day supervisory matters; DMD (Financial Supervision) has oversight. Dedicated supervisory groups with Group Heads report to the DMD (Financial Supervision). - MAS is self-financing and financially autonomous; it sets its own budget, hires employees and advisers, and determines remuneration and terms; its budget is approved ultimately by the President who must be satisfied the budget does not draw on past reserves of MAS. - Governance and integrity safeguards include a Code of Conduct for Board members, declarations of assets by cabinet members, and oversight by the Corrupt Practices Investigation Bureau. - Specific numeric and factual points preserved: - "out of the 22 financial advisors (total population of 250) which provide over 80 percent of the financial advisory services offered in Singapore, nine of them are banks." - MAS had over the last three years conducted onsite inspections on trustees which, in aggregate, provide trustee services to more than 75 percent of all authorized CIS. - Assessment commentary notes MAS acts independently in capital markets regulatory policies within legislative limits and consults AGC for legal consistency. *Source: _cr13344 - 47. The Singapore authorities welcome the assessment of Singapore’s implementation of (IMF content).* ### Section 22 of the MAS Act provides for the legal protection of MAS, any director, officer or ### Section 22 of the MAS Act provides for the legal protection of MAS, any director, officer or ### Legal protection - Section 22 of the MAS Act provides legal protection for MAS, any director, officer or employee of MAS for anything done, including any statement made, or omitted to be done in good faith. - MAS provides legal aid on a full indemnity basis as and when the costs are incurred. - This protection continues after an employee leaves MAS. ### Appointment and removal of senior officers and Board directors - Appointment processes (as provided in the MAS Act): - The Chairman of MAS is appointed by the President on the recommendation of the Cabinet (section 7). - The other Board Directors are appointed by the President on the recommendation of the Minister-in-charge of MAS (section 8). - The Managing Director of MAS is appointed by the President on the advice or recommendation of the Public Service Commission and on such terms and conditions of service as the President may decide (section 9). - The directors are appointed to hold office for a term not exceeding three years and are eligible for reappointment (section 9). - The President may in his discretion refuse to appoint any person as Chairman, Director or Managing Director of MAS or refuse to revoke any such appointment if the President does not concur with the recommendation of the Cabinet or Public Service Commission. - Reasons for a director’s removal (section 10(2) of the MAS Act) — the President may terminate the appointment of any director if the director: - resigns his office; - becomes mentally disordered and incapable of managing himself or his affairs; - becomes bankrupt or suspends payment to or compounds with his creditors; - is convicted of an offense involving dishonesty or fraud or moral turpitude; - is guilty of serious misconduct in relation to his duties; - is absent, without leave, from three consecutive meetings of the Board; or - fails to comply with his obligations under the MAS Act. - The MAS Act prohibits a director from being a director or salaried official of any financial institution supervised by MAS. - Directors may not act as delegates on the Board for any commercial, financial, agricultural, industrial or other interests with which they may be connected. ### Accountability and reporting - Reporting requirements: - Section 34 of the MAS Act requires MAS to include a report on the performance of MAS’ functions and duties in its Annual Report, which must be presented to the President and to Parliament within six months from the close of the financial year. - MAS is accountable to Parliament through the minister-in-charge. - MAS must present financial statements audited by the Auditor-General and its annual report to Parliament annually. - The audited financial statements of MAS must be published in the Gazette and transmitted to the President within six months of the financial year end. - The MAS Annual Report and financial statements are made public on the MAS website. - Disclosures in the Annual Report include key regulatory policies introduced during the year and statistics on the capital markets such as the number of licensees and the net funds raised in the domestic capital markets. - Financial management and internal control: - The Finance Department is responsible for controlling payments, receipts, budgeting, and accounting for MAS’ overall income, expenditure, assets, and liabilities. - MAS has an Internal Audit Department (IAD) that reports functionally to the Audit Committee (AC) and administratively to the MD. - IAD’s Charter requires it not to be involved in activities that may jeopardize or appear to jeopardize its independence and objectivity. - The Audit Committee independently assesses MAS’ internal controls and financial reporting process and reviews reports of MAS’ internal and external auditors. - Accountability over the use of funds is achieved through internal management accounting and audits by the Auditor-General. - Procedures for licensees and enforcement transparency: - MAS provides written reasons to licensees when a decision affects applicants/holders of licenses, sufficient to enable an appeal. - Reasons are provided when refusing or revoking licenses, issuing reprimands and directives. - Regulatory decisions such as licensing status are made publicly available on the MAS website; significant regulatory actions for market conduct breaches are made public through press releases or the MAS website. - MAS maintains and updates a list of enforcement actions on its website, and provides reasons for each enforcement action. - Internal guidelines exist on operational procedures; staff must adhere to internal policies and escalate controversial issues to department heads/MFSC. ### Appeals and review mechanisms - Right to be heard: - MAS provides an opportunity to be heard before making decisions affecting applicants/holders of licenses or enforcement decisions; submissions can be in writing and legally supported. - Appeals under MAS-administered legislation: - Sections 310 and 311 of the SFA provide for appeals against certain decisions by MAS to the Minister-in-charge of MAS (currently the MAS Chairman). - When an appeal is made to the Minister under the SFA, the minister shall within 28 days of his receipt of the appeal constitute an Appeal Advisory Committee. - The Appeal Advisory Committee shall conduct a hearing within 28 days from the date that it is constituted and shall give MAS and the appellant a reasonable opportunity to appear before and be heard by the Committee. - The Appeal Advisory Committee shall submit to the minister a written report on the appeal within 14 days of the conclusion of the hearing and may make such recommendations as it thinks fit. - The minister shall consider the report in making his decision but is not bound by the Committee’s recommendations. - Administrative law reviews (judicial review) of decisions taken by public agencies including MAS are by application by the aggrieved person to the High Court. ### Confidentiality and information security - Statutory and policy protections: - Official Secrets Act (Chapter 213) (OSA), Statutory Bodies and Government Companies (Protection of Secrecy) Act (Chapter 319) (SBGCA), and the MAS Act impose statutory requirements on MAS staff regarding handling and custody of classified documents and information. - Section 5 of the OSA prohibits wrongful communication of secret information; application extended to MAS officers for information obtained during work. - Section 3 of the SBGCA prohibits unauthorized disclosure by persons working for statutory boards. - Section 14 of the MAS Act prohibits MAS officers from making unauthorized disclosure of any information relating to MAS or any person acquired in performance of duties or exercise of functions. - Confidentiality of investigation reports is safeguarded by section 152A of the SFA, which prohibits unauthorized disclosure of reports by MAS officers to third parties. - MAS officers are bound by Part II of the Computer Misuse Act (Chapter 50A) against unauthorized access or modification of computer materials. - MAS observes the Public Sector Data Protection Policy as set out in internal procedures for ministries and statutory boards; under the policy personal data shall not be used or disclosed to a third party for purposes other than those for which it was collected, except with the consent of the individual or as required by law. - Internal safeguards: - Security classification, handling and storage of classified information are set out in staff internal guidelines. - When sharing sensitive and classified information, MAS officers ensure recipients are aware of the information classification and restrictions regarding further use or dissemination. ### Assessment — IOSCO Principle 2 (operational independence and accountability) - IOSCO assessment methodology requires positive answers to whether the securities regulator can operate day-to-day without: - external political interference; and - interference from commercial or other sectoral interests. - The composition of the MAS Board potentially exposes MAS decision making structures and processes to interference or the public perception of such risk. - Checks and balances limiting interference: - Code of Conduct for the MAS Board of Directors sets high standards and requires requests for information from Board members be made in writing and copied to the Managing Director and the Secretary to the MAS Board. - Requests from the Audit Committee should be made through the Head of the Internal Audit Department. - Operational policy manual requires staff to inform the Managing Director and the Secretary to the MAS Board if Board members make information requests outside established procedures. - Board members’ Code of Conduct requires disclosure of conflicts of interest to the Chairman and prohibits Board members from being a director or salaried official of a regulated entity; if voting power exceeds 20 percent in another entity, the Chairman must specifically approve. - Matters noted as relevant to operational independence: - The minister’s power to call for information on MAS’ duties and functions and to appoint inspectors to investigate matters within MAS’ responsibility; such powers can act as a threat that influences MAS actions. - The assessors note the President’s veto power over the budget but consider it not a significant issue given limited constitutional grounds for rejecting the budget. - Factors considered by assessors in reaching their rating: 1. No instances in the memory and experience of senior MAS staff where Board members sought to influence staff decisions on regulatory matters. 2. Administrative processes require significant regulatory decisions to be taken by relevant committees rather than individual staff members, limiting influence by Board members. 3. The Board generally confines itself to matters of policy and principle, with limited enquiries of management on individual entities when they impact policy matters. 4. Management’s policy is to advise the Board of individual regulatory decisions after they have been taken where management deems it necessary for the Board to discharge its functions under the MAS Act. ### Resources, powers and capacity — Principle 3 - Description: - MAS has comprehensive powers of licensing, supervision, inspection, investigation and enforcement under the SFA and FAA and adequate resources. - MAS is self-funded; overall budget includes income and expenditure from foreign investments, Singapore dollar operations, currency issuance, operation of the electronic payments system, custody fees, etc. - Overall MAS budget is set annually and is subject to the approval of the President. - Prioritization within MAS is the responsibility of the Executive Committee (EXCO). - Allocation is pragmatic and based on perceived needs and agreed major projects. - Staffing and budget processes: - The Finance Department reviews departmental budget submissions and discusses proposed budgets with departments. - Budget for major projects is agreed as part of the capital expenditures budget by the MD and the Board. - Within MAS, the Financial Supervision Group (FSG) has a professional head count of 496. - Within FSG: - Banking and Insurance Group has 229. - Policy, Risk and Surveillance Group has 91. - Capital Markets Group (CMG) has 176. - Each department head is fully accountable for management of allocated funds and may utilize allocations within MAS’ policy guidelines. - Departments may request additional resources from other departments with unutilized budgets or from a supplementary budget approved by the President. - Personnel policies and capacity building: - Section 17 of the MAS Act provides that MAS may appoint employees as it thinks fit, and determine matters relating to remuneration and terms and conditions of appointment and employment. - MAS may engage consultants and advisers and set terms of engagement as it thinks fit. - Board of Directors has ultimate responsibility for personnel policies. - MAS conducts annual manpower planning reviews; assessed headcount increases are submitted to the Board for approval. - MAS sets remuneration competitively pegged to the financial industry; budget for staff remuneration is increased annually for headcount and wage increases. - MAS seconds and accepts seconded personnel from public organizations such as the IMF and foreign regulators. - MAS undertakes regular assessments of staff expertise and takes follow-up actions to address gaps. - The MAS Academy centralizes in-house professional and leadership training; it organizes the MAS Diploma in Central Banking and rolls out functional and general development training courses. - The Academy’s specialized capital markets courses are significant; functional skills are deepened through the Professional Requisites and Outcomes Framework (PROF). - MAS provides supervisory staff with attachments at large international banks, international bodies and other regulators, and offers scholarships up to PhD levels. *International Monetary Fund — assessment text excerpt (MAS governance, accountability, confidentiality, operational independence, and resources).* ### Section 9(3) of the MAS Act provides that “the managing director shall be entrusted with ### _cr13344 - Section 9(3) of the MAS Act provides that “the managing director shall be entrusted with ### Legal mandate and role of the Managing Director (MD) - Section 9(3) of the MAS Act: “the managing director shall be entrusted with the day-to-day administration of the Authority, and may, subject to this act, make decisions and exercise all powers and do all acts, which may be exercised or done by the Authority under this act or any other written law.” - The MD carries out duties and responsibilities similar to governors of central banks and heads of financial supervisors, and is accountable to the Board of Directors. - Pursuant to section 9(6) of the MAS Act, the MD has formed the MFSC to assist him in the exercise of his powers and the carrying out of his duties in the supervision and regulation of the financial services sector entrusted to him by virtue of section 9(3) of the MAS Act. ### Governance and top-level decision forum - The top level committee is termed the Chairman’s Meeting. - The Chairman’s Meeting is a Board level committee, chaired by the Chairman of MAS. - It is the designated forum for taking major policy decisions relating to the objective of financial stability, in addition to its oversight of major changes to microprudential policies. - “Microprudential” is defined in this context as supervision that focuses on the stability of the component parts of a financial system; in this context it does not make entity specific decisions. ### MAS Financial Supervision Committee (MFSC): mandate and powers - The MFSC has been delegated the power to make all supervisory decisions. - It serves as a key forum for discussion and decision-making on: - regulatory and legislative framework for regulated entities, - supervisory policies and policy papers. - The MFSC has the powers to approve or reject license applications, and make decisions on supervisory actions taken against financial institutions. - The MFSC also determines which of these matters arising out of the forum should be escalated to the MD or to Exco. ### MFSC composition and Financial Supervision Group structure - The MFSC is chaired by the DMD (Financial Supervision). - MFSC membership comprises the Assistant Managing Directors and heads of departments under the Financial Supervision Group, as well as the General Counsel. - Departments under the Financial Supervision Group include: - Banking Department, - Insurance Department, - Prudential Policy Department, - Specialist Risk Supervision Department, - Macroeconomic Surveillance Department, - Capital Markets Intermediaries Department (CMI), - Investment Intermediaries Department (IID), - Capital Markets Department (CMD). ### Regulation of the securities market: Capital Markets Group (CMG) - The regulation of the securities market is under the purview of the Capital Markets Group (CMG). - The CMG comprises three departments: CMI, IID and CMD. - Divisions within these departments perform specific functions to carry out oversight. - Where there are cross-functional implications, matters are escalated to the respective department heads. - Across the securities sector, the group head will resolve cross-function issues. - Major policy changes or initiatives and major supervisory actions are brought to MFSC for approval. ### Investor education and public outreach - MAS uses its website to share information and views with the public as part of investor education. - MAS shares its views on macroeconomic conditions through economic research papers, overview of Singapore’s financial sector including the relevant legislation/regulations, and statistical data such as industry performance. - MAS is Chair of the public-sector Financial Education Steering Committee (FESC), which spearheads MoneySENSE. - MoneySENSE is a national financial education program that brings together industry and public sector initiatives to enhance the basic financial literacy of consumers. - Since its launch in October 2003, MoneySENSE has: - published over 253 educational articles in the media, - organized talks, seminars and workshops that have attracted over 93,000 participants, - issued 29 consumer guides with a total circulation exceeding *Source: _cr13344 - Section 9(3) of the MAS Act provides that “the managing director shall be entrusted with* ### 2.2 million. The MoneySENSE program covers three tiers of financial literacy: ### _cr13344 - 2.2 million. The MoneySENSE program covers three tiers of financial literacy: ### MoneySENSE program: structure and coordination - 2.2 million. The MoneySENSE program covers three tiers of financial literacy: - Tier I—Basic Money Management—which covers skills in budgeting and saving, and provides tips on the responsible use of credit; - Tier II—Financial Planning—to equip Singaporeans with the skills and knowledge to plan for their long-term financial needs; and - Tier III—Investment Know-How—which imparts knowledge about the different investment products and skills for investing. - MAS coordinates with the Singapore Exchange (SGX) and various industry bodies on investor education, particularly in the basics of investing, products, and selecting investment professionals. - Ongoing work to encourage people to turn what they have learned into practice, particularly at key moments in their lives. - The unit that deals with investor education also handles complaints and thus is well-placed to identify where further investor education is necessary. - Assessment: Fully Implemented - Comment: The investor education program is extensive, appears well funded, and continues to evolve. Given the MAS emphasis on the need for investors to take responsibility of their own decisions continued investment in this program is essential. ### Resources and institutional memory - Within the annual budget allocation for financial supervision it appears that CMG receives funding appropriate to its responsibilities and the size and complexity of the market. - On a head count basis, the CMG appears to have the necessary resources relative to the other supervisory groups and the scope and size of the various tasks it is required to undertake. - The role of the academy in retaining knowledge and experiences of senior supervisors is welcomed to preserve corporate memory. ### Principle 4 — Clear and consistent regulatory processes (policy formulation and procedures) - MAS monograph: Tenets of Effective Regulation; Tenet 6: “Clear and Consistent”; Tenet 3: "Risk Appropriate"; Tenet 5: “Impact Sensitive”. - Policy formulation practices: - Consultation papers posted on MAS website; regular consultations with relevant industry associations. - Minimum period for submission of written consultations generally is 30 days although for substantial or complex changes three months is more typical. - Press releases announce consultations; brief summary of submissions and MAS’ responses published on the MAS website either before or at announcement of changes. - MAS uses specialist multidisciplinary committees comprising private and public sector representatives. - Draft legislation issued for public consultation after policy consultation. - MAS issues notices, guidelines, codes, policy statements, practice notes and FAQs; maintains materials on website. - AGC provides and maintains Singapore Statutes Online (http://statutes.agc.gov.sg). - Cost-impact analysis is a component of policy making (Tenet 5: “Impact Sensitive”). - Clear, equitable and fair procedures: - MAS provides written reasons and an opportunity to be heard before adverse decisions affecting licenses are made. - Regulation 2(2) of the Securities and Futures (Opportunity to be Heard) Regulations permits written submissions by a lawyer but no right to a personal oral “hearing”. - Regulatory decisions and significant actions are published on MAS website and via press releases. - MAS maintains and updates a list of enforcement actions on its website with reasons for each action. - Appeals under sections 310 and 311 of the SFA can be made to the minister-in-charge of MAS; appeals include review of the merits. - Judicial review remains available under common law to the High Court. - Assessment: Broadly implemented - Comments (reasons for downgrade from Fully to Broadly): - Appeal to the minister-in-charge of MAS is not to a decision-maker fully independent of the entity whose decision is appealed (the minister is also currently the Chairman of the MAS Board, although he does not have to be). - The Appeal Advisory Committee advises the minister but the minister is not obliged to accept its recommendation; the appellant is not told what the Committee recommended. - For Full Implementation, assessors suggest either the minister surrender the right to reject the Appeal Advisory Committee advice or the committee be brought “in house” to MAS with final decisions (subject to judicial review) and minister no longer involved. - The denial of a right to a personal hearing in serious matters such as license revocation is inconsistent with good practice and should be reconsidered. - Tenets give the impression MAS relies heavily on industry-provided data for cost-benefit calculations; assessors note MAS staff assert MAS conducts independent analysis in practice. ### Principle 5 — Staff professional standards and confidentiality - MAS Staff Code of Conduct focuses on integrity, honesty, and impartiality; internal procedures set out rules on conflicts of interest. - Investment restrictions: - Staff should not trade actively nor make investments/transactions that suggest conflict with their MAS responsibilities. - Staff in departments handling market sensitive information are not allowed to subscribe for or deal in securities of Singapore listed companies. - Supervisory staff (all staff in FSG including policy focused staff), financially dependent family members and nominees are not permitted to deal in shares, warrants, and other securities of institutions licensed, regulated or supervised by MAS or in securitization-type arrangements created by special purpose vehicles where the originator is an institution licensed, regulated or supervised by MAS. - Staff are not to buy securities offered as private placements; may not deal in securities of companies with business dealings with the staff or their department. - All employees must disclose all dealings by completing and lodging a Disclosure of Personal Investment Transaction Form; a confirmation of compliance is required every three years. - Employees must declare indebtedness/non-indebtedness on appointment or whenever they become financially indebted. - When investing in land or property staff are not permitted to take up discounts or concessions arising from acquaintanceship in an official capacity; staff must declare terms of purchase; MAS can direct remedial action if transactions deemed inappropriate. - Statutory confidentiality requirements: - Staff bound by Official Secrets Act (OSA) and Statutory Bodies and Government Companies (Protection of Secrecy) Act (SBGCA); obligations continue after leaving MAS for life. - All MAS staff must complete a written undertaking on statutory and MAS-imposed duties of confidentiality on appointment and re-affirm every three years. - MAS observes the Public Sector Data Protection Policy on Information Management. - Internal Audit Dept (IAD) and auditor-general perform audit checks on MAS compliance with processes and procedures. - Enforcement for violations: - Committee of Enquiry comprising head of HR, relevant department head, plus an independent staff member. - Disciplinary actions range from reprimands to suspension, dismissal and prosecution. - Past actions included warnings and dismissals; staff are expected to whistle blow. - Assessment: Fully implemented - Comments: Staff code meets IOSCO requirements; confidentiality mandated by legislation; familial dealing restrictions may be difficult to enforce but potential sanctions are dissuasive; comprehensive enforcement procedures exist. ### Principle 6 — Systemic risk monitoring, mitigation and management - MAS is the integrated financial regulator and central bank; mandate includes identification and mitigation of systemic risk (MAS Act section 4(1)(b) and section 4(2)(b)). - Internal coordination: - Three fora where Macroeconomic Surveillance Department (MSD) and all supervisory departments are represented. - CMG works with MSD to ensure a macroprudential perspective for capital markets through cross-department interaction, MFSC, Management Financial Stability Committee (FSC) and EXCO. - Financial Stability Review (FSR) published annually with risk assessments; increasing emphasis on capital markets sector since 2008. - Specific systemic risk reviews and actions: - Hedge funds: Since 2009, annual surveys of top 50 hedge fund managers in Singapore by assets under management; results (2009–2011) indicate activities unlikely to pose systemic risks to Singapore’s financial markets or Singapore-based financial institutions. Surveys analyzed jointly by MSD and Investment Intermediaries Department and tabled at MFSC and EXCO. - Exchange traded funds: In 2010 MAS examined ETFs listed on SGX-ST, focusing on synthetic ETFs and their opacity/complexity; requested fortnightly reports on composition of collateral from swap-based synthetic ETFs; identified key risks of direct replication and swap-based synthetic ETFs. - Monitored retail CIS’ exposure to Eurozone risks and REIT refinancing risk during the global financial crisis. - Consulting on an enhanced regulatory regime for the growing retail market in contracts for difference (CFDs). - Developed measures to monitor systemic risks from clearing of OTC derivatives by SGX-DC. - Systemically important FIs and infrastructures: - Approved exchanges, designated clearing houses (DCH), and holding companies of approved exchanges and DCHs regulated under the SFA. - Legislative amendments to SFA (passed November 2012) introduced a new authorization regime for clearing facilities; amendments targeted to come into operation in Q2 2013. - Existing DCHs to be deemed approved clearing houses under new regime. - Stress testing: - MAS conducts stress tests of individual capital market intermediaries with a focus on market risk using scenarios common with banks and insurance companies; scenarios include adverse movements in several markets simultaneously and default of large counterparties. - Assessment: Fully implemented ### Principle 7 — Regular review of regulatory perimeter - MAS monograph: Tenet 4: “Responsive to Change and Cycles” recognizes need to update regulatory framework for emerging risks. - Policy review triggers and channels: - Regular dialogues with industry; scans of other jurisdictions’ new regulatory policies and regulations; staff highlight key developments for Singapore. - MAS participates in international/regional fora: IMF, World Bank, FSB, BIS, BCBS, IAIS, CPSS, IOSCO; regional engagement via ASEAN Capital Markets Forum. - Other inputs: review of news articles, industry feedback, mystery shopping, public feedback and queries. - Policy review outcomes: - MAS evaluates effectiveness of past policies and may issue new regulations, take supervisory action or propose legislative change. - Reviews consider unregulated products, markets, market participants, and activities; actions taken where unregulated elements pose threats to systemic risk, investor protection or market efficiency/transparency. - Legislative and regulatory change: - MAS has authority to issue or amend regulations and propose legislative changes; typically consults industry on proposed draft legislative amendments. - Recent legislative amendments resulted from reviews, including changes to regulation of REIT management and fund management. - Assessment: Fully implemented - Comments: MAS mechanisms to monitor market developments and secure timely legislative and regulatory change are effective. ### Principle 8 — Managing conflicts of interest and incentives - Regulated entities: - Licensed intermediaries required as license conditions to avoid conflicts of interest and resolve conflicts fairly and equitably; disclosure acceptable if MAS believes it produces desired outcome. - Supervisory and enforcement programs require regulated entities to establish procedures, effective controls and segregation of duties (SF(LCB)R r.13(f)). - MAS guidance and inspections evaluate conflict avoidance/mitigation measures. - Disclosure requirements: SF(LCB)R explicitly requires licensees to disclose conflicts to customers where appropriate; disclosure to be clear and accessible (e.g., in writing at point of sale or account opening). - MAS powers for regulatory action: SFA s101 and FAA s.58; measures include stricter disclosure, directives, segregation of roles, or preventing entities/individuals from particular activities. - Examples: non-independent research circulation restricted to accredited and institutional investors and must be labeled as non-independent research (see relevant Regulations 2005 citations). - FAIR (Financial Advisory Industry Review) undertaken to promote culture of fair dealing; recommendations include ensuring introducing arrangements do not pose conflicts. - Securities offering and disclosure-based regime: - Prospectus lodging and registration with MAS required for offers; prospectus must contain all information investors need and disclose conflict of interest situations and material interests of experts, underwriters and advisers. - MAS checks for full disclosure of material conflicts and mitigation measures in prospectus review. - SGX-ST reviews listing applications for conflicts and requires resolution/elimination of conflict situations prior to listing or within a reasonable time after listing (SGX-ST Listing Manual 223 and 224). - Asset-backed securities: - Prospectus must disclose key characteristics of asset pools including: (i) cash flow profile; (ii) the maturity dates; (iii) principal and interest payments of the assets; and (iv) any credit enhancements. - Prospectus must spell out underwriting criteria and selection methods for underlying assets. - Ongoing disclosure required for information that may materially affect risks, returns, price or value of asset-backed securities. - Recent rule requires disclosure of any forms of due diligence performed by issuer, sponsor, originator, underwriter or any third party. - SGX-ST listing protections: - Promoters required to provide contractual undertakings to observe a moratorium on transfer/disposal of their interests for a specified period after listing (SGX-ST Listing Manual, Chapter 2–Part VIII). - Post-listing, stringent requirements govern transactions with interested persons (SGX-ST Listing Manual, Chapter 9). - Assessment: Fully implemented - Comments: Requirements for management of conflicts are embedded across IOSCO principles and MAS supervisory programs; MAS collaborates with SGX to address conflicts for listed issuers. ### Principle 9 — Self-Regulatory Organizations (SROs) oversight - Entities performing SRO functions: - Market operators may be approved exchanges or recognized market operators (SFA section 6). - Only the three approved exchanges perform SRO functions in Singapore: SGX-ST, SGX-DT and SMX. - Securities and Futures (Corporate Governance of approved exchanges, Designated Clearing Houses and Approved Holding Companies) Regulations 2005 apply to them. - Board composition requirements: at least one third of the Board must comprise directors with no management/business relationships and no relationship with substantial shareholders; at least a majority of the Board must be independent from management and business relationships. - SRO functions of exchanges: - Establish rules on eligibility, trading, business conduct and qualifications; conduct disciplinary actions; administer compensation arrangements for investor loss due to defalcation or insolvency of members. - Conduct real time front line market surveillance and inspection of members; suspicious market activity referred to MAS. - Exchanges may conduct disciplinary action against members; MAS retains oversight. - Listing and prospectus processes: - SGX is listing authority (except for derivatives and its own shares); MAS must review and register any prospectus for new issues. - IPO issuer may use Concurrent Review: submit listing application to SGX-ST and prospectus to MAS concurrently; Concurrent Review introduced in March. - Notes on RMOs and exemptions (as provided): - One commercial forward delivery facility was exempted because technically covered by market operator definition though not a trading facility; exemption published in Government Gazette in 2012. - MAS does not regard RMOs as SROs; currently three domestic RMOs recognized (two trade bonds and one commodity futures) but they are small. - RMOs under SF(M)R Regulation 28 required to maintain trading rules, enforce rules and monitor market they conduct, observe MAS conditions, report trading statistics to MAS and meet capital requirements; MAS must approve RMOs and monitors activity including onsite visits and obtaining reports of operations. - The Singapore Commodity Exchange Limited (an RMO) ceased to operate on August 5, 2011. - Assessment: (implicit through description; MAS oversees SROs and enforces governance requirements) *SINGAPORE — INTERNATIONAL MONETARY FUND* ### 2010. Since then, most issuers have made their IPO submissions to SGX and MAS under ### _cr13344 - 2010. Since then, most issuers have made their IPO submissions to SGX and MAS under ### Concurrent Review process for IPOs - SGX-ST considers whether the listing applicant satisfies the listing requirements and will decide whether to approve or reject the listing application. - MAS reviews and checks that the prospectus complies with statutory disclosure requirements. - Under the Concurrent Review process, MAS and SGX-ST identify issues of concerns to both parties. - IPO submissions that are non-compliant or have deal-breaker issues would be rejected or returned at the Concurrent Review stage. - IPO submissions are returned to the issuers if: - there are major issues that have not been addressed or resolved; - the submission is incomplete; or - the financial statements are not current. - If a listing occurs without an issue of securities (in which case a listing introductory document is required) MAS has no involvement in the listing process. - For listing of derivatives products on SGX and SMX, MAS has exercised its authority to approve every contract specification before trading is permitted. ### SRO conditions for approval (approval criteria and obligations) - Exchanges require approval from MAS (SFA section 7) unless exempted under section 14 (to date no exchange has been exempted). - Approval is documented in writing to the exchanges and may be subject to conditions. Approval as an exchange carries with it SRO obligations by virtue of the relevant legislative provisions. - Applications are reviewed by MAS staff for compliance with obligations in the SFA and regulations. The written approval for exchanges is signed by the group head of CMG after consideration by the MFSC. - The approval criteria (SFA section 16) include: - Maintain business (and listing) rules that make satisfactory provision for the proper regulation and supervision of its members, and a fair orderly and transparent market; - Enforce compliance with its business rules (and where appropriate listing rules); - Ensure that access to participation in its facilities is subject to criteria that are fair and objective; - Discharge its obligations in a manner which is not contrary to the interests of the public; and - Ensure that it has systems and controls for the assessment and management of risks which are appropriate for the scale and nature of its operations. - SF(M)R (Regulation 18) requires approved exchanges to make provision in rules for measures setting standards for members and promoting investor protection, including: - admission and continuing requirements for each member; - establishment of compensation arrangements for investors who suffer losses through the defalcation or insolvency of members; and - carrying on business of the approved exchange with due regard to the interests and protection of the investing public. - These basic criteria continue to be applicable on an ongoing basis and MAS may take action for noncompliance at any time. Exchange rules are reviewed upon admission. ### Powers of MAS and supervision of SROs - MAS specific powers over exchanges/markets include: - Authority to inspect books/operations and obtain assistance/explanations (SFA section 150); - Ability to suspend business operations (also to dismiss executives in authority16) (SFA sections 34 and 44); - Reprimand an approved exchange which contravenes its own business rules (SFA Section 334); - Require reports of operations and assistance to MAS (SFA sections 19, 20 and 150); reports include the approved exchange’s annual report, quarterly profit and loss accounts and balance sheets, and the auditor’s long form report including any findings in relation to the exchange’s internal controls and non-compliance with any relevant laws or regulations; and - Approval of rule changes and direction to change rules (SF(M)R Regulation 19), including the power to require alteration or supplement to the proposed rule amendments. - MAS supervisory framework includes: - annual self-assessment by approved exchanges of their compliance with obligations under the SFA; - onsite inspections, offsite reviews, review of periodic and ad hoc reports submitted; - regular dialogues with the approved exchanges; and - reviews of the rule amendments of the approved exchange. - Exchanges must notify MAS of any disciplinary action taken against a member as soon as practical after the event (SFA section 17). 16 MAS may direct an approved exchange to remove an officer of the exchange if he has, without reasonable excuse, failed to enforce compliance with the rules of the exchange (SFA section 44). ### Delegation to SROs and scope - MAS does not delegate any authority to the SROs except with respect to SGX’s Catalist market (a sponsor supervised listing platform which replaced the previous second board). - SGX has been delegated power as agent of MAS to approve a prospectus for a listing on that market. This authority was granted in 2008 and published in the Government Gazette. - The business rules of an approved exchange are deemed to be a binding contract between the approved exchange and its members, as well as amongst the members of the approved exchange (SFA section 24). - Approved exchanges may apply to the court for an order to direct a non-compliant person to comply with its business rules and listing rules (SFA section 25).18 18 No application for court enforcement has yet been filed. ### Coordination, oversight, and information-sharing - There are no formal MoUs in place with any of the SROs.19 MAS considers them unnecessary because the nature and functions of the SROs as approved exchanges are set by law. - An approved exchange is obliged (SFA section 20) to provide such assistance to MAS as MAS may require, including provision of returns and information. - Operational arrangements to foster coordination include regular calls, formal meetings and oversight through offsite reporting and onsite inspections, tailored to each SRO’s functions. - MAS does not discuss its inspection program with approved exchanges; however, there is interaction and ongoing dialogue and each exchange is aware of the members to be inspected in each forthcoming cycle. 19 There are written but not public protocols between MAS and each approved exchange concerning criteria for market abuse referrals detected by surveillance conducted by the exchanges. ### Conflict of interest governance - MAS' approval process requires the exchange to describe and demonstrate how it will have adequate means to deal with conflicts of interest (Form 1 of the SF(M)R). - Under the Securities and Futures (Corporate Governance of approved exchanges, Designated Clearing Houses and Approved Holding Companies) Regulations 2005, approved exchanges must establish a board-level regulatory conflicts committee. - All members of the regulatory conflicts committee must be independent of management and business relationships with the approved exchange, including relationships with the exchange’s members. - The committee’s responsibilities include: - reviewing and reporting to the Board (and MAS) on the adequacy of arrangements for dealing with conflicts between commercial interests and regulatory interests; - carrying out regular reviews of the adequacy of the budget and resources of the regulatory and supervisory functions of the approved exchange. - Where securities of an approved exchange are listed on its own market, MAS acts in place of the approved exchange in decisions and actions in relation to the administration of the listing rules (SFA section 30) but only in respect of that entity. - Currently, SGX-ST lists the securities of its parent holding company, the Singapore Exchange Limited, and has a Deed of Undertaking dated March 8, 2007 (published on the SGX website) concerning arrangements to address conflicts of interests. ### Inspections and enforcement actions by SROs (approach and resourcing) - SROs follow a risk-based approach to determine firms subject to inspection on an annual basis. - SGX targets10 firms per year to inspect with a cycle of two to four years between formal inspections. SGX staff visit members on site to check adequacy of internal controls and verify internal controls required by business rules for proper functioning of members' back office. - Details of inspection plans are not specifically discussed with MAS prior to implementation but ongoing dialogue occurs if issues develop or notification in periodic reports is necessary. - For SMX, the cycle is based on variable periods of time of 12 to 18 months, so that every clearing21 member will be inspected three times in four years. - Inspections take one of two forms: full scope or limited scope depending on prior issues and risk profiling. - SMX has six staff dedicated to supervision. - A full scope inspection involves three to four staff over a 4–5 week period; limited scope reviews involve the same number of inspectors but duration is 2–3 weeks. - Trade members are presently subject only to ad hoc inspections if issues arise concerning trading, with a proposal to subject them to routine inspections in the future. 21 As at April 2013, SMX has seven clearing members, six broker members (trading only) but these are also clearing members.50 Trade members (proprietary traders) that may be corporate or individuals and two remote members. ### Universe of approved exchange members (as at Dec 31, 2012) - Singapore Exchange (Securities and Futures Exchanges) - Securities–7 - Derivatives–19 - Dual–22 - Singapore Mercantile Exchange (Futures Exchange) - Derivatives 7 - Total: 48 and 7 - Note: Six of SMX members are also SGX members. - Source: SGX and SMX. - Excludes proprietary, remote and dormant (ceasing) members. ### Number of inspections conducted (annual) - Number of Inspections Conducted: - Singapore Exchange: - 2010: 8 (Coverage Dual: 6 Derivatives: 2) - 2011: 7 (Coverage Dual: 2 Derivatives: 3 Securities: 2) - 2012: 10 (Coverage Dual: 5 Derivatives: 4 Securities: 1) - Singapore Mercantile Exchange: - 2010: NA# - 2011: 2 - 2012: 3 - MAS: - 2010: 5 - 2011: 8 - 2012: 8 - Regulatory actions taken (2010–2012): - Singapore Exchange (Public / Non-public): - 2010: 0 / 20 - 2011: 1 / 14 - 2012: 1 / 30 - Singapore Mercantile Exchange: - 2010: NA1/ - 2011: NA / 0 - 2012: 6 / 0 and 2 (table indicates outcomes across years) - Sources: SGX and SMX. - Note: Singapore Mercantile Exchange went live in August 2010. ### Assessment and recommendations (from source) - MAS relies on approved exchanges to regulate market conduct and members, set standards, enforce rules, and promote investor protection. These responsibilities are set out in law and MAS monitors exchanges’ compliance. - The majority of regulatory actions taken by exchanges under self-regulatory obligations are not made public. - Recommendation: MAS should encourage exchanges to publish more transparent outcomes of the regulatory actions they have successfully taken against their members, including identifying the parties involved. ### Principles for the Enforcement of Securities Regulation (Principle 10) - Description: - MAS has a comprehensive suite of inspection, investigation and surveillance powers. - SFA section 150 sets out MAS’ right to carry out inspections on entities and persons subject to its regulation under the SFA, including: an approved exchange, recognized market operator, exempt market operator, person operating a clearing facility, designated clearing house, approved exchange holding company, the holder of a capital markets services license, an exempt person and a representative. - An exempt person is defined in SFA section 99 to include a bank, merchant bank, finance company, and insurance company (in respect of fund management for the purpose of carrying out insurance business). It also includes the new categories of Licensed and Registered Fund Management Companies (RFMC). - MAS’ right to carry out investigations is set out in SFA section 152. MAS has equivalent inspection powers over financial advisers under the FAA section 70 and investigation powers under FAA section 71. - There is no legal impediment to MAS conducting onsite inspections. Inspections can be routine or “for cause.” There is no legal obligation for MAS to give prior notice of inspection although for routine inspections, the practice is to give reasonable notice. - An entity inspected by MAS must provide full access to its books (any record, register, document or other record of information, and any account or accounting record) relating to their business affairs and must provide such information and facilities as may be required to conduct the inspection. *Source: IMF staff report text from the provided content unit.* ### Section 102 of the SFA and section 45 of the FAA requires a regulated entity to maintain ### Section 102 of the SFA and section 45 of the FAA requires a regulated entity to maintain ### Recordkeeping and customer identification - Regulated entities must maintain books "in sufficient detail to explain the transactions and financial positions of its business." (Section 102 SFA; section 45 FAA). - Regulation 39(1) of the SF(LCB)R and regulation 25 of the FAR require records on transactions including trading of funds and securities in and out of brokerage and bank accounts related to securities transactions. - Regulation 39(1) of the SF(LCB)R and regulation 25 of the FAR require maintenance of records on the identity of customers (particulars and name). - Retention periods: relevant books and information must be maintained "for a period of not less than five years" (section 102 SFA; regulation 5 SF(M)R; regulation 26 FAR). ### Surveillance, reporting, and disclosure obligations - Day-to-day surveillance of trading activity is conducted by the approved exchanges, under the supervision of MAS. - Exchanges and clearing houses must provide MAS with the name of the member that carried out any trades (SFA section 142). - MAS conducts real-time surveillance using the SMART software system operating on real-time trade data. - MAS may issue directions to approved exchanges which must be complied with (SFA section 46). - Persons who acquire or dispose of securities or futures contracts must disclose to MAS whether they acted for another person and, if so, the name of that other person. - SFA section 142 requires a CMSL holder (or an exempt person) dealing in securities or futures contracts to provide MAS with comprehensive information on any acquisition or disposal, including: names of all persons party to or participating in the transaction and the instructions issued to the license holder or exempt person. - SFA section 143(2) allows MAS to require an officer of a corporation to disclose any information of which he is aware that may have affected or may affect dealings in securities of, or made available by, the corporation. - SFA section 163 empowers MAS to require any person to provide information or produce books relating to any matter under investigation at a specified time and place; compliance is mandatory. - SFA section 164 empowers MAS to obtain a search warrant from a magistrate where MAS reasonably suspects required books are on premises and not produced; an accompanying police officer is not required. ### Outsourcing, approved exchanges, and access to records - SGX-ST, SGX-DT and SMX act as SROs for securities and futures trading and can be considered outsourcing service providers. - MAS may review disciplinary actions taken by exchanges against members and their representatives (section 20 SFA). - MAS has developed a supervisory framework for integrated oversight of exchanges (Principles 9 and 33). - Approved exchanges are subject to disclosure and confidentiality requirements at least as stringent as those applicable to MAS (SFA section 21). - MAS may employ an external auditor to examine a license holder’s records; the auditor is subject to MAS oversight and confidentiality constraints. - Approved exchanges must afford MAS full access to their books (defined broadly) and provide information and facilities required for inspection (sections 20 and 150 SFA). - MAS may issue directions to approved exchanges which must be complied with (section 46 SFA). ### Investigative and compulsion powers of MAS - MAS has powers under sections 142 to 144, 154, and 163 of the SFA to obtain all data, information, documents, statements and records from persons (regulated or unregulated) relevant to inquiries or investigations; parallel powers exist under the FAA. - MAS may obtain search warrants (section 164 SFA). - MAS may require persons to provide statements on oath (section 154 SFA). - A person is not excused from disclosing information to MAS on the ground that disclosure might tend to incriminate him; such statements are generally not admissible in criminal proceedings except for proceedings for making false or misleading statements, but are admissible in civil proceedings under SFA Part XII (Market Conduct). - Refusal to provide a statement or providing false/misleading information may result on conviction in a fine not exceeding S$50,000 or imprisonment for a term not exceeding two years or both. - MAS has the power to obtain information sufficient to reconstruct securities and derivatives transactions, including records of all funds and assets transferred into and out of bank and brokerage accounts; client identities; full trade details (including timings); and identities of licensee and individual employees who handled the trade. - MAS may obtain information from individuals or entities in Singapore identifying persons who beneficially own or control non-natural persons organized in Singapore. - MAS may take statements or testimonies under oath (section 154 SFA). ### Criminal enforcement and referral to CAD - MAS does not have criminal enforcement powers; it refers suspected criminal offenses to the Commercial Affairs Department (CAD) for investigation and subsequent prosecution by the Attorney-General's Chambers (AGC). - CAD is the primary enforcement agency for criminal investigation and prosecution of offenses related to corporate and securities laws. - Criminal penalties under the SFA: for market misconduct contraventions (sections 204, 213, and 221), maximum fine of S$250,000 or imprisonment of up to seven years or both. - Non-compliance with SFA section 163 (obligation to provide information or produce books) carries on conviction a fine not exceeding S$50,000 or imprisonment not exceeding two years or both; destruction or removal of books from Singapore can increase the fine to S$100,000. - CAD has full investigative powers to obtain information, documents, statements and records from any person. ### Civil penalty regime and court remedies - MAS may institute civil penalty actions for market conduct provisions (Part XII SFA) and disclosure obligations (Part VII SFA) with the consent of the Public Prosecutor, AGC (consent required to avoid fettering AGC’s criminal charging powers and double jeopardy). - MAS and CAD have a protocol to minimise situations where cases move between civil and criminal tracks. - Maximum civil penalty: a sum not exceeding three times the profit gained or loss avoided as a result of the contravention, subject to a minimum of either S$50,000 (if the person is not a corporation) or S$100,000 (if the person is a corporation). - Where there is no profit or loss avoided, a penalty of not less than S$50,000 and not more than S$2 million may be imposed. - MAS may seek court orders for mandatory or restraining injunctions (sections 325 and 326 SFA), including asset freezes; example: recently used in a case involving the former chief executive officer of a listed company. ### Administrative sanctions and limitations - MAS has powers to: - make prohibition orders against regulated persons (Section 101A SFA) and issue written directions (Sections 46, 79, 81ZL, 101, and 293 SFA); - refuse entry, suspend or revoke licenses or status of regulated persons (Sections 95 and 99M SFA); - revoke, suspend or withdraw exemptions, authorizations or recognitions in respect of offers of investments (Sections 281, 282ZD, 288, and 307 SFA); - withdraw exemptions from holding a license; - reprimand for misconduct (SFA section 334); MAS policy is generally to make public reprimands for market conduct breaches; - offer for composition on non-custodial offenses (SFA section 336) — composition requires admission of liability and penalties usually referenced to stipulated fines; compositions require AGC consent and, except for minor breaches, are published. - MAS does not have a power to issue administrative fines or other financial penalties apart from late filing fees. - Exchange disciplinary committees (SGX-ST, SGX-DT, SMX) may impose reprimand (private or public), fines, suspension from trading, or expulsion from membership; MAS may review and direct the exchange if disciplinary procedures are inadequate (SFA section 46). - For breaches of listing requirements, SGX-ST may reprimand, suspend or delist a listed issuer. - Under section 32 SFA, MAS may prohibit trading in certain securities by written notice to the approved exchange; if the exchange fails to act, MAS may prohibit trading for a period not exceeding 14 days. ### Beneficial ownership and penalties for disclosure failures - Two-tier penalty regime for Disclosure of Interests contraventions: - Upper-tier (intentional or reckless contraventions): up to S$250,000 or imprisonment not exceeding two years (SFA section 137D(1)). - Continuing offense: further fine not exceeding $25,000 for every day or part thereof during which the offense continues after conviction. - General contravention penalty: fine up to S$25,000 (SFA section 137D(2)). - Previous cases: "5 in 2010–12" were subject to fines up to S$17,500. "No cases have yet been brought under the new regime." ### Information sharing - MAS may share information with other agencies where necessary, subject to permissible disclosures specified under legislation administered by MAS. - Division 4 of Part IX of the SFA provides for transfer of evidence between MAS and CAD for use in criminal or civil proceedings. ### Assessment and comments on enforcement architecture - Assessment: Fully implemented (noted in text). - Comments: - Extent and effectiveness of MAS’ powers are assessed under sectoral principles (collective investment schemes and hedge funds, credit rating agencies, market intermediaries and secondary markets) and Principle 12. - Lack of an administrative power to issue fines (other than late filing fees) is highlighted as an omission compared internationally; MAS argues composition powers provide an effective mechanism for low significance breaches (compositions can be as small as S$500 and require admission of liability); assessors accepted the merit of this argument but recommended keeping the lack of administrative fining power under review. - MAS policy generally publishes reprimands and reasons; SGX and SMX generally do not publish minor administrative/technical infractions but will publish severe breaches brought before disciplinary committees. - MAS recognizes challenges in establishing beneficial owner identity when obscured via offshore chains; increased penalties for non-disclosure are believed to provide an effective deterrent and assessors agree. ### Inspections, complaints handling, and market surveillance - MAS conducts routine inspections on licensees and prioritizes inspections through risk evaluation of inherent risks and control factors, using information from internal/external audits and prior inspection findings. - MAS Framework for Impact and Risk Assessment assigns institutions to one of four buckets of supervisory significance based on combined impact and risk ratings; supervisory strategies and intensity follow from bucket assignment. - Risk ratings are annually reviewed across peers and for shifts between buckets by a panel of supervisors led by the department head. - MAS' investigation powers (Part IX SFA) include requiring any "person" (including companies, associations, unincorporated bodies) to provide statements on oath and to produce documents; powers apply to licensed, registered, and unregulated persons when evidence sought is relevant. - Complaints: Public can complain in writing, by telephone, and via MAS website. Consumer Issues Division (CSI) collates complaints and refers regulatory matters to supervisory departments. - CSI actions include monitoring firms' responses, referring to departments for regulatory/enforcement actions, working with industry associations, implementing consumer initiatives, financial education, and issuing consumer alerts. - CSI advises consumers to approach the financial institution first; unresolved matters may be taken to Financial Industry Dispute Resolution Center (FIDReC) — FIDReC decisions binding on the financial institution but not on the consumer. - MAS collates complaints by industry sector. 2012 complaint counts: - 1,131 complaints about banks - 471 about insurance companies - 117 about capital market services licensees - 26 about licensed financial advisors - Market surveillance: SGX-ST, SGX-DT, and SMX use electronic automated systems for daily surveillance; systems trigger alerts for trading irregularities. - When MAS surveillance detects irregular trading not reported by exchanges, MAS will require exchanges to investigate; exchanges report findings to MAS regardless of investigation origin. - Exchange officers review alerts and identify cases warranting further investigation; exchanges may gather information from members or listed entities. - Exchange electronic surveillance systems allow audit of execution and trading of all transactions. - MAS also receives suspicious transaction reports filed by financial institutions and complaints from the public; complaints and referrals are reviewed to determine further action; MAS refers potential criminal offenses to CAD for further investigation. *Source: IMF staff extract from the SFA/FAA enforcement and supervision section.* ### Section 106 of the SFA and section 47 of the FAA requires licensees to appoint an auditor ### Section 106 of the SFA and section 47 of the FAA requires licensees to appoint an auditor ### Auditor appointment, accounts lodging, and prescribed reporting - Section 106 of the SFA and section 47 of the FAA requires licensees to appoint an auditor to audit its accounts. - Section 107 of the SFA and section 48 of the FAA requires licensees to lodge annual accounts with MAS. - Licensees must report financial accounts to MAS in a form prescribed under Securities and Futures (Financial and Margin Requirements) Regulations (SF(FMR)R) and regulation 23 of the FAR, respectively. - Prescribed forms must be submitted with an auditor’s certification that it is satisfied: - the internal controls are adequate having regard to the nature and size of business; - internal controls procedures are designed to ensure compliance with all conditions and restrictions applicable to the licensee; - proper records have been maintained; and - there is no other matter which may adversely affect the licensee’s financial position to a material extent. - Officers review submitted forms and identify those which may warrant further investigation. ### Monitoring triggers and thematic reviews - MAS reviews quarterly and annual returns submitted by CMS licensees, monitoring: - low base capital (i.e., base capital < 120 percent of minimum base capital required); - low financial resources (i.e., financial resources < 200 percent of total risk requirement); - high aggregate indebtedness (i.e., aggregate indebtedness > 600 percent of aggregate resources); - breach of the capital requirements; - under-segregation of customer funds; or - significant fluctuation (> 20 percent) in their financial indicators including profit/loss, total shareholders’ funds, capital requirements and financial ratios, etc. - MAS also conducts periodic thematic surveys on licensees. ### Responsibilities of CEOs, directors, and corporate licensees - Pursuant to regulation 13 of the SF(LCB)R and regulation 14 of the FAR, the CEO/directors of a licensed intermediary are responsible for implementing and ensuring compliance with effective written policies on all operational areas, including: - financial policies, accounting and internal controls, internal audit and compliance with laws and rules governing the licensee’s operations; - identifying, addressing, and monitoring the risks associated with the trading or business activities of the licensee. - The same requirements imposed on CEOs/directors were extended to corporate licensees in March 2013, to allow taking action against the corporate entity where appropriate. - Regulation 13 places responsibility on the CEO and directors to put in place compliance functions and arrangements commensurate with the nature, scale, and complexity of the business, including specifying roles and responsibilities of officers and employees to ensure compliance with all applicable laws, codes of conduct and standards of good practice. ### Onsite inspections, assessments, and follow-up - MAS conducts onsite inspections to assess adequacy of licensed intermediaries’ internal controls, and risk management policies and procedures. - Inspections include assessment of compliance with business conduct rules such as KYC and suitability. - During inspections, MAS reviews: - adequacy of written policies and procedures; - segregation of duties and functions; - risk identification and management, including how compliance procedures are communicated. - Inspections are followed by offsite review for rectification of any control weaknesses. ### Enforcement powers, sanctions, and remedial actions - Under sections 236C and 236F of the SFA, MAS can commence civil penalty action against any entity negligent in failing to prevent or detect market misconduct by its employee or officers committed for the benefit of the entity. - Under sections 95, 97, and 101A of the SFA, MAS can: - revoke or suspend a CMS license; - remove an officer of the license holder; or - impose a prohibition order on a regulated entity if MAS has reason to believe the regulated entity or any of its officers or employees has not performed duties efficiently, honestly or fairly, or is carrying on business in a manner contrary to the interests of the public. - Section 334 of the SFA gives MAS authority to reprimand a regulated entity guilty of misconduct if necessary in the interest of the public, or a section of the public or for the protection of investors; MAS generally publishes such reprimands as a matter of policy, although the SFA is silent on publication. - Composition powers (sections 89 of the FFA and 336 of the SFA) allow MAS, in its discretion and in lieu of prosecution, to compound any prescribed compoundable offense by collecting a sum of money not exceeding the maximum fine prescribed; if the offender rejects composition, MAS will pursue criminal proceedings in court. - Civil penalty action can be taken in respect of market misconduct contraventions under the SFA. ### MAS enforcement philosophy and measuring success - Enforcement is one of five key functions within MAS supporting its objectives to promote a sound and progressive financial services sector. - Overarching objective: bring about enforcement outcomes that are effective, proportionate and fair. - Key elements of enforcement philosophy: - Early detection and rectification: identify issues through risk-focused supervision and surveillance and require prompt rectification before significant harm occurs. - Shaping business and market conduct: ensure industry awareness of rules and boundaries; MAS will take firm action against contraventions and uses publication of enforcement actions and senior management statements to instil market discipline. - Effective deterrence: sanctions must deter re-offending and deter others; criminal prosecution is the preferred course in the most serious cases because criminal sanctions provide the highest level of deterrence. - Calibrated sanctions: civil penalties and administrative actions (warnings, reprimands, compositions) complement criminal prosecutions, providing a comprehensive range for calibrated action. - Measuring success: - Firm/individual level: failings must be rectified; institutions with inadequate systems and controls must correct failings before resuming normal operations; institutions must provide fair redress where customers/investors suffered loss; significant breaches result in higher supervisory intensity and monitoring for recidivism. - Industry/market level: MAS relies on surveillance tools and information sources such as the SROs, inspections, company visits, environmental scans, complaints, suspicious transaction reports, information from foreign regulators and mystery shopping to assess prevalence of issues and calibrate enforcement. - Recent enforcement outcomes cited: - Criminal prosecutions in close collaboration with the CAD led to a high rate of conviction for market misconduct cases (14 with 2 pending in 2010-12). - MAS has instituted civil penalty actions and entered into numerous civil penalty settlements; all settlement agreements with MAS included an admission of liability. *Source: _cr13344 - Section 106 of the SFA and section 47 of the FAA requires licensees to appoint an auditor* ### Part XII of the SFA and pursuant to section 137ZD of the SFA. In situations where MAS has ### _cr13344 - Part XII of the SFA and pursuant to section 137ZD of the SFA. In situations where MAS has ### Enforcement framework and capacity - MAS may take civil penalty action and, where no civil penalty settlement is reached, will commence civil penalty proceedings in court. - Other than private administrative sanctions reserved for more minor breaches, all enforcement actions are publicized. - MAS has over 170 officers (as at February 1 2013) in CMG responsible for supervision of regulated activities, investigation of suspected breaches of securities laws and regulations, and undertaking civil penalty breaches for market misconduct. - Within this number is a dedicated enforcement team of 14 people headed by a lawyer with experience in criminal enforcement. ### Civil and criminal penalties (statutory limits and practice) - Maximum civil penalty: a sum not exceeding three times the amount of the profit that the offender gained or the amount of loss that he avoided as a result of the contravention, subject to a minimum of either S$50,000 (if the person is not a corporation) or S$100,000 (if the person is a corporation). - Where there is no profit or loss avoided, a penalty of not less than S$50,000 and not more than S$2 million may be imposed. - MAS had the power and discretion to compound non-custodial offenses under the SFA and the FAA by collecting from a person reasonably suspected of having committed the offense a sum of money not exceeding the maximum fine prescribed for that offense. ### Enforcement activity and notable cases (2008–2012) - In 2011, MAS took public enforcement action in 46 cases (46 refers to the number of enforcement cases which were published on the MAS website). - Table 8 (composition of administrative/regulatory enforcement actions) — selected yearly entries as presented: - 2012: No. of Criminal Enforcement Prosecution/Convictions 4/2; No. of Civil Penalty Enforcement Actions (Settlement/Court Actions) 5/0; Composition: Prohibition Order, Suspension/Revocation of License 29; Reprimands, Letters of Warnings 6; Specific Directions, Others 301; (additional entry) 1 - 2011: No. of Criminal Enforcement Prosecution/Convictions 4/4; No. of Civil Penalty Enforcement Actions (Settlement/Court Actions) 3/3; Composition: Prohibition Order, Suspension/Revocation of License 50; Reprimands, Letters of Warnings 7/0; Specific Directions, Others 219; (additional entry) 16 - 2010: No. of Criminal Enforcement Prosecution/Convictions 10/10; No. of Civil Penalty Enforcement Actions (Settlement/Court Actions) 1/0; Composition: Prohibition Order, Suspension/Revocation of License 41; Reprimands, Letters of Warnings 18/0; Specific Directions, Others 9/28; (additional entry) 6/0 - 2009: No. of Criminal Enforcement Prosecution/Convictions 15/15; No. of Civil Penalty Enforcement Actions (Settlement/Court Actions) 3/0; Composition: Prohibition Order, Suspension/Revocation of License 34; Reprimands, Letters of Warnings 8/0; Specific Directions, Others 1/189; (additional entry) 13/0 - 2008: No. of Criminal Enforcement Prosecution/Convictions (blank) 4/2; No. of Civil Penalty Enforcement Actions (Settlement/Court Actions) 2/0; Composition: Prohibition Order, Suspension/Revocation of License 5/; Reprimands, Letters of Warnings 21/0; Specific Directions, Others 4/72; (additional entry) 25/0 - Notes accompanying the table: - All criminal prosecutions are considered material. - All settlements are entered into with admission of liability and agreement to pay civil penalty. All civil penalty actions settlements have to-date been published on the MAS website. - Non-material cases include cases involving late filing/notification/lodgement and minor administrative errors. - All composition cases and civil penalty actions are considered material. - Court proceedings for two prosecutions commenced in 2012 have not been completed. - Criminal prosecutions and convictions (2011 onward): - Conducted by CAD, eight persons have been prosecuted in court since January 2011 for various breaches of the securities laws; six of these persons have already been convicted. - Another eleven persons were convicted during the same time period on offenses ranging from false trading to front running (includes prosecutions commenced prior to 2011). - Most were sentenced to fines. - In 2011, the offenders in the three civil penalty settlement suits each paid a civil penalty $50,000. - From 2008 to 2012, the civil penalties paid ranged from $50,000 to $320,000. - In 2011, one person was sentenced to three weeks imprisonment. - From 2008 to 2012, sentences for imprisonment ranged from three weeks to eight months. - In another notable case, a company director who traded while in possession of non-public information was convicted and fined a total of S$200,000. - In other criminal cases fines ranged from S$180,000 and S$250,000. - Two notable civil penalty court actions concluded: - False trading case: High Court found the fund manager and its CEO liable and ordered them to pay a civil penalty of $250,000 each. The defendants appealed to the Court of Appeal but the appeals were dismissed and the civil penalty orders were upheld. - Insider trading case: High Court found the ex-CFO liable and he was ordered to pay a civil penalty of $67,500. The defendant appealed to the Court of Appeal but the appeal was dismissed and the civil penalty order was upheld. ### Principles for cooperation in regulation — Legal foundations and practice - Principle 13 (authority to share information) - Domestic cooperation: - MAS may share confidential information with domestic regulatory authorities following common law principles of relevance and public interest; does not require a prior request. - Main domestic partners: CAD (white collar crime) and CPIB (corrupt practices). - SFA section 168B deals with transfer of evidence between MAS and CAD and the AGC to ensure admissibility for criminal investigations and proceedings. - International cooperation: - SFA/FAA legal foundation to share confidential information with overseas regulators (SFA Sections 170 and 172 of Part X and FAA sections 77–80). - SFA section 170 and FAA section 78 empower MAS to provide assistance if: assistance is required to enable the foreign authority to carry out supervision, investigation or enforcement; the material is of sufficient importance and gravity and cannot be obtained by other means; an undertaking regarding use is obtained; and rendering assistance will not be contrary to the public interest. - In deciding whether to grant assistance, MAS considers whether the alleged act would be a breach in Singapore, whether the foreign authority will give an undertaking to comply with future MAS requests, and whether the foreign authority undertakes to contribute to costs (SFA section 171). - MAS may provide any material in its possession, order a person to provide information, and order a person to make an oral statement. Information includes records identifying beneficial owners of bank accounts related to securities and derivatives transactions and brokerage accounts and information to reconstruct a transaction, including bank records. - MAS may obtain information from any government department or authority so it can be provided to the foreign authority. Direct transmittal from the holder to the foreign authority may occur. - MAS does not need to seek external approval to render assistance. SFA/FAA does not prevent MAS from providing unsolicited assistance. Dual illegality is not a requirement. - Staff confidentiality safeguards: Official Secrets Act (Cap. 213) (OSA), Statutory Bodies and Government Companies (Protection of Secrecy) Act (Cap. 319) (SBGCA), MAS Act, and internal procedures. - MAS obtains from foreign authorities an undertaking governing use, non-disclosure, and MAS consent prior to onward disclosure; any such disclosure only can be made in accordance with conditions imposed by MAS. - Assessment: Fully Implemented. Comments: MAS can share the full range of information set out in Key Questions 1 and 2 of this principle. - Principle 14 (information sharing mechanisms) - Domestic cooperation: - MAS considers formal MOUs unnecessary with other domestic agencies; shares information with CAD and AGC to facilitate investigations and prosecutions. Division 4 of Part IX of SFA provides for transfer of evidence between MAS and CAD for use in criminal or civil proceedings. - Safeguards: statutory provisions and internal procedures binding MAS officers; signatory to IOSCO MMOU obliges confidentiality of requests and related matters. - International cooperation: - SFA Part X permits MAS to enter into information arrangements with foreign authorities subject to SFA conditions: assistance for supervision/investigation/enforcement; contravention occurred after March 2000; foreign authority undertaking on use/disclosure and MAS consent; material of sufficient importance and unobtainable by other means; matter of sufficient gravity; rendering assistance not contrary to public interest or investing public (SFA section 170). - MAS is a full signatory to the IOSCO MMoU (signed in October 2005) and will share with bona fide foreign regulators even if not MMoU signatories. - Prior bilateral MOUs remain operative with Australia, Japan, United Kingdom, Hong Kong, India, and the United States. MAS is also signatory to the 1996 Boca Raton multi-lateral MOU for futures markets and with the European Securities and Markets Authority on cross-border CRAs. - MAS received requests from foreign authorities: - 2010: 37 requests from 11 IOSCO MMoU signatories. - 2011: 42 requests from 14 regulators. - 2012: 49 requests from 14 regulators. - All requests were responded to within approximately three weeks of receipt where all necessary information relevant to the request was provided. - In 2010, one request was outside the scope of the MMOU. In 2011, assistance was not provided in two cases (one lacked clarification from the requesting authority; one redirected to Mutual Legal Assistance Treaty). In 2012, in three cases assistance was not provided (two lacked clarification; one redirected to Mutual Legal Assistance Treaty). During 2010–12 MAS received an additional request from a non-IOSCO MMoU signatory in respect of which MAS provided assistance. - MAS attends supervisory colleges hosted by regulators overseas. - Assessment: Fully Implemented. - Principle 15 (assistance to foreign regulators for inquiries) - Legal foundation and powers: - MAS can issue production orders to financial institutions to furnish material requested by a foreign regulator if the request satisfies SFA section 170 conditions. Similar provisions in FAA sections 77–80. - MAS is not required to have an independent interest in the matter before rendering assistance. - SFA Section 172(1)(d) empowers MAS to obtain oral statements by compulsion to assist foreign regulators if required preconditions are met. - It is an offense if a party refuses to comply with a production order issued by MAS to furnish material requested by a foreign regulator (SFA section 173). MAS can apply to court for an injunction to mandate compliance. - MAS can advise foreign regulators on initiating legal proceedings under the Mutual Assistance in Criminal Matters Act or request assistance from the Attorney General’s Chambers. - A requesting authority may use information furnished by MAS only for the purposes specified in its request and with MAS approval (Section 170 of the SFA). ### Assessment and overarching comments - Assessment for Principle 12: Broadly Implemented. The downgrade arises from the same ratings awarded for the two main supervisory focused Principles, 24 (CIS) and 31 (intermediaries) where the cycle of detailed onsite inspections has been assessed by the assessors as insufficiently frequent, particularly for entities rated as high or medium high risk in the risk based assessment process. Any vulnerability here needs to be reflected in the rating for Principle 12. - On the positive side, MAS’s enforcement philosophy is described as cogent and well developed, and its enforcement statistics indicate a good success rate in cases it brings. *Source: MAS material and IMF assessment as presented in the supplied document.* ### section 78 of the FAA). ### section 78 of the FAA ### Practice and Assessment - MAS is a signatory to the IOSC MMoU and has not refused a request for information from a foreign counterpart under that MOU (except as detailed above in Principle 14). - Assistance that may be rendered includes transmitting to the foreign regulator any material in the possession of MAS that is requested by the foreign regulator or requesting any person to furnish any material that is requested by the foreign regulator. - Assessment: Fully Implemented ### Principle 16 — Full, accurate and timely disclosure - There should be full, accurate and timely disclosure of financial results, risk and other information that is material to investors’ decisions. ### Securities offering regulatory framework — overview - There are currently about 900 public companies in Singapore not listed on SGX. - No legal prohibition on unlisted public companies raising funds from the public, but unlisted public companies intending to raise funds from the public must comply with all applicable requirements under the SFA; key requirement is to prepare and register a prospectus with MAS unless an exemption applies. - Offers made under the exemption for offers to no more than 50 persons within any period of 12 months cannot be accompanied by an advertisement calling attention to the offer. - Since enactment of the SFA in 2001, there have been only three instances of unlisted public companies that sought to raise funds from the public (in 2003, 2004 and 2006). - The shares of unlisted public companies are typically closely-held; 94 percent have 50 or fewer shareholders, with the average number of shareholders being fewer than four. - Companies seeking a listing on the SGX Mainboard are required to have a minimum of 500 shareholders at the time of listing. ### Regime for the offering of securities (SFA provisions and exemptions) - Section 240(1) of the SFA requires all offers of securities to be made in or accompanied by a prospectus registered with MAS, unless the offer falls within the available exemptions (sections 272 to 280 of the SFA). - Examples of exemptions: - A personal offer of securities where the total amount raised within any 12-month period does not exceed $5 million (section 272A), or an offer of securities made to no more than 50 persons within any period of 12 months (section 272B); - Offer of securities under specific circumstances, such as an offer: - made in connection with a compromise or arrangement, or a Take Over offer (section 273(1)(a),(cb)); - of securities previously issued, which are listed for quotation and are traded on a securities exchange (section 273(1)(d)); - of securities to employees of the issuer (section 273(1)(f)); and - of securities made to institutional investors (section 274) or accredited investors (section 275). Accredited investors include: - an individual whose personal net assets exceed $2 million or whose income in the preceding 12 months is not less than $300,000, and - a corporation with net assets exceeding $10 million. - An offer of international debentures by a body incorporated outside Singapore whose shares are listed on a list of overseas exchange maintained by MAS to institutional, professional or business investors (section 278). - In practice, foreign corporations tend to rely on prospectus exemptions under section 274 (offers to institutional investors) and section 275 (offers to accredited investors) to offer bonds in Singapore. - MAS may take action under SFA Part XII for misstatements in any information provided to purchasers. - SFA section 276 contains measures to prevent leakage of exempt securities into public hands without the provision of a prospectus. ### Content of prospectuses (section 243 and SF(OIS)R requirements) - Section 243 of the SFA requires issuers to disclose all information that investors and their professional advisers would reasonably require to make an informed assessment of, among other matters, the rights and liabilities attached to the securities, the assets and liabilities, profits and losses, financial position and performance, and prospects of the issuer. - Comprehensive and specific disclosure requirements set out in the Securities and Futures (Offers of Investments)(Shares and Debentures) Regulations 2005 (SF(OIS)R) for: - shares (Fifth Schedule of the SF(OIS)R); and - debentures (Seventh to Tenth Schedules). - Further disclosure requirements prescribed for specific securities (convertible debentures, debenture, asset-backed securities, structured notes). - A prospectus for an offer of shares must contain: - Information with respect to the issuer, including: - A description of the history, business and organizational structure; - Identification of the issuer’s directors and key executives, with details of past working experience and compensation; - Audited financial statements for the three most recent completed financial years and interim financial statements; - Capitalization and indebtedness; - Operating and financial review, and prospects; - Changes in accounting policies; - Substantial shareholders and their interests in the shares; - Interested person transactions and conflict or interests; and - Material litigation. - A description of the securities being offered, including rights attached to the securities being offered, e.g., voting rights, rights to dividends; - Risk factors specific to the issuer and its industry, as well as the securities being offered; - Dilution; - Use of proceeds; - Plan of distributions; and - Summary of the issuer’s constituent documents and material contracts (entered into outside the ordinary course of business). - Issuers whose shares are already listed and traded on the SGX-ST may offer shares or debentures for cash using an Offer Information Statement (OIS) instead of a prospectus (section 277 of the SFA). The OIS must conform to disclosure requirements in the 16th Schedule of the SF(OIS)(Shares and Debentures) Regulations and is subject to the same statutory liability as a prospectus (s.277(3) of the SFA). Criminal liabilities under e.253 and civil liabilities under e.254 apply for false or misleading statements or omissions. ### Lodgement, review, and registration of a prospectus - An issuer intending to make an offer of securities must lodge a prospectus with MAS. - The lodged prospectus will be made available on MAS’ OPERA website for public comments. OPERA = Offers and Prospectuses Electronic Repository and Access. - OPERA hosts documents on public offers of securities and Take Overs and mergers and allows public viewing, downloading, and commenting during the exposure period (prior to registration). - Prominent disclosure on OPERA notifies that the lodged prospectus has not been registered with MAS and that investors should not apply on the basis of the lodged prospectus. - Prospectuses lodged with MAS are subject to review by MAS' Corporate Finance Division before registration. - Existing SGX-listed issuers may rely on OIS (abridged prospectus) for fresh offerings; OIS’s are lodged with MAS but are not reviewed, though statutory liability provisions apply. - Typical filing activity and review resources: - Around 28–38 prospectuses are lodged with and reviewed by MAS annually. - All prospectuses are reviewed by an officer and a senior officer. - A “plain vanilla” equity prospectus can take +/- five days to review. - MAS Corporate Finance Division employs 13 people qualified to review prospectuses with a mix of legal, accounting and business skills. - Timing for registration (Section 240(8) of the SFA): - MAS may register a prospectus within the prescribed period, i.e., between the 7th and 21st day of lodgement and no later by the 28th day if an extension of the time period is ordered by MAS. - This period can be further extended if the issuer has not satisfactorily addressed issues raised by MAS. - Once registered, OPERA is updated with a copy of the registered prospectus. - After registration, if the issuer becomes aware of a false or misleading statement, an omission, or a new materially adverse circumstance, the issuer must lodge a supplementary or replacement prospectus. ### Delivery of the prospectus - Under section 240(1) of the SFA, any offer of securities to a prospective purchaser must be accompanied by a prospectus. - Offers made through Automated Teller Machines (ATM) or other prescribed electronic means (i.e., WAP phones) are exempted from the prospectus delivery requirement (s280(1)) provided: - Prospective investors must be alerted to the availability of the prospectus and where it can be obtained; and - Prospective investors must be advised to read the prospectus before applying for the securities through the ATMs or WAP phones. ### Periodic reports and public access to disclosures - Listed companies must release all announcements (including financial statements) to the market via SGXNET. - The public may view and download all announcements (including financial statements), annual reports and shareholders circulars issued by listed companies on the SGX website. - Rules 707 to 711 of the SGX-ST Listing Manual set out requirements for annual reports by listed companies: - An issuer must issue its annual report to its shareholders and SGX-ST at least 14 days before the issuer’s annual general meeting (which must be held within four months of the end of its financial year). - Chapter 12 of the SGX-ST Listing Manual prescribes information that must be disclosed in the annual report, including annual audited consolidated accounts, a review of operating and financial performance, and any material developments since the last interim financial results. - SGX-ST reviews the annual report and other periodic reports submitted by the issuer and may require additional information to be disclosed if warranted. MAS reviews the adequacy of the exchange’s monitoring and enforcement of listing rules and can issue directions if dissatisfied. - Rules 705 and 706 of the SGX-ST Listing Manual require an issuer to announce unaudited financial statements (in format prescribed in Appendix 7.2) for: - I. in the case of issuers whose market capitalization exceeds S$75 million, each of the first three quarters within 45 days after the quarter end. - II. in the case of all other issuers, the first half within 45 days after the relevant financial period. - Quarterly and half-yearly financial statements must contain the information required by Appendix 7.2, including: - a review of the performance of the group; - a commentary on the competitive conditions of the industry in which the group operates; and - details of any changes in the company’s share capital. - Directors must provide a confirmation that nothing has come to their attention which may render the interim financial statements to be false and misleading in any material respect. - Members of the public have access to comprehensive information of all Singapore-incorporated companies (including unlisted public companies) through the ACRA website. The Corporate Compliance and Financial Profile (CCFP) provides business profile, financial profile, and financial ratios. - Unlisted companies have six months from the end of their financial year to lay their accounts at their annual general meeting under Companies Act requirements. ### Corporate actions requiring shareholder approval - Rule 1206 of the SGX-ST Listing Manual requires any circular sent to shareholders to contain all information necessary for shareholders to make a properly informed decision and sets out specific information for various types of corporate actions. - Voting decisions triggering disclosure requirements include: - Issue of shares or convertible securities are subject to prior approval by shareholders. Shareholders may approve by ordinary resolution a mandate to issue shares or convertible securities up to 50 percent of the listed issuer’s existing issued share capital, of which securities issued other than on a pro-rata basis must not be more than 20 percent of the listed issuer’s existing issued share capital. - All employee share option schemes require shareholders’ approval. - Share buy-backs require shareholders’ approval. SGX-ST Listing Manual Rule 883 requires disclosure of reasons for the proposed share buy-back, details of any share buy-back made by the issuer in the previous 12 months, and whether the shares purchased will be cancelled or kept as treasury shares. - Shareholders’ approval is required when the value of the interested person transaction is 5 percent or more of the latest audited net tangible assets and worth at least S$100,000. - For a general mandate for recurrent interested person transactions, Rule 920 requires disclosure of the nature of the transactions, the rationale for, and benefit to, the entity at risk, the methods or procedures for determining transaction prices, and the independent financial adviser’s opinion on whether the transactions will be carried out on normal commercial terms and will not be prejudicial to the interests of the issuer and its minority shareholders. - A transaction of value exceeding 20 percent of the listed issuer’s net assets or net profit before tax requires shareholders’ approval. - Very substantial acquisitions or reverse Take Overs where the value exceeds 100 percent of the listed issuer’s net assets or net profit before tax or which would result in a change in control require shareholders’ approval. - For unlisted companies, the Companies Act contains disclosure provisions for notices of meeting: - Sections 76C to 76E set out disclosure required for share buy-back (maximum amount of shares to be bought back, maximum price, sources of funding, impact on financial position). - Section 211 sets out information required for a scheme of arrangement (effect on different classes of stakeholders and any material interests of the directors). - General law imposes a duty on directors to inform members fully and fairly; members’ right to receive a truly informative notice of meeting is a personal right enforceable directly by the member. ### Other obligations on Singapore-incorporated companies not listed on SGX - Section 175 of the Companies Act requires every Singapore-incorporated company (not listed on a securities exchange in Singapore) to call an annual general meeting at least once in every calendar year and not more than 15 months after the previous annual general meeting. - Section 201 of the Companies Act requires directors to lay before the annual general meeting full financial statements made up to a date not more than six months before the date of the meeting. - A complete set of financial statements must comprise: - a. a statement of financial position as at the end of the period; - b. a statement of profit or loss and other comprehensive income for the period; - c. a statement of changes in equity for the period; - d. a statement of cash flows for the period; - e. notes, comprising a summary of significant accounting policies and other explanatory information; - f. comparative information in respect of the preceding period; and - g. a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. - Both the profit and loss account and the balance sheet of the company must be audited with the auditor’s report appended. - Accounts must be prepared in accordance with the Singapore Financial Reporting Standards (SFRS) and must give a true and fair view of the state of affairs of the company. - Accounts must be accompanied by a directors’ report signed by at least two directors. ### Notice of meeting and voting decisions - Under section 177 of the Companies Act, all Singapore incorporated companies must give at least 14 days’ notice (or such longer period as provided in the company’s articles of association) of shareholders meeting (other than a meeting to pass a special resolution). *Source: section 78 of the FAA).* ### Section 184 CA requires at least 21 days’ notice to be given in the case of shareholder ### Section 184 CA requires at least 21 days’ notice to be given in the case of shareholder ### Notice periods and shareholder meetings - Section 184 CA requires at least 21 days’ notice to be given in the case of shareholder meetings to pass special resolution. - CA s.185 requires a special notice of 28 days to be given for certain matters (such as removal of directors under CA s.152 and removal of auditors under CA s.205). - Section 392 of the CA empowers the court, on the application of any person who did not receive the notice of meeting, to declare that proceedings at the meeting to be void. - Companies must show that all reasonable steps had been taken to ensure that every shareholder is served with the notice of the meeting. ### Electronic communications and dissemination - CA s.387A and s.387B allow (but do not require) public companies to use electronic communications (e.g., by email) to give notices and send documents (e.g., annual reports) to their shareholders. - It is for public companies to decide, having regard to their shareholder base, on the most efficient way to communicate with their shareholders. - Listed companies are required by SGX listing rules to release all notices of meetings via SGXNET (an Internet-based submission system that allows issuers to submit their corporate announcements securely to the market). - Members of the public (including those overseas) will have access to all notices of meetings (including shareholders circulars) through SGX website upon their release. - SGX’s listing rules require listed companies’ constitutive documents to provide for all notices of meetings to be also given by advertisement in the daily press. - The shareholder base of unlisted public companies is predominantly local residents. ### Content and disclosure in notices of meeting - Table A of the CA (default articles of association) contains a provision that requires a notice of meeting to disclose the nature of the business to be transacted at the meeting (save for customary business such as the declaration of dividend and consideration of accounts/directors’ report/auditors’ report). - CA sections 76C to 76E set out the disclosure required for share buy-back. - CA section 211 sets out the information required for a scheme of arrangement under section 210. - These requirements ensure that shareholders are given all information necessary to determine how to vote. ### Advertising of offers under the SFA - Section 251 of the SFA provides that before a prospectus is registered, no advertisement or publication directly or indirectly referring to the offer of securities can be made, except: - i. An advertisement or publication containing only statements that: - identify the securities, the person making the offer, the issuer and the underlying entity (where applicable); - a prospectus for the offer will be made available when the offer is made; - anyone wishing to acquire the securities will need to make an application in the manner set out in the prospectus; and - give information on how to receive a copy of the prospectus. - ii. Dissemination of a preliminary document that has been lodged with MAS to institutional and accredited investors, for book building purposes. (A preliminary document is a prospectus containing all prescribed information except for the price and number of securities being offered, and any information which is dependent on the final determination of such price and number). - iii. Presentation of oral or written material on matters contained in a preliminary document to institutional and accredited investors. - After a prospectus is registered, advertisements can be made provided that the following statements are included: - i. the prospectus in respect of the offer is available for collection; and - ii. anyone who wishes to acquire the securities will need to make an application in the manner set out in the prospectus. - S.251(9) of the SFA allows the publication of certain information regardless of whether a prospectus has been registered or not, including: - i. a disclosure, notice or report required by the SFA or listing rules or other requirements of a securities or futures exchange; - ii. a notice or report of a general meeting of the issuer; - iii. a report about the issuer that is published by the issuer, which: - does not contain information that materially affects the affairs of the issuer other than information previously made in a prospectus that has been registered, an annual report or a disclosure, notice or report referred to above; and - does not refer (directly or indirectly) to the offer. - iv. a report about the securities published by someone who is not the issuer, a director of the issuer, a person who has an interest in the success of the issue or acting at the instigation of, or by arrangement with, any of the above-mentioned persons; - v. a report about the securities published and delivered to institutional investors not later than 14 days prior to the date of lodgement of the prospectus, provided delivery of the report is restricted; and - vi. an advertisement or publication in the ordinary course of a business (i.e., normal commercial advertising that does not refer to the offer). ### Specific and timely disclosure — SGX-ST Listing Manual - SGX-ST Listing Manual Rule 703(1) ("Immediate Announcements") requires an issuer to announce information that is likely to materially affect the price or value of its securities or is necessary to avoid the establishment of a false market in the issuer’s securities. - An issuer must observe the Corporate Disclosure Policy set out in Appendix 7.1 of the Listing Manual; Appendix 7.1 provides numerous examples of events likely to require immediate disclosure (e.g., merger or acquisition, declaration or omission of dividends, acquisition or loss of a significant contract, occurrence of an event of default under a debt financing agreement). - Other events requiring immediate disclosure under Rule 704 include: - changes in substantial shareholders’ and directors’ interests in the issuer’s securities; - any qualification or emphasis of a matter by the auditors on the issuer’s financial statements; - appointment or resignation of any directors, CEO, general manager or other executive officer of equivalent rank, registrar or auditors of the issuer; - the date, time and place of any general meeting; - the appointment of a receiver or liquidator of the issuer or of any of its subsidiaries; or - a proposed alteration to the issuer’s Memorandum and Articles of Association. - Rule 705 requires an issuer to release, via SGXNET: - its unaudited financial results for the full financial year immediately after the figures are available, but no later than 60 days after the relevant financial period. - Unaudited financial results for each of the first three quarters or the first half of the financial year must be announced immediately after the figures are available, but no later than 45 days after the quarter end. - Unaudited statements must still be prepared according to any of the Singapore Financial Reporting Standards (SFRS),(IFRS, or U.S. Generally Accepted Accounting Principles (US GAAP)). - Prior to the issuance of the annual report, Rules 704(5) and (6) require the issuer to announce: - (i) any material adjustments to its unaudited full-year financial statements made by its auditors, and - (ii) any qualification or emphasis of a matter by the auditors on the financial statements of the issuer or any of its subsidiaries/associated companies (if the qualification or emphasis of a matter has a material impact on the issuer’s consolidated accounts or group’s financial position). ### Unlisted public companies and best practice guidance - In the case of unlisted public companies (generally closely-held, no access to public capital markets), there are no specific statutory continuous disclosure requirements. - ACRA encourages Singapore companies to adopt best corporate governance practices beyond those set out in the law and recommends unlisted companies refer to the Code of Corporate Governance (CG Code). - The CG Code emphasizes that a company must recognize the right of shareholders to be sufficiently informed of changes in the company or its business which would be likely to materially affect the price or value of the company’s shares. ### Financial information requirements in prospectus (SF(OIS)R) - The SF(OIS)R requires audited financial statements for the three most recent completed financial years. - The statement of capitalization and indebtedness must be presented no earlier than 60 days prior to the date of lodgement of the prospectus. - The issuer is required to disclose any event, which has occurred in the period from the end of the period covered by the most recent financial statements to the latest practicable date (prior to lodgement of the prospectus), which may have a material effect on its financial position and results. - Offers of securities must use a prospectus that is not more than six month old from the date of registration of the prospectus with MAS. - Interim financial information required in the prospectus depending on timing: - If the date of lodgement of the prospectus is more than six months but less than nine months after the end of the most recent completed financial year for which audited statements have been prepared, interim financial statements must cover at least the first three months of the current financial year. - If the date of lodgement of the prospectus is more than nine months but less than 12 months after the end of the most recent completed financial year for which audited statements have been prepared, interim financial statements must cover at least the first six months of the current financial year. - If the date of lodgement of the prospectus is more than 12 months but less than 15 months after the end of the most recent completed financial year for which audited statements have been prepared, interim financial statements must cover at least the first nine months of the current financial year, and the interim financial statements for at least the first three months shall be audited. - Interim financial statements for the remaining months of the current financial year are required to be reviewed (but not audited) by the auditors of the company. - In practice, issuers undertaking an initial public offering include in their prospectus audited full year financial statements that are not more than 12-month old at the time the prospectus is lodged. ### Regulatory measures to secure compliance (SGX-ST and MAS) - Issuers intending to undertake an initial public offering and list on SGX-ST must submit: - (a) a listing application (including the prospectus) to SGX-ST for review; and - (b) the prospectus to MAS for review and registration. - SGX-ST considers whether the applicant satisfies the listing requirements and decides whether to issue an eligibility-to-list letter (with or without conditions). Listing will not be permitted until all conditions set out in the eligibility-to-list letter have been satisfied and MAS has reviewed and registered the prospectus. - Under section 240(13) of the SFA, MAS may refuse to register a prospectus if: - the prospectus contains a false or misleading statement; - the prospectus omits information that is required to be disclosed; - a copy of the prospectus signed by every director of the issuer is not lodged with MAS; - the prospectus does not comply with the requirements of the SFA; - written consents of experts whose statement or report is included in the prospectus are not lodged with MAS; - written consents of issue managers or underwriters are not lodged with MAS; or - it is not in the public interest to do so. - MAS has powers under section 242 of the SFA to issue a stop order if: - the prospectus contains a false and misleading statement; - there is an omission from the prospectus of any information that is required to be included in it; - the prospectus does not comply with the requirements of the SFA; or - it is in the public interest to do so. - The last stop order was issued in 2003. ### Liability, persons responsible, and defences - The issuer, directors of the issuer at the time of the issue of the prospectus, persons named in the prospectus as directors or proposed directors of the issue, issue manager and underwriter to the issue are liable for the entire contents of the prospectus. - Persons named in the prospectus with his consent as having made a statement that is included in the prospectus or having made a statement on which a statement included in the prospectus is based are liable only in respect of the inclusion of the false or misleading statement. - Persons who made the false or misleading statement or omitted to state the information or circumstance are liable for the false or misleading statement or the statement that is omitted. - Under SFA section 255 a person may avoid civil or criminal legal liability if the person proves that he: - in respect of a false or misleading statement, made all inquiries that were reasonable in the circumstances, and after doing so, believed on reasonable grounds that the statement was not false or misleading; - in respect of an omission, made all inquiries that were reasonable in the circumstances, and after doing so, believed on reasonable grounds that there was no omission from the prospectus; - in respect of a false or misleading statement or an omission, placed reasonable reliance on information given to him by someone other than his agent or employee (or for an entity, its directors); or - in respect of a new circumstance which arose since the prospectus was lodged with MAS, was not aware of the matter. - Private individuals and entities may initiate a civil suit on the grounds of misrepresentations in the prospectus or omission of material facts (section 254 of the SFA). - Section 254 states that a person who acquires securities as a result of an offer that was made in or accompanied by a profile statement is taken to have acquired the securities in reliance on both the profile statement and the prospectus for the offer. - The issuer (and its directors), the issue manager and the underwriters are subject to criminal liabilities (section 253) or civil liabilities (section 254) where there is a false or misleading statement, or an omission of any information that is required to be included under section 243, in the prospectus. ### Continuous disclosure (summary) - Rule 703(1) of the SGX-ST Listing Manual requires an issuer to announce information that is likely to materially affect the price or value of its securities or is necessary to avoid the establishment of a false market in the issuer’s securities. *Source: IMF staff summary of Singapore legal and regulatory provisions as presented in the provided content.* ### Section 203 of the SFA provides statutory backing to SGX-ST’s continuous disclosure ### Section 203 of the SFA provides statutory backing to SGX‑ST’s continuous disclosure requirements ### Statutory framework and sanctions - Section 203 of the SFA provides statutory backing to SGX‑ST’s continuous disclosure requirements. - Sanctions for contravention: liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding seven years or to both. - Civil penalty actions are also available to MAS and persons who transacted contemporaneously with the announcement (SFA section 234). ### Continuing disclosure for debt issuers and regulatory developments - Issuers of debt securities listed on SGX‑ST are subject to continuing disclosure under Part VI of chapter 7 of the SGX‑ST Listing Manual: a debt issuer must immediately disclose any information which may have a material effect on the price or value of its debt securities or on an investor’s decision whether to trade in such debt securities. - October 2010: MAS issued guidelines that issuers of unlisted debt securities should provide ongoing disclosures to holders, including immediate disclosure of any material changes which may affect the risks and returns, or the price or value of the unlisted debentures. - MAS is in the process of codifying the guidelines into regulations. - The general obligation to provide ongoing disclosure of material information has been introduced in the Securities and Futures (Amendment) Act 2012 and specific disclosure requirements will be promulgated in the accompanying regulations. ### Directors’ responsibilities and SGX‑ST’s risk‑based review approach - Directors of a listed issuer are responsible for the accuracy of information in announcements, annual or periodic reports and circulars sent to shareholders. - Directors must provide a confirmation that nothing has come to the attention of the Board which may render the interim financial statements to be false and misleading in any material aspect. - SGX‑ST adopts a risk‑based approach to reviewing announcements, annual or periodic reports and shareholders’ circulars: - Greater regulatory attention focuses on areas posing significant risks to market transparency, integrity or investor protection. - SGX‑ST assesses likelihood and impact to determine low and high‑risk areas, monitors ongoing developments, and may reclassify areas from low to high risk. - Remedial action may be taken against issuers for omission, false or misleading disclosure, or non‑compliance; and against advisers failing to exercise due care and diligence. - Potential actions against issuers for breach of listing rules include warnings, reprimands, suspension of trading and delisting. ### Monitoring, enforcement and recent statistics - In 2012 SGX issued 486 compliance queries to main board listed issuers. - MAS supervises and reviews SGX’s frontline responsibilities as part of offsite and onsite supervision. - MAS’ Corporate Finance Division monitors market developments and media reports; MAS and SGX work together to address continuing disclosure issues. - MAS investigates potential breaches of the statutory continuous disclosure requirement and takes enforcement action where warranted. - 2011–13(ytd): Main Board companies were issued with 43 reminders and private warning. - No public reprimands/statements or trading suspensions were imposed in 2012/13 and no non‑voluntary delistings were made. The Catalist market had similar results. ### Derogations, trading halts and recommended best practices on dealings - SGX‑ST Listing Manual Rule 703 provides limited exceptions from immediate disclosure of material information: i. If disclosure would result in a breach of law. ii. If a reasonable person would not expect disclosure, the information is kept confidential, and one or more of: - the information concerns an incomplete proposal or negotiation; - the information comprises matters of supposition or is insufficiently definite to warrant disclosure; - the information is generated for internal management purposes; - the information is a trade secret. - Decision to use exceptions is taken by the listed issuer; issuer may consult SGX on rule interpretation. If conditions cease to be satisfied the exception ceases and the issuer must disclose immediately. - Issuers must request a trading halt to enable disclosure of material information during trading hours. - Sections 218 and 219 of the SFA prohibit trading by connected persons or others in possession of inside information. - SGX‑ST Listing Manual recommends best practices on dealings in securities: - A listed issuer should devise and adopt its own internal compliance code to provide guidance to its officers with regard to dealing by the listed issuer and its officer in its securities; - An officer should not deal in his company's securities on short‑term considerations; and - A listed issuer and its officers should not deal in the listed issuer's securities during the period commencing two weeks before the announcement of the company financial statements for each of the first three quarters of its financial year and one month before the announcement of the company's full year financial statements (if required to announce quarterly financial statements), or one month before the announcement of the company's half year and full year financial statements (if not required to announce quarterly financial statements). - Issuers must state in their annual report whether and how they have complied with the above best practices. ### Cross‑border matters - Foreign issuers making an offer of equity or debt securities are subject to the same disclosure standards as local issuers and are consistent with IOSCO’s standards. ### Assessment, concerns and recommendations - Assessment: Broadly implemented. - Comments and recommended supervisory follow‑up: - The right of unlisted public companies to raise funds from the public without filing a prospectus with MAS exposes investors to risks regarding full and timely disclosure and weak corporate governance. - Recommendation: MAS should consider imposing an obligation on unlisted public companies using this exemption to notify MAS of the offer, the funds raised and the number and type of new shareholders who accepted the offer. - Monitoring and enforcement of continuous disclosure by SGX and its reliance on private warnings is an area of MAS supervision that merits greater scrutiny. - SGX is reviewing its Listing Rules and should be encouraged to vigorously pursue the review; submissions have been received from the Securities Investors Association of Singapore (SIAS) and others. - Timeliness of financial reporting: - The deadline for publishing an annual report by a listed company is long by some international comparisons. - The requirement that unaudited financial results for the full financial year must be published immediately after figures are available, but no later than 60 days after the relevant financial period, is satisfactory. - The 45 day deadline for the first three quarters (or first half in the case of smaller companies) is satisfactory. - The six month period for other public companies is excessively long. - Moral suasion by ACRA on unlisted public companies regarding disclosure is useful but insufficient to secure a fully implemented rating for this principle and Principle 17. ### Shareholders’ rights (Principle 17) - Shareholder rights primarily set out in the Companies Act (Cap. 50). - ACRA is the national regulator for business entities and public accountants, monitors and enforces compliance with the Companies Act; it employs around 25 people to monitor compliance and has a legal team of around 10. ACRA can impose financial penalties. - MAS and ACRA meet quarterly and are members of the Corporate Governance Oversight Committee. - SGX‑ST Listing Manual contains provisions for protection of shareholders; listed issuers must observe the Code of Corporate Governance (CG Code) on a “comply or explain” basis. - The CG Code provides that companies should treat all shareholders fairly and equitably and recognize, protect and facilitate the exercise of shareholders’ rights. - Unlisted public companies are only subject to ACRA’s recommendation to refer to the CG Code as best practice; this has no legal or regulatory force. - Section 180 of the Companies Act: every member has a right to attend any general meeting and to speak and vote on any resolution, regardless of contrary provisions in the memorandum or articles. - SGX‑ST Listing Manual requires articles to include a provision that holders of ordinary shares shall be entitled to be present and vote at any general meeting in respect of any share upon which all calls due to the issuer have been paid. - CG Code recommends companies encourage greater shareholder participation and prepare minutes of general meetings including relevant shareholder comments or queries and board/management responses, to be made available on request. - Indirect shareholders, including overseas investors, can exercise voting rights by giving instructions to Custodial Firms or CPF agent banks; no impediment to overseas investors exercising voting rights. - CG Code recommends allowing Custodial Firms to appoint more than two proxies; few have done so and the MoF has recently decided to make this a statutory requirement. - Rule 210(7) of the SGX‑ST Listing Manual sets out detailed provisions for election of directors to be in the constitutive document of a listed issuer. - Sections 26(1) and 37(1) of the Companies Act: memorandum and articles may only be altered by a special resolution passed by at least 75 percent of the votes cast. - Listed issuers are required under Rule 730 of the SGX‑ST Listing Manual to seek SGX approval for deletion, amendment or addition to articles of association. - SGX‑ST Listing Manual requires shareholder approval for major corporate actions, including changes in capital structure, major acquisition/disposal, interested person transactions, and delisting. - Provisions governing fundamental corporate changes include section 37 (amendments of memorandum and articles), section 78C (capital reduction), and Part VII (reconstruction, amalgamations and schemes of arrangement); shareholders’ approval is required. - Notice periods for shareholder meetings under the Companies Act: - Section 177: at least 14 days’ notice (or longer if provided in articles) for meetings other than to pass a special resolution. - Section 184: at least 21 days’ notice for meetings to pass special resolutions. - Legal title and transfers: - Legal title vests in the person to whom the share is issued or transferred and whose name is on the register of members. - Section 128: a company shall not refuse registration of a transfer of shares (and debentures or other interests) if the shares have been transferred or transmitted by act of the parties or operation of law. - Shares are freely transferable unless restricted by the company’s memorandum or articles or a moratorium. *Source: _cr13344 - Section 203 of the SFA provides statutory backing to SGX‑ST’s continuous disclosure* ### Appendix 2.2) also provides that the articles of association of listed issuers must not have ### Appendix 2.2) also provides that the articles of association of listed issuers must not have ### Transfer restrictions and shareholder rights - Articles of association must not have any restriction on the transfer of fully-paid securities except where required by the law, SGX-ST’s rules, listing rules or by-laws. - The CA provides for the right to participate equitably in dividends and other distribution rights. - Once a dividend has been declared, it is immediately payable to shareholders unless the declaration stipulates that the dividend will be payable at a later date. - The declaration cannot be revoked and the amount of dividends declared cannot be reduced. ### Takeovers and change of control transactions — scope and legal basis - The Singapore Code on Take Overs and Mergers (Take Over Code) governs all takeovers involving a company with primary listing in Singapore or a Singapore company with more than 50 shareholders and net tangible assets of S$5 million or more. - The Take Over Code also applies to registered business trusts and REITs with a primary listing in Singapore and Singapore-registered business trusts with more than 50 unitholders and net tangible assets of S$5 million or more. - The Take Over Code is non-statutory in nature but is issued by the MAS under Sections 139(2) and 321 of the SFA. - SFA section 140 provides criminal sanction in two circumstances: where a person has no intention to make an offer but gives notice of intent, and where notice has been given but the person does not have reasonable grounds to make the offer. ### Administration of the Take Over Code - The Securities Industry Council (SIC) administers the provisions of the Take Over Code. - SIC members are appointed by the minister-in-charge of MAS and most members are from the private sector (industry representatives, financial sector professionals and legal experts). - SIC is supported by a Secretariat staffed by MAS officers; the 11 person staff review all takeover documents. - The Secretariat handles applications for SIC rulings, provides confidential consultation on points of interpretation, and is empowered to take evidence under oath with appropriate penalties for perjury. - No appeals are permitted of a decision of the SIC. - Example: In 2008 (Jade Technologies Holdings Ltd) the SIC declared that a director was not suitable to be a director of a listed company. ### Objectives, structure and core principles of the Take Over Code - Primary objective: fair and equal treatment of all shareholders in a Take Over or merger, and ensuring shareholders are given sufficient information, advice and time to consider offers. - The Code applies to all Take Over and merger transactions however structured and is organized as General Principles and Rules. - General Principles: standards of good commercial conduct. - Rules: expansions of the General Principles, examples, and guidance on specific procedural aspects. - Principles include: - Equality of treatment—An offeror must treat all shareholders of the same class in an offeree company equally. - Information to all shareholders—The offeror, the offeree company, and their respective advisers must not give information to some shareholders that is not made available to all shareholders. - Sufficient information and time to shareholder—Shareholders should be given sufficient information, advice and time to enable them to reach an informed decision on an offer. No relevant information should be withheld from them. ### Categories of transactions - Take Over and merger transactions are categorized into mandatory offers and voluntary offers (i.e., all other offers). - Voluntary offers include reverse Take Overs, schemes of arrangement, trust schemes, amalgamations, partial offers and offers by a parent company for shares. - The Competition Commission of Singapore (CCS) may have a role in takeovers; MAS and CCS have an agreement on interaction and a schedule to the Takeover Code deals with the role of the CCS. ### Mandatory offers — Rule 14 - Rule 14 premise: fair and equitable treatment of shareholders. - Mandatory offer triggers: - where a person (together with his concert parties) acquires more than 30 percent of the voting rights of a company; or - where the person, together with his concert parties, holds between 30 percent and 50 percent of the voting rights, and such person acquires an additional 1 percent or more of the voting rights of a company in any six-month period. - Obligations: - That person will be required to extend a general offer to all shareholders of the company. - The general offer must be in cash or include a cash alternative made at the highest price paid by the person and his concert parties for offeree company shares during the offer period and the six months prior to the start of the offer period. - Rule 14 also applies where thresholds are crossed as a result of corporate actions such as selective capital reductions and share buy-backs. - The Companies Act contains squeeze-out and sell-out procedures once the bidder has acquired 90 percent of the target shares (CA section 215). ### Schemes of arrangement - A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors and may effect mergers, amalgamations and alter shareholder or creditor rights. - Schemes under section 210 are subject to safeguards under the CA in addition to those in the Take Over Code. - Approval thresholds under the CA: - Must be approved by a majority in number representing three-fourths in value of shareholders present and voting at the meeting. - After approval, the court may sanction the proposal which will be binding on all members; the court must be satisfied the scheme is fair and reasonable. - Minority shareholders may petition the court not to sanction the scheme if they feel unfairly treated. - The SIC may waive certain provisions of the Take Over Code (mostly offer timetable) to facilitate statutory procedures for schemes of arrangement, but all other provisions continue to apply. - SIC may require offeror, concert parties and interested parties to abstain from voting at the meeting to approve the scheme. ### Number of Take-Over and Merger Transactions subject to the Take-Over Code, 2010–12 - Number of Cases - Type of Transaction 2010 2011 2012 - Mandatory Offers 20 16 16 - Other Offers 24(3 of which were via schemes of arrangement) 25 (3 of which were via schemes of arrangement) 25 (4 of which were via schemes of arrangement) - Source: MAS. ### Holding the company, its directors and senior management accountable - Under the Companies Act, directors may be held accountable for: - (i) Breach of fiduciary duties—failure to act in good faith for the benefit of the company; or failure to act for proper purposes of the company; or the director had placed himself in a position of conflict of interest. - (ii) Breach of duty of care—failure to act with such care as is reasonably to be expected from him, having regard to his knowledge and experience. - (iii) Minority oppression—conducting the affairs of the company in a manner oppressive to minority shareholders or in disregard of their interests as shareholders of the company. - Remedies: If the court is satisfied a complaint of minority oppression is valid, it may make such order as it thinks fit to bring an end to or remedy the matter complained of. - Representative actions (a form of class action with additional conditions) are possible but not common. - Shareholders may bring a common law derivative action in the name of or on behalf of the company against wrongdoers who control the company and prevent proper action. - Section 216A of the CA provides for a statutory derivative action currently limited to Singapore-incorporated companies listed on an overseas securities exchange. - The Steering Committee recommended amending section 216A to apply to Singapore-incorporated companies listed on a securities exchange, whether in Singapore or overseas; this recommendation has been accepted by the Ministry of Finance. ### Insolvency - Under section 290(1) of the CA, a company may be wound up voluntarily by way of a special resolution. - If directors make a declaration of solvency, winding up proceeds as a members’ voluntary winding up and members may appoint the liquidator. - If no declaration of solvency is made, winding up proceeds as a creditors’ voluntary winding up; a meeting of creditors must be summoned and creditors choose the liquidator. - Statutory protections are accorded to shareholders in both court and voluntary winding up. - Under section 325 of the CA, the court may, in respect of all matters relating to a winding up, have regard to the wishes of the creditors or shareholders and may direct meetings to be called to ascertain such wishes: - In the case of creditors, regard shall be had to the value of each creditor’s debt. - In the case of shareholders, regard shall be had to the number of votes held by such shareholders. - Under the Bankruptcy Act, transactions constituting undervalue transactions, extortionate credit transactions, or unfair preference could be void or voidable in the company’s winding up (Section 329 of the CA, read with sections 98, 99 and 103 of the Bankruptcy Act). ### Disclosure — fundamental corporate changes - Rule 1206 of the SGX-ST Listing Manual: any circular sent to shareholders must contain all information necessary to allow shareholders to make a properly informed decision. - Chapter 10 of the SGX-ST Listing Manual requires detailed information about transactions resulting in fundamental corporate changes (such as a very substantial acquisition or reverse Take Over) to be disclosed in the shareholders’ circular. ### Takeover bid and change of control disclosure and timing - Rule 8 of the Take Over Code requires shareholders be given all the facts necessary to make an informed judgment on an offer. - Rule 23 and Rule 24 set out specific information to be included in offer documents and offeree board circulars, respectively. - Rule 8.2 requires documents or advertisements addressed to shareholders in connection with an offer to be completely accurate and present all information fairly and adequately. - Rule 9 states such information must be made equally available to all shareholders as nearly as possible at the same time and in the same manner. - Shareholders have at least 28 days to consider the full details of the offer contained in the offer document, and have the benefit of advice at least 14 days before the offer closes. - Overseas shareholders have immediate electronic access via OPERA and SGXNET. - Rule 24.1 requires the board of the offeree company to make a recommendation on the offer to shareholders, unless exempted by the SIC; directors must obtain competent independent advice and make known such advice to shareholders in the offeree board circular. - Rule 25 requires that where a profit forecast is made, the profit forecast must be reported on by the auditor (or reporting accountant) and the independent financial adviser. - Rule 15 requires voluntary offers to be made at the highest price paid by the offeror and its concert parties during the offer period and in the three months prior to the offer. - Rule 10 prohibits the offeror from entering into arrangements with selected shareholders or dealing in shares of the offeree company with favorable conditions not extended to all shareholders; this prohibition can be extended to the six month period before the bid is announced. - Rule 5 prohibits the board of the offeree company from taking any action which may result in any bona fide offer being frustrated or shareholders being denied an opportunity to decide on the merits of the offer, without prior approval of shareholders in a general meeting. - General Principle 13: directors of an offeror or an offeree should, in advising their shareholders, have regard to the interests of shareholders as a whole and not to their own interests or those derived from personal or family relationships. ### Substantial shareholders and disclosure obligations - Part VII of the SFA requires a person who is a substantial shareholder (i.e., a shareholder who holds 5 percent or more interest) to notify the listed company of his shareholding interest within two business days after he becomes a substantial shareholder and subsequently in the event of a change in the percentage level of his interest in the company (resulting in a move across a whole percentage line (e.g., from 5.7–6.3 percent) or when he ceases to be a substantial shareholder). - The company is required to notify the market via an SGXNET announcement within one business day of the receipt of the notification form from the substantial shareholder. - Rules 1207(9)(c) and (d) of the SGX-ST Listing Manual requires listed issuers to disclose in their annual report their substantial shareholders and the 20 largest shareholders. - The SF(OIS)R requires disclosure of substantial shareholders in a prospectus, including the names, percentage of shares in which each substantial shareholder has an interest (whether direct or deemed) as well as any significant change in the percentage of ownership in the last three years. - Disclosure requirements apply to persons with a deemed interest in the securities (section 4 of the SFA), including: - A person entitled to exercise or control the exercise of any right attached to a share (not being the registered holder). - Beneficial owners and holders of derivatives where exercise entitles the holder to obtain voting securities. - Where a corporation has an interest in shares, deemed interests include: - A person who has controlling interest in that corporation; - A person in accordance with whose directions, instructions or wishes the corporation (or its directors) is accustomed to act; - A person who either alone or through together with his associates controls 20 percent or more of the votes in the corporation. - A person is deemed to be associated with another person where the other person is accustomed to act in accordance with his instructions. - Penalties for failure to disclose relevant beneficial ownership interest and material changes in beneficial ownership: - Penalty of S$250,000 or two years in prison or both where the failure is intentional or reckless (SFA section 137(D)). - In the case of a continuing offense, a further fine not exceeding $25,000 for every day or part thereof during which the offense continues after conviction. *Source: IMF content unit provided.* ### Part VII of the SFA imposes an obligation on a director or CEO of a listed company to ### _cr13344 - Part VII of the SFA imposes an obligation on a director or CEO of a listed company to ### Notification obligations for directors and CEOs - A director or CEO of a listed company must notify the company of his interest or change in interest in the securities of the company within two business days after he becomes a director or CEO, or acquires or disposes of an interest in the company (whichever is later). - This is an absolute requirement. There is no materiality test. - Listed companies are required to impose a code of dealing on the company’s officers. - The company is required to notify the market via an SGXNET announcement within one business day of the receipt of the notification form from the director/CEO. ### Treatment of other officers and senior managers - Other persons, such as senior managers, are subject to the substantial shareholder rules (general 5 percent shareholding disclosure rule applicable to all shareholders). - Commentary recommends MAS should consider extending director disclosure requirements to senior managers (examples cited: CFO, COO, Head of internal audit), because they may have inside knowledge comparable to directors and could act on that information without individually breaching the substantial shareholder limit. - The report notes a code of conduct on staff dealing is unlikely to be as effective as making dealing transparent. ### Statutory prohibitions and penalties - The Companies Act (CA) specifically prohibits an officer of the company from making improper use of any information acquired by virtue of his position as an officer to gain, directly or indirectly, an advantage for himself or any other person. - Any officer who contravenes this prohibition is liable on conviction to a fine not exceeding $5000 or imprisonment for a term not exceeding 12 months (section 157, CA). - MAS has the power to take regulatory and enforcement actions against offenders for breaches of the SFA. Regulatory action may be in the form of a warning or an offer of composition. - Depending on the offense, a person found guilty could be liable on conviction to a fine or imprisonment. ### Disclosure requirements in prospectuses and annual reports - The SF(OIS)R requires that the interests (whether direct or deemed) of directors and the chief executive officer be disclosed in the prospectus. - Rule 1207(7) of the SGX-ST Listing Manual requires the interests (whether direct and deemed) of each director to be disclosed in the annual report. - The SF(OIS)R requires the prospectus to contain disclosure of: - (i) a summary of the material provisions in the issuer’s constituent document with respect to (a) powers exercisable by the directors, (b) rights, preferences and restrictions attached to each class of shares and (c) action necessary to change the rights; - (ii) any limitation on the right to own shares, including limitations on the right of the non-resident or foreign shareholders to hold or exercise voting rights on the shares imposed by law or constituent documents; and - (iii) if the law applicable to the issuer in respect of the above areas is significantly different from that in Singapore, an explanation of the effect of the law in these areas. - On an ongoing basis, rule 216 of the SGX-ST Listing Manual requires listed issuers to make an announcement via SGXNET as soon as they become aware of any change in the law of its place of incorporation which may affect or change shareholders' rights or obligations over its securities. ### Cross-border and beneficial ownership issues - MAS recognizes practical problems in establishing the identity of beneficial owners when those owners seek to obscure their identity through, for example, passing ownership through a chain of offshore companies. - The penalties for non-disclosure provide an effective deterrent. ### Assessment and supervisory comments - Assessment: Broadly implemented - Comments: - The CA appears to be considered as reasonably up-to-date although the bankruptcy and insolvency provisions could usefully be set out in a separate act as is currently under consideration. - Monitoring of compliance with and enforcement of the CA by ACRA appears to be appropriately resourced and motivated. - As noted in Principle 16, unlisted public companies are subject only to ACRA’s recommendation that unlisted companies refer to the Code of Corporate Governance (CG Code) for guidance and adopt those principles that are appropriate or relevant to them as best practice. This has no legal or regulatory force. - The rules governing takeovers and other change of control transactions appear to work well and protect the interests of minority shareholders; assessors did not receive complaints or criticisms of the Singapore model. - Recent international attention has focused on Temasek linked companies (TLC) where the Singapore Government has a large or controlling stake. The 13 TLCs comprise 20 percent of the SGX-ST market capitalization. MAS staff have assured the assessors that MAS does not provide the TLCs with favorable treatment and has on at least one occasion brought disciplinary action against one for market rule infringements. ### Accounting and financial statement disclosure (Principle 18) - Issuers are required to include audited financial statements in prospectuses and publicly available annual reports. - Issuers making an initial public offer of securities and listed issuers are required under the SFA and SGX listing rules to prepare their financial statements in accordance with the Singapore Financial Reporting Standards (SFRS), the International Financial Reporting Standards (IFRS), or the U.S. Generally Accepted Accounting Principles (U.S. GAAP). - For equity offerings, the prospectus must contain audited profit and loss statements, balance sheet and cash flow statement for each of the three most recent completed financial years. - Where the date of lodgement of the prospectus is more than 6 months after the end of the most recent completed financial year, the issuer must disclose the interim financial statements. - For offerings of debt securities, the prospectus must contain the audited profit and loss statements, balance sheet and cash flow statement for each of the two most recently completed financial years, or in the case of convertible debt securities, the three most recent completed financial years. - The SF(OIS)R requires the audited financial statements included in the prospectus to set out the profit and loss statements, balance sheets and cash flow statements, and includes any attached notes and schedules which are required by the body of accounting standards adopted by the issuer. - The SF(OIS)R requires disclosure of changes in the issuer’s equity share capital for the three year period before the latest practicable date of the prospectus, giving details of the price and terms of any issue. Substantial shareholders, and any significant changes in their holdings, must also be disclosed for the same period. - Under the SF(OIS)R, interim financial statements included in the prospectus must be prepared in a format similar to the format of the audited financial statements, i.e., prepared in accordance with SFRS, IFRS or US GAAP. *Source: _cr13344 - Part VII of the SFA imposes an obligation on a director or CEO of a listed company to* ### section 277 of the SFA to undertake fresh offerings of securities (e.g., rights issue or ### section 277 of the SFA to undertake fresh offerings of securities (e.g., rights issue or ### Offer information statement and disclosure for fresh offerings - Offer information statement is an abridged version of a prospectus intended to be concise and to set out key information regarding the offering and the company (including key financial highlights) to facilitate shareholders’ and investors’ assessment of the offering. - Selected data in the offer information statement must include the line items in the profit and loss statements and balance sheet. - The entity must disclose an evaluation of the material sources and amounts of cash flows from operating, investing, and financing activities for the most recent completed financial year. - The above information must also be given in respect of any interim period for which the entity’s financial statements have been published. - SGX-listed issuers are required to publicly announce their interim and full year financial statements via SGXNET within the stipulated timeframe: - 45 days for quarterly; and - 60 days for full year. - Financial statements must comprise, inter alia: - a statement of financial position; - a statement of the results of operations; - a statement of cash flows; and - a statement of changes in equity; - and comparative information for the preceding financial periods. - Given the foregoing, shareholders or investors subscribing for fresh offerings of securities made by SGX-listed companies have access to the companies’ financial statements (which would comprise all the components required by KQ2 of Principle 18). ### Financial reporting requirements under SGX-ST Listing Manual and Companies Act - Rule 1207(5) of the SGX-ST Listing Manual requires the annual report to contain annual audited financial statements. - SGX-ST Listing Manual requires issuers to publicly release on SGXNET their quarterly (or, for issuers with market capitalization less than S$75 million, half-year financial statements) and full year financial statements. - The financial statements must be in the form presented in the issuer’s most recently audited annual financial statements and must include: - Profit and loss statements (including notes for significant items); - Balance sheet; - Cash flow statement; and - Statement of equity changes (including changes in substantial shareholders). - The financial statements must be presented together with the comparative statements for the corresponding period of the immediately preceding financial year. - Rule 220 of the SGX-ST Listing Manual requires financial statements submitted with the listing application, and future periodic financial reports, to be prepared in accordance with SFRS, IFRS, or US GAAP. - Section 201 of the Companies Act requires the financial statements of all Singapore-incorporated companies (including unlisted companies) to comply with the SFRS. - FRS 1 (an SFRS standard) states that an entity should only change the presentation of its financial statement if the revised presentation provides information that is reliable and more relevant to users and the revised presentation is likely to continue so that comparability is not impaired. ### Role, mandate, and processes of the Accounting Standards Council (ASC) - ASC was formed with the enactment of the Accounting Standards Act (Chapter 2B) in 2007 and is funded by the MoF. - ASC’s mandate is to develop, review, amend and approve financial reporting standards for entities under its purview, taking into account: - The information needs of the stakeholders of the entities; - Facilitation of comparability, disclosure and transparency; - Compatibility with relevant international standards; and - Singapore’s reputation as a trusted international business and financial hub. - Broad policy intention: issue SFRS based on IFRS issued by the IASB, while taking into account local economic and business circumstances and entities to which new SFRS would apply. - ASC composition and appointments: - Chairman and members appointed by the MoF to represent the public interest. - ASC comprises representatives from stakeholder groups such as the accounting profession, users and preparers of financial information, academia, and the government. - Consultation process: - ASC issues IASB discussion papers (DP) or exposure drafts (ED) on the ASC website and invites public comments. - ASC may host public outreach meetings, set up working groups, send comment letters to IASB, and post letters on the ASC website. - ASC participates in IASB roundtable discussions and monitors IASB re-deliberations. - Upon IASB issuing final Standards/Interpretations, ASC reviews them and decides whether to prescribe them as SFRS in full or with modifications. - Standards prescribed by ASC are published on the ASC website and email alerts are sent to subscribers. ### Compliance with accounting standards and regulatory bodies - Under s.201 of the Companies Act, directors of every Singapore incorporated company are required to present a set of audited financial statements that comply with the SFRS. - ACRA is the national regulator for business entities and public accountants in Singapore and monitors and enforces compliance with SFRS by companies incorporated in Singapore. - ACRA commenced a Financial Reporting Surveillance Program (FRSP) in 2011. - Foreign-incorporated companies listed on SGX may adopt IFRS or US GAAP. - MAS is prepared to accept accounts from companies using a national version of IFRS depending on the significance of any modification. ### Assessment of implementation - Assessment: Fully Implemented - Comment: Singapore has had six years’ experience of operating under the model whereby enforcement of accounting standards is undertaken by a body acting in the public interest. Local modifications of IFRS to meet local conditions are few and not material to the rating of Principle 18. ### Oversight of auditors, ACRA structure, and Practice Monitoring Program (PMP) - ACRA was formed in 2004 and is constituted as a statutory board under the Ministry of Finance. - ACRA’s Board comprises not more than 15 senior professionals; one member must be a public accountant nominated by ICPAS and one must be a non-practicing accountant nominated by ICPAS. - The Accountants Act required the ACRA Board to set up the Public Accountants Oversight Committee (PAOC), which administers most powers under the Accountants Act. - Audit and reporting on financial statements can only be undertaken by a public accountant registered under the Accountants Act or an accounting entity approved by ACRA. - As at March 31, 2012: - PIE segment was audited by 19 public accounting entities (representing 298 public accountants); - Non-PIE segment comprised 605 public accounting entities (representing 651 public accountants). - In the PIE segment the Big 4 accounted for 200 of the public accountants. - ACRA is self-financing through registration, renewal, and inspection fees. - PAOC approves auditing standards/pronouncements proposed by ICPAS, which are equivalent to IAASB standards with necessary local modifications. - ICPAS assists ACRA by performing PMP audit inspections of auditors with only non-PIE clients, but PAOC makes decisions on these inspections. - The Practice Monitoring Program (PMP): - Statutory process to ensure auditing standards are complied with. - Involves detailed review of audit engagement files to assess compliance with relevant auditing standards. - ACRA conducts PMP on auditors of PIEs every two to three years, depending on significance and risk; the Big 4 are reviewed every two years. - PMP reviewers are ACRA staff with a minimum of 10 years’ experience. - PMP reviewers conduct onsite reviews and report findings to the Practice Monitoring Review Committee, which reports and makes recommendations to the PAOC. - PAOC determines scope of reviews and has powers under Section 36 of the Accountants Act to require production of documents and records. - Non-PIE audits reviews are outsourced to ICPAS and conducted on a four to five-year cycle. - ACRA implemented a Financial Reporting Surveillance unit in 2012 to identify financial reports where accounting standards were not applied correctly. ### Qualifications, continuing education, and renewal requirements for public accountants - To register as a public accountant (Section 10 of the Accountants Act), applicants must: - a. Pass one of a list of prescribed final examinations in accountancy for university degrees or professional qualifications; - b. Possess at least three years of working experience in a public accounting firm in the areas of accounting, auditing or taxation, most of which must be in auditing and it must include experience under the supervision of a public accountant; - c. Obtain 40 hours of continuing professional education (CPE) in the previous year that meets the PAOC’s syllabus requirements; - d. Attend a prescribed course on ethics and professional practice; and - e. Possess membership in ICPAS. - Public accountants must renew their certificate of registration on an annual basis and to do so must obtain 120 hours of continuing professional education (CPE) that meets the PAOC’s syllabus requirements over a three-year rolling period. - Public accountants are entitled to renew their certificate of registration only if they pass any PMP conducted during the year. ### PMP activity, enforcement outcomes, and transparency - In the 12 months ended March 2011, ACRA inspected: - 14 public accountants in the PIE segment; and - 124 in the non-PIE segment (outsourced). - In the 12 months ended March 2012, ACRA inspected: - 26 public accountants in the PIE segment; and - 159 in the non-PIE segment (outsourced). - In the period April 2010 to March 2012, ACRA issued 11 suspensions and cancellations. These figures and names are publicly available. - Complaints against public accountants in the period April 2010 to March 2012: a small number dismissed; others proceeded by way of private warning or remain in progress. Information regarding number and outcomes is not published unless the result is a suspension or cancellation which is officially gazetted. - Market participants interviewed considered the quality of ACRA reviews to be thorough. - Enforcement actions under the Accountants Act (section 38) for failure to pass PMP may include: - Conditions imposed to restrict provision of public accountancy services for a period not exceeding two years (examples: prohibiting audits of public interest entities, requiring hot review, requiring remedial program); - Refusal to renew registration, suspension for a period not exceeding two years, or cancellation of registration where PAOC considers it contrary to public interest or profession interest, or if public accountant failed to comply with PAOC orders. - ACRA provides audit firms with a report on quality controls and requires remedial plans; results determine intensity and frequency of future PMP reviews. - Comment on transparency: conclusions of PMPs disclosed at a high level as "key observations"; except for suspensions and cancellations, there is little transparency of the identity of parties and nature/extent of failures. Recommendation noted that ACRA should make detailed transparency available of PMP outcomes at the individual level for those who do not fully satisfy requirements. ### Principles for auditors: independence, rotation, and internal controls - Independence standards are set out in ACRA’s Code of Professional Conduct and Ethics (Fourth Schedule of the Accountants (Public Accountants) Rules), Singapore Standards on Auditing (SSA) 200, and SGX supplements for listed public companies. - Key elements of the Code include prohibitions and restrictions: - Audit firms, their networks, the audit team and their immediate family, and all partners in the same office as the audit team, cannot have financial interests in their audit clients. - Audit firm and its network cannot have a close business relationship with its client. - Assurance team must not audit an entity where any team member has an immediate family member who is a director, officer or employee able to influence the subject matter covered by the financials. - Restrictions and safeguards around presence in the audit client of former members or employees of the audit firm and vice versa. - Partners and employees of audit firms cannot serve as officers for the audit client. - Topics covered by the Code’s restrictions include (non-exhaustive list preserved from source): - Material direct/indirect financial interests in the client; - Loans and guarantees; - Close business relationships with assurance clients; - Family and personal relationships; - Employment with assurance clients; - Recent service with assurance clients; - Serving as an officer or director on the board of assurance clients; - Long association of senior personnel with assurance clients; - Provision of non-assurance services to assurance clients; - Preparing accounting records and financial statements; - Valuation services; - Provision of taxation services to financial statement audit clients; - Provision of internal audit services to financial statement audit clients; - Provision of IT systems services to financial statement audit clients; - Temporary staff assignments to financial statement audit clients; - Provision of litigation support services to financial statement audit clients; - Recruiting senior management; - Corporate finance and similar activities; - Fees—relative size; fees—overdue; pricing; contingent fees; - Gifts and hospitality; and - Actual or threatened litigation. - Non-assurance services that an audit firm cannot provide to listed or non-listed public company audit clients include: - Internal audit services; - IT services that involve either the design or implementation, or both, of financial information technology systems used to generate information forming part of a client’s financial statements; - Preparing accounting records and financial statements (except in emergency situations provided certain conditions are met); - Valuation services that involve matters material to the financial statements and a significant degree of subjectivity; - Promoting, dealing in or underwriting shares (applies to any client). - Auditor rotation: - ACRA’s Code prohibits the engagement partner and quality control review partner from being on an audit engagement for more than seven years. - SGX-ST limits audits of listed companies by restricting appointments of an engagement partner to a maximum of five years; the audit partner may return after two years (Rule 713). - No specific provision limiting the number of audit engagements an auditing entity may conduct; left to market forces. - Internal controls required of audit firms (SSQC 1) must address: - leadership responsibilities for quality within the firm; - ethical requirements of the firm and its personnel; - acceptance and continuance of client relationships and specific engagements; - human resources policies and procedures; - engagement performance in accordance with professional standards; and - monitoring quality control policies and procedures of the firm. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Section 10 of the Companies Act requires companies to appoint a public accountant or ### _cr13344 - Section 10 of the Companies Act requires companies to appoint a public accountant or ### Auditor appointment, audit committees, and disclosure requirements - Legal requirements and prohibitions: - Section 10 of the Companies Act requires companies to appoint a public accountant or accounting entity registered with ACRA as its auditor and makes it an offense if the auditor is not independent in certain respects (e.g., the auditor must not be an officer of the company). - The Companies Act requires every listed company to have an audit committee. - Selection of external auditors is made by shareholders’ meeting, but with prior consent from the corporate auditors on the recommendation of the Audit Committee (Companies Act section 205). - An auditor can only resign or be removed at an annual general or extraordinary meeting. - Section 201B of the Companies Act prescribes the duties of the audit committee regarding appointment of auditors. - Audit committee composition and duties: - Each audit committee should comprise at least three directors, the majority of whom, including the Audit Committee Chairman, should be independent. - All members of the audit committee should be non-executive directors, and unrelated to any executive director. - Principle 12 of the CG Code recommends duties to include reviewing the scope and results of the external audit and the independence and objectivity of the external auditors. - The CG Code recommends the audit committee should review the independence of the external auditors annually and should state in the company's Annual Report: - (a) the aggregate amount of fees paid to the external auditors for that financial year; and - (b) a breakdown of the fees paid in total for audit and non-audit services respectively, or an appropriate negative statement. - Where the external auditors supply a substantial volume of non-audit services, the audit committee should keep the nature and extent of such services under review to maintain objectivity. - One of the Audit Committee’s duties should include making recommendations to the Board on proposals to the shareholders on the appointment, re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors (CG Guidelines Principle 12.4). - Listing and disclosure rules: - In 2008 a Guidebook for Audit Committees in Singapore was issued recommending best practice that duties include reviewing independence and objectivity of external auditors and annual review of independence. - The SGX-ST listing manual requires that an issuer must disclose in its annual report the date of appointment and the name of the audit partner in charge of auditing the issuer and its group of companies. - The annual report must include confirmation by the Audit Committee that it has undertaken a review of all non-audit services provided by the auditors and that they would not, in the Audit Committee's opinion, affect the independence of the auditors (Rule 1207 (6)—(b), (c)). ### Oversight, complaint handling, and disciplinary sanctions - Oversight arrangements: - Auditors’ independence is overseen by ACRA either through the PMP or the Complaints and Disciplinary (sub-committees of the PAOC) process if a complaint is received. - Complaint intake and review: - Complaints concerning any improper or dishonorable conduct by a public accountant, an accounting corporation, an accounting firm or an accounting LLP are referred to ACRA for review (via the Registrar of Public Accountants who is the CEO of ACRA). - There is discretion to refuse to deal with vexatious or frivolous complaints or ones without merit. - The Registrar reviews the complaint to determine if disciplinary proceedings against the public accountant, or the accounting firm are warranted. - The Registrar may either dismiss the complaint or recommend to the PAOC to set up a complaints committee or disciplinary committee, depending on the nature of the complaint. - Complaints committee powers and process: - A complaints committee of 4 persons, at least one of which must be a layperson (chosen from a panel of 50 people) has powers to: - call upon persons to assist in its inquiry; - require any person to produce evidence related to the inquiry; - provide its findings to the PAOC. - The complaints committee makes recommendations to the PAOC to take no further action, take certain ‘lower level’ actions, or set up a disciplinary committee for a formal enquiry. - Disciplinary committee sanctions: - A disciplinary committee can be appointed by the PAOC to conduct a formal inquiry and reports findings and recommendations to the PAOC. - The PAOC may take actions such as cancellation/suspension of registration of the public accountant, revocation/suspension of approval for accounting corporation/firm/LLP, written censure and imposing a penalty. - Penalty maxima: S$10,000 for an individual and S$100,000 for an entity. - The PAOC can only impose such penalties following a complaint but not the outcome of a PMP. ACRA and the MoF propose to review this issue in the future. - In practice, the number of complaints received is small (less than 10 per year). - Assessment and comment: - Assessment: Fully Implemented. - Comment: It appears to be an anomaly that the PAOC can only impose monetary penalties following a complaint but not the outcome of a PMP. This issue should be reexamined at the next convenient opportunity. ### Audit standards and standard-setting mechanism - Legal and operational scope: - Annual audited financial statements are to be included in annual reports. - All companies incorporated under the Companies Act must be audited by a public accountant registered with ACRA or accounting entity approved by ACRA. - Public accountants and accounting entities must comply with audit and quality control standards (Rule 1207(5) of the SGX-ST Listing Manual) in respect of listed companies. - Note on audit exemptions: exempt private companies (private companies with at most 20 shareholders, no corporate shareholders) that have revenue of no more than S$5 million have audit exemptions. - Equivalence to international standards: - Singapore’s auditing and assurance standards are equivalent to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) of IFAC. - The Singapore Standards on Auditing (SSA) are similar to the ISA except for some different legislative wording that does not affect substantive audit procedures required and are up to date with the clarified ISA issued by IFAC. - Standard-setting bodies and process: - The PAOC is responsible for prescribing the standards to be followed by public accountants and has set the SSA. - The PAOC is assisted in considering the adoption of the ISA by the AASC. - The process for setting standards involves discussion with interested parties via an “exposure draft” on which interested parties are invited to comment. - AASC works under the supervision of the PAOC and submits proposed SSA to PAOC for approval; PAOC endorses AASC's strategic direction and work plan. When finalized, standards set by AASC are published as SSA. - The AASC cannot comprise more than 51 percent public accountants (appointed by ICPAS) with the other 49 being public members representing users (appointed by the PAOC). - The AASC is required to follow due process for the consideration of new audit standards which mirrors the IFAC process, including public consultation on exposure drafts and oversight by the PAOC. - Enforcement mechanisms available to PAOC: - PAOC can: - impose conditions to restrict the provision of public accountancy services for a period not exceeding two years; - require the public accountant to undergo and satisfactorily complete remedial program; - require the public accountant to take other steps as specified to improve practice or give undertakings; - refuse to renew the registration of the public accountant concerned; - suspend the registration of the public accountant concerned for a period not exceeding two years; - cancel the registration of the public accountant concerned. - Assessment: Fully Implemented. ### Oversight of credit rating agencies (CRAs) - Use for regulatory purposes and recognized agencies: - Since January 2012, only credit ratings from the four major CRAs, namely Moody’s, Standard & Poor’s, Fitch and A.M. Best Company are recognized for use for regulatory purposes in Singapore. Such regulatory purposes include the computation of capital of banks and insurance companies. - The first three conduct operations via locally incorporated entities. A.M. Best has no local presence and its ratings may only be used for regulatory purposes in the insurance sector. - Currently there are no other CRAs operating in Singapore. - Licensing, registration, and capital requirement: - As the provision of credit rating services is a regulated activity, all CRAs operating in Singapore are required to hold a CMSL. - All CRAs operating in Singapore are required to hold a CMSL and be subjected to licensing, business conduct and financial requirements under the SFA. - Licensed CRAs must maintain $250,000 of base capital (SFA section 82). - Anyone acting (or holding himself out as acting) as a representative of the regulated activity of providing credit rating services is required to comply with SFA procedures and be an appointed representative of the CRA. - Recognition of non-resident CRAs for regulatory use: - CRAs not operating in Singapore but making ratings available in Singapore from some other jurisdiction must be recognized by MAS if their ratings are used for regulatory purposes; MAS recognizes them if it is satisfied as to the adequacy of the home regulatory arrangements. - For the four licensed CRAs, MAS conducted its own assessment of the adequacy of the regulatory regimes of each country in which each credit rating group have affiliates; MAS concluded the U.S. SEC regulatory regime complies with IOSCO Principle 22. - For future applicants, MAS will ensure governing regimes are subject to the same level of scrutiny as applied to the four major agencies before allowing their ratings to be used for regulatory purposes in Singapore. - CRA CMSL license application additional information requirements: - Applicants must supply: - a description of the CRA’s business model, rating methodologies and internal code of conduct; - a description of how the CRA will observe MAS’ Code of Conduct for Credit Rating Agencies (CRA Code); - a written confirmation that the CRA, its employees and appointed representatives are and will continue to be in observance of the CRA Code; - where the CRA provides ancillary services, a list of ancillary services and explanation why such services do not give rise to conflicts of interest with the CRA’s credit rating business. - Guidance on the application process is set out in MAS’ Guidelines on Criteria of the Grant of a CMSL other than for Fund Management (Guideline No. SFA04-G01). - CRA Code expectations and operational requirements: - Licensed CRAs are to: - use rating methodologies that are rigorous, systematic, and, where possible, subject to objective validation including back-testing (paragraph 2.2 of the CRA Code); - ensure they have sufficient resources devoted to carry out high-quality credit ratings of all rating targets that it rates (paragraph 2.9 of the CRA Code). - They must ensure analysts have appropriate knowledge and experience (paragraph 2.8) and that information used is of sufficient quality. - Licensed CRAs are required to allocate adequate manpower and financial resources to monitoring and updating credit ratings (paragraphs 3.1 and 3.2 of the CRA Code). - Licensed CRAs are required to distribute credit ratings, reports and updates on a non-selective basis in a timely manner (paragraphs 8.1 and 8.5). - Licensed CRAs must provide information to assist investors in understanding ratings and must publish sufficient information about historical default rates of rating categories (paragraph 8.14). - CRAs must adopt procedures to protect confidential information and use such information only for credit rating purposes (paragraphs 9.1–9.2). Restrictions on trading are imposed on employees and family members (paragraphs 9.4–9.8). - Regulatory powers and compliance: - Failure to comply with requirements in the SF(LCB)R and SF(FMR)R is an offense (regulation 55 and regulation 28A). - MAS has inspection powers under the SFA (section 150(1)) and onsite examinations on CRAs’ policies and processes are to be conducted on a regular basis to determine compliance. - Licensed CRAs are bound by license conditions to comply with the CRA Code; contravention of a license condition is an offense (SFA section 88). - Failure to comply with the CRA Code will be taken into account by MAS in determining whether the CRA is fit and proper to remain licensed and whether to revoke or suspend the CRA’s license (SFA sections 88, 95). - Failure by a representative of a CRA to comply with the CRA Code will be taken into account by MAS in determining whether the representative satisfies fit and proper requirements and whether to revoke or suspend representative status (SFA sections 99M, 99N). - Record-keeping and conflict-of-interest controls: - CRAs are required to prepare and preserve books and documents on their credit rating business as part of their internal records (CRA Code paragraph 2.6). - Conflict of interest is addressed in the CRA Code: paragraphs 6.1 and 6.2 require written policies and procedures to identify, eliminate, manage and disclose any actual or potential conflicts of interest, including those arising from compensation arrangements. - A standard license condition for all CMSL holders states the licensee shall conduct its business in such a manner as to avoid conflicts of interests; contravention may cause the license to be revoked (SFA). *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13344.pdf* ### section 95(2)(d)). ### _cr13344 - section 95(2)(d)). ### Conflict of interest and credit rating agencies (CRAs) - CRAs must make details of legal structure and ownership available to the public on an annual basis (paragraph 10.4). - Ancillary business activities and business model conflicts are addressed in paragraph 5.7 and paragraph 5.8 of the CRA Code. - Paragraph 5.7: licensed CRA required to define ancillary business and explain why it cannot reasonably give rise to conflict of interest. - Paragraph 5.8: bars contingent fee arrangements (fee determined by outcome of a transaction or result of services). - Securities and derivatives trading: paragraph 6.7 requires licensed CRA and its representatives and employees not to engage in securities or derivatives dealings that can reasonably be considered to give rise to conflict of interest. - Employee financial interests and related scenarios are addressed in Paragraphs 7.1–7.10 of the CRA Code. - Examples of independence requirements: structure reporting lines and compensation to eliminate/manage conflicts (paragraph 7.1); strict prohibitions on solicitation of money, gifts or favors (paragraph 7.8). - CRAs should not refrain from preparing or revising a rating based on economic, political or other pressures (Paragraph 5.1). - CRAs must have different representatives prepare/revise credit ratings if the rated entity has oversight functions related to the CRA (Paragraph 6.8). - MAS does not have legal powers to interfere with or influence CRAs’ rating methodologies or the content of CRAs’ credit ratings. - Supervision: - Offsite: CRA licensees subject to same offsite supervision/reporting as other licensees; MAS supplements with annual self-assessment for CRA-specific factors; cooperative dialogue with US SEC. - Onsite: In March 2013 MAS inspected one CRA and its representatives within a year of licensing; proposes similar inspections of the other two CRAs in the year. ### Analytical and sell-side research providers - FAA (Section 6) requires licensing/authorization for persons acting as financial adviser (FA) when: - advising others concerning any investment product; or - issuing/promulgating research analyses or research reports concerning any investment product. - Research report providers subject to FA license requirements: fitness and propriety; perform functions efficiently, honestly, and fairly. - All entities offering analytical or evaluative services in respect of financial advisory services are regulated under the FAA. - Measures to mitigate conflicts of interest in research: - Blackout periods for pre-deal/pre-new issue research when same firm acts as issue manager or placement agent. - Restrictions on circulation to prevent access by non-institutional investors. - Prominent disclosure of material interests in the issue or sale of investment products. - Prominent disclosure of relationships between analyst and person making the offer when material. - FAA requires research firms to disclose any interest in the securities they cover (section 36). - License conditions and exchange rules (SGX-ST Rule 15.7; SGX-ST Listing Manual Rule 15.4) require: - disclosure of monetary compensation or other benefits receivable in respect of research reports; - separation of research from dealing, corporate finance and back office operations (separate reporting lines); - compensation for analysts not to be based on corporate finance or dealing transactions. - MAS Guidelines on Addressing Conflicts of Interest Arising from Issuing or Promulgating Research Analyses or Research Reports (issued April 2, 2013) cover: - Content of internal policies on conflicts and standards of disclosure; - Financial interests and trading activities; - Reporting and compensation of analysts; - Conflict of interest arising from business relationships; - Standards of disclosure of actual and potential conflicts of interest; - Maintenance of records. - Obligations on conflicts of interest are monitored via MAS onsite inspections (conflict of interest part of business conduct rules reviewed during inspections; past thematic and offsite reviews referenced). ### Collective Investment Schemes (CIS) — regulatory framework and standards - Retail CIS: - MAS approves CIS offered to retail investors by granting authorization (authorized schemes) or recognition (recognized schemes for overseas CIS). - Currently 310 authorized schemes and 817 recognized schemes eligible for offer to retail investors. - RFMCs: AUM no more than S$250m and clientele no more than 30 accredited investors; registration subjects them to same requirements as licensed fund management companies for practical purposes. - Recognized scheme acceptance requires MAS satisfaction that foreign jurisdiction laws/practices afford investors protection at least equivalent to SFA (section 287(2)(a)). - MAS assesses equivalence focusing on core investment restrictions, operational requirements (valuation, custody), and investor protection safeguards. - MAS requires recognized schemes be domiciled in jurisdictions whose regulators can be relied upon for mutual assistance and exchange of information (IOSCO Appendix A signatory preferred). - MAS has a bilateral information sharing agreement with Commission de Surveillance du Secteur (CSSF), Luxembourg. - MAS admits Undertakings for Collective Investment in Transferable Securities (UCITS) from Luxembourg, the United Kingdom, Ireland, France, and Germany. - Prospectus requirements: all authorized and recognized schemes must lodge and register a prospectus with MAS prior to offering; MAS reviews all prospectuses before registration. - Currently MAS has eight staff reviewing new and updated prospectuses (8 and 239 in 2012). - MAS has not exercised refusal to register or stop orders for CIS prospectuses, but has led to withdrawals: three withdrawals in 2011 and two in 2012 (examples provided). - Non-retail CIS (restricted schemes): - Not subject to authorization/recognition and prospectus requirements or retail investment guidelines. - Categories of non-retail investors: institutional investors (SFA section 304A), accredited investors (net assets more than S$10 million, SFA section 305A). - Operators must prepare an information memorandum containing salient information including investment objectives, risks, regulator, manager and key parties, redemption conditions/gating, side letters, past performance, where accounts may be obtained, fees and charges. - MAS oversight via notification regime: operator must notify MAS and cannot offer until scheme entered into list of restricted schemes by MAS. - MAS will enter scheme only if: (i) manager licensed/regulated in jurisdiction of principal place of business; and (ii) manager and persons associated are fit and proper. - Operator must appoint a responsible person in Singapore who provides annual declaration to MAS on license status, financial position, and disciplinary actions. - MAS may refuse, remove, or suspend schemes from restricted list for false/misleading information or public interest concerns. - At end-2012 there were 4,049 Restricted Schemes notified to MAS with total AUM of S$24.8 billion. - Only 30 are managed in Singapore. - Of the 4,049 schemes: 400 (AUM S$ 2.65 billion) identified as hedge funds; 99 (S$ 1.2 billion) are money market funds. - Note: This is based on close to 80 percent responses to MAS’ recent survey. - Eligibility standards for marketing CIS: - Marketing of CIS is a regulated activity under FAA; persons marketing CIS must hold Financial Adviser license (Section 6 FAA), with exemptions for licensed financial institutions subject to FAA business conduct requirements (FAA s.23). - Representatives must be registered with MAS; Section 23B FAA requires notification when appointing individuals. - Representatives posted on public Register of Representatives on MAS’ website. - Eligibility standards for operators of CIS: - Operators must be holders of a CMSL for fund management (LFMC) or be a Registered Fund Management Company (RFMC). - There are currently 53 CIS operators out of a total FMC population of over 400. - LFMC categories: - Retail LFMCs: permitted to manage retail and all other investors. - A/I LFMCs: permitted to manage accredited or institutional investors only. - RFMCs: permitted to manage no more than 30 accredited or institutional investors (no more than 15 may be funds or limited partnerships) and total assets managed must not exceed S$250 million. - Individual representatives must be registered; MAS considers qualifications, experience, expertise, honesty, integrity. - Fit and proper and competency requirements (minimums): - At least two directors (one must be executive), each with at least five years relevant experience (applicable to all FMCs). - CEO experience: at least five years for A/I LFMC and RFMC; 10 years for Retail LFMC. - Staff: at least two (A/I LFMC and RFMC) or three (Retail LFMC) full-time employees residing in Singapore, each with at least five years relevant experience. - Representatives: at least two (A/I LFMC and RFMC) or three (Retail LFMC) who meet minimum entry and examination requirements. - Ongoing requirements: custody of assets, valuation and reporting, measures to mitigate conflict of interest, compliance and internal audit arrangements, annual independent audits. - Capital requirements: - Retail LFMCs base capital requirement: S$1 million. - A/I LFMCs and RFMCs base capital requirement: S$250,000. - Risk-based capital: Retail LFMCs and A/I LFMCs must maintain financial resources amounting to at least 120 percent of their operational risk requirement; RFMCs not subject to risk-based capital requirement. - Base capital defined as sum of paid-up ordinary share capital; paid-up irredeemable and non-cumulative preference share capital; and any unappropriated profit or loss in latest audited accounts less interim loss and declared dividends. - CIS constituted outside Singapore (recognized schemes) — additional requirements: - Foreign operator need not hold CMSL if located outside Singapore but must be licensed/regulated in jurisdiction of principal place of business and be fit and proper in MAS’ opinion. - MAS applies fit and proper requirement to persons employed by or associated with the foreign operator who exercise influence. - Foreign operator must provide detailed answers on past conduct, including disciplinary, regulatory or enforcement actions. - Foreign operator must have a Singapore representative (Singapore-incorporated or registered foreign company) who is fit and proper and liable where legal redress is sought (SFA section 287). - Foreign operator (together with related corporations) must manage at least S$500 million of discretionary funds in Singapore. - Offers of listed CIS (ETF and REIT): - SGX-ST prescribes additional eligibility standards: operator reputable, established track record, been in operation at least five years; responsible persons must have track record at least five years and satisfactory experience for type of CIS (SGX-ST Listing Manual, Listing Rules 404(5) and (6)). - MAS imposed additional disclosure requirements for synthetic ETFs using swaps. - CIS governance and trustee role: - SF(CIS)R and CIS Code require CIS operator to carry on business properly and ensure scheme conducted properly (Regulation 8(2)(a)(i)); transactions at arm’s length and consistent with best execution; transactions consistent with investment objectives and approach (CIS Code Paragraph 3.1(c) and (d)). - Trustee duties: exercise all diligence and vigilance safeguarding participants (SF(CIS)R Regulation 8(2)(b)(i)); inform MAS of contraventions by CIS operator. - Approved trustee minimum criteria and duties: - Must be a public company; minimum paid-up capital and shareholder funds of $1 million; sound financial position; sufficient qualified personnel; fit and proper officers; obtain professional indemnity insurance or provide performance bond/guarantee. - Independence from CIS operator required by CIS Code. - Duties include custody of scheme property, ensuring proper accounting and segregation of assets, informing MAS of contraventions within three business days, maintaining register of participants, sending semi-annual and annual accounts and reports, monitoring compensation payment for valuation errors, notifying MAS of termination or maturity of schemes. - External auditors: - Required to provide opinion on adequacy of internal control procedures and compliance with SFA and regulations (SF(FMR)R regulation 27(8) / Form 7). - Ongoing compliance monitoring and enforcement: - Risk-based supervision to ensure compliance with independent custody, independent valuation, internal audit, compliance and risk management. - CIS operators must update MAS on material changes and submit annual audited financial statements with auditor’s report certifying compliance. - Sanctions for non-compliance range from written warnings/reprimands to fines and possible revocation of registration or license. - MAS can refuse to grant authorization/recognition if not in public interest (Sections 286(5) and 287(4) SFA), and can revoke, suspend or withdraw authorization or recognition (SFA section 288). - CIS Code is non-statutory but breaches may be taken into account by MAS in licensing/recognition decisions. - Notification and reporting obligations: - CIS operator and trustee must inform MAS within three business days of awareness of any legal or regulatory breach. - CIS operator required to notify MAS of significant changes, valuation errors, breaches of CIS Code guidelines or limits. - CIS operator must notify MAS and participants of any significant change at least 1 month before change takes effect (examples of significant changes listed). - Periodic returns required: - Quarterly unaudited statement of assets and liabilities (Form 1) and quarterly unaudited statement of financial resources and total risk requirement (Form 5) within 14 days of quarter’s end. - Annual statement of assets and liabilities, statement of financial resources and total risk, accounts of the operator with auditor’s report. - Annual documents must be accompanied by auditor’s certification covering internal controls, handling of customers’ monies, records, trust account operation and computation of capital requirements. - Records retention: licensed fund management companies must maintain records for not less than five years (SFA section 102); licensed CIS operators must keep books to sufficiently explain transactions and financial position. - Trustee must keep and maintain up-to-date register of participants and make it available for inspection free of charge to manager or participants. - Conflicts of interest and operational conduct requirements: - Supervisory oversight via MAS onsite inspections reviewing arm’s length transaction procedures. - Operators must minimize and disclose potential/actual conflicts; priority to CIS transactions over operator’s own or connected persons’ transactions (SF(LCB)R Regulation 13A). - CIS Code prohibits operator from: - investing CIS monies in its own or related corporations’ securities unless securities are constituents of scheme’s reference benchmark and benchmark independent; - lending monies of the CIS to itself or related corporations; - retaining cash or commission rebates from transactions executed for the scheme; - retaining soft dollars unless conditions met: assists provision of investment advice, transactions on best execution, soft dollars not arising from unnecessary trades. - Underwriting by the scheme prohibited (does not extend to operator). - Trustee provides independent monitoring and must inform MAS of contraventions. - Disclosure obligations in prospectus: actual/potential conflicts and mitigation, all fees and expenses, any soft dollar arrangement and disclosure in semi-annual and annual reports of related-party transactions and soft dollars received. - Record keeping: CIS Code requires maintaining record of instructions to trustee on how votes should be exercised. ### Supervisory activity, inspections, and the transition of CIS operator regulation - MAS supervision tools: onsite inspections, supervisory visits, offsite returns review, thematic inspections, MAS-appointed auditors industry sweeps. - Onsite inspections: - In-depth review of books, policies and processes lasting about 21 to 42 days. - Supervisory visits last at most one day. - CIS operators rated High or Medium High subject to regular inspection cycles of three and five years respectively. - All FMCs subject to thematic and “for cause” inspections. - Thematic inspections since 2009 included: - i. Product development, distributor oversight and fund administration (April 2009 to January 2010); - ii. Effective segregation and handling of customers' moneys and assets (May 2009 to January 2010). - Inspections typically involve four-six officers and last three-six weeks. - Industry transition and regulatory tightening: - 2009 initiative to tighten regulatory regime for FMCs; implementation contributed to inspections tapering down 2010–2012. - 2012: exempt fund manager (EFM) regime abolished; EFMs required to apply for registration or licensing. - EFM filings: received 409 applications out of population of 572. - As of February 6, 2013: 274 EFMs applied for registration (restricted scope), 134 for an A/I LFMC and 4 for RLFMC. Remaining 163 EFMs did not submit applications. - As of March 31, 2013: MAS registered 56 RFMCs, licensed 22 with A/I licenses and 1 with all investor license. MAS refused to register 4 EFMs. - MAS appointed external audit firms to conduct industry-wide sweeps of more than 650 FMCs under the abolished exempt regime; exempt fund managers with issues faced remedial action; about 50 EFMs either filed for cessation or had exempt status removed after 2009–11 sweep. - With completion of regulatory enhancements and transition of all EFMs to registration/licensing (expected June 2013), MAS will increase inspection frequency. - Inspections of approved trustees: - MAS inspected two largest approved trustees (handle about 76 percent of Singapore domiciled CIS) in 2010 and 2011 respectively. - 2012: one-week supervisory visit to the 4th largest approved trustee (handles about 7 percent of Singapore domiciled funds). - Third largest approved trustee remains to be inspected; smaller approved trustees subject to offsite self-assessment questionnaire. - Figures for number of inspections (Source: MAS): - Onsite regular inspections by MAS: 2009: 2; 2010: 2; 2011: 2; 2012: 4; 2013 (planned): 9. - Onsite thematic inspections by MAS: 2009: 11; 2010: 2; 2011: 3; 2012: 1; 2013 (planned): 2. - Inspections conducted by MAS-appointed auditors: 2009: 497; 2010: 94; 2011: 62; 2012: Nil. - Offsite monitoring: - MAS checks for possible breaches during onsite and offsite inspections. - CIS operator and trustee obligation to inform MAS within three business days of awareness of breaches. - MAS reviews notifications and follows up. - CIS operators required to submit periodic returns and maintain records for not less than five years. *Source: _cr13344 - section 95(2)(d)).* ### Chapter 3—paragraph 3.1(a)). Where the CIS operator faces conflicts of ### Chapter 3—paragraph 3.1(a)). Where the CIS operator faces conflicts of interests in respect of voting rights relating to the scheme’s investments, the CIS operator should cause such votes to be exercised in consultation with the trustee (CIS Code, Chapter 3—Paragraph 3.2(c)). ### Conflicts of interest and voting rights - Where the CIS operator faces conflicts of interests in respect of voting rights relating to the scheme’s investments, the CIS operator should cause such votes to be exercised in consultation with the trustee (CIS Code, Chapter 3—Paragraph 3.2(c)). - IMAS Code of Conduct requires CIS operators: - to conduct its business with integrity and professionalism and act in an ethical manner; - to identify, manage and disclose any conflicts of interest between itself (including its managers or employees) and its clients, or between two different clients; - not to carry out, on behalf of the CIS, transactions with its related company unless such transactions are on arm’s length terms, consistent with best execution standards and at a competitive commission rate; - not to deposit monies, on behalf of the CIS, with its related company unless the interest is received at a rate not less favorable to the CIS than the prevailing commercial rate for a deposit of that size and term (taking into account the credit standing of the deposit-taker); - not to borrow funds, on behalf of the CIS, from its related company unless the interest and fees charged are no higher than the prevailing commercial rate for a similar loan. - IMAS Code of Conduct requires prior approval and documentation for employee personal dealings, priority for clients’ transactions over employee transactions, and immediate reporting of potential conflicts to the senior compliance officer and an appropriate senior director. ### Listing requirements for CIS operators of listed CIS - CIS operators of listed CIS are required to: - observe the requirements on interested person transactions set out in Chapter 9 of the SGX Listing Manual, including making public announcements of any interested person transaction amounting to 3 percent or more of the latest audited NAV of the CIS and obtaining unitholders’ approval of any interested person transaction amounting to 5 percent or more of the latest audited NAV of the CIS (SGX-ST Listing Manual, Rules 905(1) and (2), and Rule 906(1)); - disclose the aggregate value of interested person transactions entered into during the financial year of the CIS in the annual report of the CIS; (SGX-ST Listing Manual, Rule 907). ### Operational and conduct requirements (CIS Code) - CIS operators licensed by or registered with MAS must comply with requirements on independent custody, independent valuation, and adequate arrangements for internal audit, compliance, and risk management. - CIS Code operational obligations include: - payment of redemption proceeds; - preparation of accounts and reports; - exercise of voting rights; - notification of significant changes. - CIS Code requires arrangements to take all reasonable steps to obtain the best possible result for the scheme, taking into account execution factors such as price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of a trade or transaction (CIS Code, Chapter 3—paragraph 3.1(d)). - CIS operators must accord priority to transactions for the scheme over those of its connected persons; failure to conduct appropriate trading or timely allocation of transactions would be a contravention. - CIS Code explicitly prohibits entering into unnecessary trades to qualify for soft dollars (CIS Code, Chapter 3—paragraph 3.2(h)); churning is a contravention. ### Disclosure requirements and restrictions on charges, rebates, and soft dollars - Semi-annual and annual reports must disclose: - the turnover ratios for the period under review and the corresponding period in the previous year; - any soft dollars received from the brokers which executed transactions for the scheme; - a confirmation by the CIS operator that trades were made on a best execution basis and there was no churning of trades. - CIS operator only allowed to acquire permissible investments and enter into transactions consistent with the investment objectives and approach of the scheme (CIS Code, Chapter 3—paragraph 3.1(c)(v)); failure to conduct adequate due diligence is a breach. - Requirements aimed at preventing unauthorized charges or expenses and conflicts arising from rebates, soft dollars or inducements: - the CIS operator is explicitly prohibited from making any payment from the scheme if the payment is unfair to, or materially prejudices the interests of, any participant or prospective participant (CIS Code, Chapter 3—paragraph 3.5(a)); - the CIS operator must not charge any marketing or promotion expenses or fees which have not been provided for in the trust deed to the scheme (CIS Code, Chapter 3—paragraph 3.5(b) and (c)); - the CIS operator must not retain for its own account, cash or commission rebates arising out of transactions for the scheme executed in or outside Singapore (CIS Code, Chapter 3—paragraph 3.2(g)); - The CIS operator must not retain any soft dollars unless (i) the soft dollars can reasonably be expected to assist the CIS operator’s provision of investment advice or related services to the scheme; (ii) the transactions have been carried out on a best execution basis; and (iii) soft dollars are not generated from unnecessary trades (CIS Code, Chapter 3—paragraph 3.2(h)). ### Performance fees and sub-management - Performance fee requirements: - The calculation of the performance fees should be equitable to all participants; - The performance fee should be calculated and paid after taking into account all other payments; - Crystallization of performance fees should be no more frequent than once a year; - The performance should be calculated based on a fulcrum fee or high water mark to prevent excessive performance fees; - The performance fee should be calculated based on an appropriate benchmark taking into consideration the scheme’s objectives (CIS Code, Chapter 3—paragraph 3.6). - Sub-manager and delegate requirements: - Local delegate must be a holder of a CMS license for fund management under the SFA; - Foreign delegate must be reputable and supervised by an acceptable financial supervisory authority; - Financial strength and fund management capability of the delegate are relevant considerations; - Country of domicile of the delegate must have a good legal infrastructure and a supervisory regime with standards consonant with international best practice. - Authorized schemes which are sub-managed must be invested in accordance with the investment guidelines for authorized schemes. Where invested in a foreign CIS, the foreign CIS must: - be constituted and regulated in a jurisdiction where the laws and practices afford to participants in Singapore protection at least equivalent to that afforded to participants of schemes which are wholly managed in Singapore; - adhere to investment and borrowing guidelines which are substantially similar to those set out in the CIS Code; - have a manager that is reputable and supervised by an acceptable financial supervisory authority. ### Outsourcing: MAS Guidelines on Outsourcing and supervisory expectations - Prior to outsourcing, CIS operator should take into account the requirements in the MAS Guidelines on Outsourcing (MAS Guideline SFA04-G05 on Licensing, Registration and Conduct of Business for Fund Management Companies, paragraph 4.4). - Key expectations: - Outsourcing does not diminish obligations of the CIS operator, board, and senior management to comply with relevant laws and regulations in Singapore. - CIS operator should have risk management practices to ensure all relevant laws, regulators, guidelines, and conditions of approval/licensing/registration continue to be met. - CIS operator should not engage in outsourcing that compromises internal control, business conduct or reputation. - Delegate must employ a high standard of care as if the function were not outsourced. - CIS operator must maintain capability and appropriate monitoring and control to conduct business with integrity and competence in the event of disruption or termination of outsourcing. - Contractual terms must be carefully defined in written agreements, allow for renegotiation and renewal, and permit CIS operator intervention and termination on events of default (MAS Guidelines on Outsourcing, paragraph 6.4). - Prospectus must disclose any delegated function and identity of delegate, specifically: - where the scheme is sub-managed, the name of the sub-manager; - where the scheme is a feeder fund or a fund of funds, the name of the manager for each underlying fund; - the name of the investment adviser (if any) who advises the CIS operator in its management of the scheme. - MAS may require modification, alternative arrangements, or reintegration of outsourcing where: - the operator fails or is unable to implement adequate measures to address risks and deficiencies arising in its outsourcing in a satisfactory and timely manner; - adverse developments arise from the outsourcing that could significantly affect the operator; - MAS’ supervisory powers and ability to carry out its supervisory functions are hindered. - Access and supervision requirements for outsourcing: - Outsourcing must not hinder MAS’ supervisory powers or ability to carry out supervisory functions. - Outsourcing agreements must include clauses allowing MAS or an agent appointed by MAS to access both the delegate and the CIS operator to obtain records and documents, transaction information, and any reports and findings made on the delegate. - Outsourcing outside Singapore should not hinder supervision or reconstruction of Singapore activities in a timely manner; CIS operator is not allowed to outsource to jurisdictions where prompt access to information by MAS may be impeded by legal or administrative restrictions. - CIS operator outsourcing outside Singapore must commit to retrieving information readily from the service provider should MAS request such information and confirm in writing to MAS that there are rights of access to the CIS operator’s information, reports and findings at the service provider. - MAS may require termination or alternative arrangements if MAS’ ability to carry out supervisory functions cannot be assured. ### Supervisory assessment and industry structure observations - Assessment: Broadly implemented. - Comments and observations: - Regulatory requirements of authorization, recognition and notification enable MAS to be well informed about the size and structure of the CIS industry and to develop reasonably accurate metrics concerning the risk, systemic and otherwise, inherent in the business. - Gatekeeping appears rigorous as regards operators and overseas schemes. - Minor downgrade reason: once an operator (or scheme) is inside the perimeter the supervisory approach relies heavily on periodic reporting, desk-based surveillance, onsite surveillance of limited length (company visits), and deterrence effects of licensing of individuals and MAS enforcement activities. - Very few full/in-depth onsite inspections; MAS implemented a large program of licensing and registering fund managers operating under the exempt fund manager regime over the past two years, distorting inspection frequency. - Recommendation: as work returns to “business as normal” in the second half of 2013 MAS should enhance its onsite regime to exceed pre-2010 levels, including authorized trustees. CIS operators rated as high or medium high should be subject to full inspections more frequently than current cycles (three and five years, respectively). Consider up-rating some managers currently rated below high risk. - Figures for license and registration applications under new enhanced regulatory requirements for FMCs indicate very few previously exempt FMCs have a business model of offering fund management services to all investors: 4 out of 412. - Many FMCs are very small (two person businesses) and engage in diverse activities (sub-mandates for overseas CIS, managing assets for family and friends, private equity for a few high net worth individuals, etc.). - MAS is aware of the need to be alert to the risk that those who have not applied for licensing or registration (or who have been declined) may exit the industry or obtain legitimate employment elsewhere and not continue in fund management illicitly. ### Principle 25: legal form, structure, and segregation/protection of client assets - Description for authorization under the SFA for unit trusts (section 286(2) of the SFA, SF(CIS)R and CIS Code): - i. be managed by a manager that is fit and proper; - ii. have an approved trustee; - iii. ensure that its trust deed complies with the requirements in the SF(CIS)R; - iv. the scheme, the manager and trustee complies with the CIS Code. - Where a CIS is not a unit trust, section 286(3) of the SFA provides that the manager of the scheme must be licensed or exempted accordingly, and be a fit and proper person. *Source: _cr13344 - Chapter 3—paragraph 3.1(a)). Where the CIS operator faces conflicts of interests in respect of voting rights relating to the scheme’s investments...* ### Section 286(4) of the SFA also provides additional powers for MAS to prescribe ### Section 286(4) of the SFA also provides additional powers for MAS to prescribe ### MAS prescribing powers and scheme forms - Section 286(4) of the SFA provides additional powers for MAS to prescribe requirements in respect of the scheme and the manager. - MAS has not prescribed any requirements for such schemes as the only domestic schemes that are not unit trusts are REITs, which are closed end structures subject to a special regulatory regime. - Recognized schemes managed overseas can be in corporate form. ### Responsibilities of the trustee (unit trust CIS) - For unit trust CIS, the trustee plays an important role as an independent oversight entity. - Under the SFA MAS will require, as a condition for authorization, a unit trust to have a trustee approved under section 289 of the SFA (Approved Trustee). - Duties and responsibilities of an approved trustee are set out in the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 and the Code on Collective Investment Schemes and described above in Principle 24. - Amongst other responsibilities, the approved trustee has to: - (i) inform MAS of any contravention of legal or regulatory requirement by the manager for the scheme within three business days after it becomes aware of the contravention; - (ii) take into custody or control all the property of the scheme and hold it in trust for participants; - (iii) ensure that all the property of the scheme is properly accounted for; and - (iv) ensure that property of the scheme is kept distinct from its own property or the property of its other clients. - The trust deed of the scheme must contain a covenant binding the approved trustee to exercise all due diligence and vigilance in carrying out its functions and duties in safeguarding the rights and interests of the participants of the scheme. ### Legal form and investors’ rights (trust deed and prospectus) - The SF(CIS)R requires the trust deed of an authorized scheme to contain provisions relating to: - the structure of the scheme; - the nature of the units in the scheme; - the investment objective of the scheme; and - the types of authorized investments and investment restrictions applicable to the scheme as set out in the CIS Code. - The trust deed must contain provisions relating to the rights of investors or impediments to exercising their rights, including: - the extent of a participant’s right to request redemption on request; - the right to receive a copy of the audited financial statements within three months of the financial year of the scheme; - rights with respect to transfer of units; and - rights with respect to convening of meetings. - For listed CIS, the SGX listing rules require the rights of investors to be set out in the Trust Deed (SGX-ST Listing Manual, Chapter 4, Rule 409(2)). - MAS reviews all prospectuses prior to registration. - SF(CIS)R requires the prospectus of all authorized and recognized schemes to disclose all material information which investors would reasonably require for the purpose of making an informed decision about the merits and risks of the scheme (SF(CIS)R Third Schedule, paragraph 78). - Prospectus disclosure must include: - rights of investors or impediments to exercising rights (subscription and redemption, annual audited financial statements); - the scheme’s legal form and structure; - general risks and scheme-specific risks (SF(CIS)R Third Schedule, Paragraphs 4, 7, 16, 23, and 24). - The CIS operator operating an authorized scheme must notify participants of any significant change not later than one month before the change is to take effect (CIS Code, Chapter 3—paragraph 3.2(d)). - CIS operator must obtain participants’ approval (extraordinary resolution) for any modification of the trust deed unless the trustee certifies that the modification: - (i) does not materially prejudice participants’ interests and does not release the CIS operator from any responsibility to the participants; - (ii) is necessary to comply with statutory or official requirement; or - (iii) is to remove obsolete provisions or correct manifest errors (CIS Code, Chapter 3—paragraph 3.2(f)). ### CIS Code investment restrictions and MMF-specific rules - The CIS Code sets out restrictions on permitted investments, diversification limitations, and limitations on amount and tenure of borrowings. - MMF-specific examples (Appendix 2 to the CIS Code): - MMFs’ underlying investments may only consist of high quality debt securities and money market instruments, deposits placed with licensed deposit-taking institutions and financial derivatives for the sole purpose of hedging (narrowly defined by MAS). - Additional restrictions for MMFs marketing as short term MMFs: - may only invest in non-deposit instruments with a remaining term to maturity of not more than 397 calendar days; - must maintain a dollar-weighted average portfolio maturity that does not exceed 120 calendar days. - The dollar-weighted average portfolio maturity is calculated based on each investment’s remaining term to maturity and weighted based on its market value. - Constant value units are not permitted to be offered by MMFs domiciled in Singapore. ### Separation of assets / safekeeping - SF(CIS)R requires the approved trustee to take into custody or control all the property of the scheme and hold it in trust for the participants (SF(CIS)R Regulation 7(1)(b)). - Only public companies (as defined under CA) which meet the criteria in Regulation 5 of the SF(CIS)R may be approved by MAS to act as a trustee for an authorized scheme. - Most approved trustees in Singapore are subsidiaries of banks; individuals generally cannot satisfy requirements to be an approved trustee. - Approved trustee obligations include: - ensure all property is properly accounted for and kept distinct from its own property and property of other clients (SF(CIS)R Regulation 7(1)(c) and (d)); - segregate accounts of each trust at common law. - Approved trustee may delegate safe custody to a third-party custodian but remains responsible in event of misconduct if it fails to exercise due care and diligence (MAS Circular on Trustee’s Responsibility for Safe Custody of Assets of a CI). - The approved trustee must: - exercise due care and skill in appointing any third-party custodian; - keep under active review all custodial arrangements, including monitoring that arrangements address all potential risks to safekeeping and are effectively implemented; - retain its power to intervene where appropriate. - Supporting references: Trustee Act Sections 41N and 41M; MAS Circular on Trustee’s Responsibility for Safe Custody of Assets of a Collective Investment Scheme. ### Independence of the trustee / custody function - The trustee holding assets of an authorized scheme in safekeeping is required to be legally and functionally independent of the CIS operator (CIS Code, Chapter 2—paragraph 2.1). - They must not be the same legal entity; independence assessed case-by-case at authorization application. - Cross-holding and common directors are considered; generally independence not met if common shareholders hold direct or indirect interests of 20 percent or more in both trustee and CIS operator. - Any factors/relationships that may affect trustee’s independence must be disclosed at time of authorization application (on the application form). - A CIS operator which is a LFMC is required to ensure assets under its management are subject to independent custody. - Independent custodians include depositories and banks suitably licensed, registered or authorized in their jurisdictions. - Approved trustee may delegate custodial function to a third party depositary or custodian bank (Guidelines on Licensing, Registration and Conduct of Business of Fund Management Companies, paragraph 4.1.1). ### Winding up procedures - CIS operator must notify MAS in writing at least seven days before the winding up of an authorized or recognized scheme. - Where MAS revokes or withdraws authorization, CIS operator and trustee must take necessary steps to wind up the scheme. - If CIS operator is in liquidation or has ceased business, trustee must call a meeting of participants to determine appropriate action. - If resolution is passed to wind up, CIS operator and trustee must take necessary steps. - Trustee has oversight responsibility during winding up to monitor that all assets have been realised and resultant proceeds (net of outstanding liabilities) distributed to participants in same proportion as holdings. - Trustee must furnish a confirmation to MAS that scheme’s assets have been realised and resultant net proceeds have been distributed within two weeks of the winding up (CIS Code, Chapter 2—paragraph 2.3(d)). - MAS has never had to wind up a fund compulsorily. - Assessment status: Broadly Implemented. - Comments: - MAS should enhance supervision of main trustees as set out under Principle 24. - The 2011 inspection of a trustee revealed several concerns requiring MAS-mandated remedial action. - It is essential MAS satisfies itself such problems are not widespread. - Assessors received comments that trustees should be expected to know more about the business of the CIS operators they supervise and be readier to enforce rights of unit holders. ### Principle 26 — Disclosure requirements; Offering documents - Offers of authorized or recognized schemes must be made in or accompanied by a prospectus prepared in accordance with SF(CIS)R Third Schedule disclosure requirements. - Prospectus must disclose all material information investors and professional advisers would reasonably require for informed decisions about merits and risks. - SF(CIS)R sets out specific disclosure requirements including information relating to the scheme and the CIS operator. - Offer of unlisted CIS or ETFs must be accompanied by a prospectus and a Product Highlights Sheet (PHS) (Sections 240AA and 296 SFA). - The PHS: - complements the prospectus; - provides key features and risks in a clear and concise manner; - has prescribed templates serving as minimum standard. - Key PHS elements include: - scheme’s investment strategy and how it intends to achieve objective; - key risks that are commonly occurring or may cause significant losses; - processes and structures introducing significant risk must be disclosed; - disclosure of all parties involved (manager, sub-manager, swap counterparty, trustee, custodian) and implications if parties become insolvent; - how often and where valuations are published; - how investors can exit and risks and costs in doing so. ### Detailed disclosure requirements in SF(CIS)R Third Schedule - Prospectus content requirements include: - date of registration and expiry date of the prospectus; - place of constitution of the scheme; - name of the trustee and where trust deed may be inspected; - features of each class of units and rights/obligations of participants in each class; - name and track record of operator and any sub-manager which manages 30 percent or more of the asset value of the scheme; - name of any investment adviser advising the operator; - for feeder fund or fund of funds, details of the manager for each underlying fund; - for schemes constituted outside Singapore, the prospectus must state the name and address of the local representative. - Trust deed must state: - method of valuation of investments, time of day when valuation is to be made, and method of determining the sale price of a unit. - Recognized schemes’ constitutive documents must comply with domicile jurisdiction laws and regulations. - MAS has so far recognized only UCITS schemes from the EU; under UCITS Directive, rules for valuation of assets must be disclosed in the prospectus. - Prospectus must disclose subscription and redemption procedures and pricing procedures, where to obtain buy/sell prices and dealing days, dealing deadline, whether pricing is forward or historical, and give a numerical example of allocation or realization calculation. - Prospectus must state where investors may obtain latest semi-annual or annual accounts and, for a new scheme, when participants can expect to receive semi-annual and annual accounts. ### Product-specific disclosure and fees - MMF prospectus must state (on the cover page): - the purchase of a unit in the MMF is not the same as placing funds on deposit with a bank or deposit-taking company; - although the manager may seek to maintain or preserve the principal value of the MMF, there can be no assurance that the fund will be able to meet this objective; and - the MMF is not a guaranteed fund, in that there is no guarantee as to the amount of capital invested or return received. - SF(CIS)R requires the prospectus to provide a breakdown by type and amount (by percentage of the value of units) of all fees and charges payable by investors and by the scheme and illustrations on how all fees and charges payable by the investor will affect the number of units (subscription) and the realization amount (redemption). - Where prospectus contains past performance disclosure, calculation of return must take into account subscription fee and realization fee. - PHS must also disclose all fees and charges payable by investors and by the scheme, indicate whether fees are once-off or per annum, and whether fees may later be increased or new fees introduced. ### Intervention powers (prospectus registration and enforcement) - MAS may refuse to register a prospectus if: - it contains a false or misleading statement; - there is an omission of required information; - there is inclusion of prohibited information; or - MAS is of the opinion it is not in the public interest to register the prospectus (Section 296(10) SFA). - MAS may issue a stop order on a prospectus already registered if it contains a false or misleading statement or does not comply with SFA requirements (Section 297(1) SFA). - MAS may require the CIS operator to refund subscription monies. - CIS operator (and its directors) will be subject to criminal liabilities under section 253 SFA and civil liabilities under section 254 SFA for false or misleading statements or omissions in the prospectus. - Investors may seek civil remedy under section 254 SFA. - MAS and CAD have agreed procedures for deciding whether to pursue criminal or civil action in particular cases. ### Advertising restrictions before prospectus registration - Section 300 of the SFA provides that before a prospectus is registered, no advertisement or publication directly or indirectly referring to the offer of units in a scheme can be made, except: - An advertisement or publication containing brief information that identifies the person making the offer, the operator and the scheme; a statement that anyone wishing to acquire the units will need to make an application in the manner set out in the prospectus; a statement on how to receive a copy of the prospectus; and the investment focus of the scheme. - Dissemination of a preliminary document that has been lodged with MAS to institutional and accredited investors. - Presentation of oral or written material on matters contained in a preliminary document to institutional and accredited investors. *Source: _cr13344 - Section 286(4) of the SFA also provides additional powers for MAS to prescribe* ### Section 300(4) of the SFA allows the publication of the following, amongst others, ### _cr13344 - Section 300(4) of the SFA allows the publication of the following, amongst others, ### Publication exemptions and advertising constraints - Section 300(4) SFA allows publication, regardless of whether a prospectus has been registered or not, of: - a disclosure, notice or report required by the SFA or listing rules or other requirements of a securities or futures exchange; - a notice or report of a general meeting of the scheme’s participants or of a general meeting of the CIS operator; - a report about the scheme that is issued pursuant to the SFA and the CIS Code; - a report about the units by someone who is not the CIS operator, its agent or distributors; - a report about the units published and delivered to institutional investors not later than 14 days prior to the date of lodgement of the prospectus, provided delivery of the report is restricted; and - an advertisement or publication in the ordinary course of a business (i.e., not related to the offer). - After a prospectus is registered: - advertisements may be made provided they do not contain any information that is false or misleading or that cannot be justified on the facts known to the person responsible for the advertisements (Section 300(3C) SFA read with SF(CIS)R Regulation 21); - an advertisement must not, whether by the prominence given to specific information or otherwise, create a false or misleading impression about the scheme. - Sanctions for contravention (Section 300(7) SFA): - fine not exceeding $50,000 or imprisonment for a term not exceeding 12 months or both; - in the case of a continuing offense, a further fine not exceeding $5,000 for every day or part thereof during which the offense continues after conviction. ### Ongoing disclosure — Prospectus - Prospectus maintenance and use: - prospectus must be kept up-to-date to take account of any material changes affecting the CIS; - a prospectus registered by MAS may not be used to offer a scheme after the expiration of 12 months from the date of registration (Section 299 SFA). - Liability for failure to update: - a CIS operator who offers units in a CIS with a prospectus which has not been updated to take into account a new circumstance that has arisen since the prospectus was lodged with MAS is subject to criminal and civil liabilities (Section 302 read with sections 253 and 254 SFA). - Updating mechanisms: - SFA provides for a CIS operator to update the prospectus of a scheme by way of lodging supplementary or replacement prospectuses. ### Ongoing disclosure — Periodic reports - Preparation and delivery timelines: - annual accounts of the scheme and the auditors’ report must be sent within three months from the end of each financial year of the scheme; - semi-annual reports must be sent within two months from the end of the period covered by the report. - Required content for semi-annual and annual reports of an authorized scheme: - investments, exposure to financial derivatives, related party transactions, performance, expense and turnover ratios, key information on any underlying scheme and soft dollar commissions; - additional information specific to the particular type of the scheme (e.g., MMFs, hedge funds and property funds). - Accounting framework: - semi-annual and annual accounts must be prepared as prescribed by the Recommended Framework for Unit Trusts issued by the ICPAS (RAP 7); - RAP 7 provides that accounting policies of a scheme should generally comply with recognition and measurement principles of SFRS (which are substantially converged with the International Financial Reporting Standards); - RAP 7 was most recently updated in June 2012. ### Other sanctions and MAS powers - Prospectus liability: - CIS operator may be exposed to prospectus liability for having made a false or misleading statement in the prospectus (Sections 253 and 254 SFA) if the CIS deviates from its stated investment objectives, focus and approach. - Notification requirement for changes: - CIS operator required to notify MAS and existing participants of a change in the scheme’s investment objectives and focus or the CIS operator’s investment approach not later than one month before the change is to take effect; failure may be deemed a breach of the CIS Code. - MAS enforcement powers: - MAS may issue directions by notice in writing to the CIS operator where it appears necessary or expedient in the public interest to do so (section 293 SFA). ### Asset valuation - Trust deed requirements (SF(CIS)R Regulation 9(e)(ii) and (iii)): - must specify full particulars of (i) the method of valuation of investments comprised in the scheme and the time of day when the valuation is to be made; and (ii) the method of determining the price at which a unit in the scheme is to be redeemed. - prospectus must state whether pricing is done on a forward or historical basis. - any changes to valuation or redemption pricing methods must be approved by the trustee; the trustee determines if unit holders should be informed of such a change (SF(CIS)R Regulation 9(f)). - Valuation frequency: - if the scheme does not offer dealing every business day, units should be valued every regular dealing day, but in any event, at least once a month (CIS Code, paragraph 6.4(j)). - NAV calculation and accounting standards: - NAV must be calculated on a consistent basis and in accordance with RAP 7 (CIS Code, Chapter 6—paragraph 6.4(b)); - RAP 7 is intended to be applicable to all authorized unit trusts in Singapore and states accounting policies should generally comply with SFRS. - Quoted investments: - value must be based on the official closing price or the transacted price at a cut-off time (specified and applied consistently by the CIS operator) on the organized market on which the investment is quoted, unless such price is not representative or not available; - CIS operator determines, with due care and in good faith, whether the price should be considered representative (CIS Code, Chapter 6—paragraph 6.4(h)). - Unquoted investments and fair value: - where transacted price is not representative or not available, value should be based on fair value defined as the price the scheme would reasonably expect to receive upon the current sale of the investment; - fair value should be determined with due care and in good faith, and the basis for determining fair value must be documented (CIS Code, Chapter 6—paragraph 6.4(f)). - Valuers and trustee approval: - except for quoted investments, all investments should be valued by a person approved by the trustee as qualified to value such assets; - CIS Code requires any valuer appointed to value unquoted securities to be specifically approved by the approved trustee. - MAS expectations for third-party valuers (in practice): - i. possesses adequate and relevant credentials, experience, and have a good track record; - ii. has adequate and sound compliance, risk and controls oversight framework in place; - iii. has sufficient operational resources; - iv. has sound pricing policy and valuation methodology (e.g., in line with IOSCO valuation principles); - v. is independent from the CIS operator. - Trustee due diligence: - approved trustee must take into account the results of due diligence which the manager has done on the third-party valuer. - Suspension of valuation and dealing: - where the market value or fair value of a material portion of the authorized scheme’s assets cannot be determined, the CIS operator should suspend valuation and dealing in the units in the scheme (CIS Code, Chapter 6—paragraph 6.4(h)). - Books, audit and statutory obligations: - CIS operator responsible for keeping books of account to explain transactions and financial position and enable proper audit (SF(CIS)R Regulation 8(2)(a)(v) and 8(2)(b)(ii)); - trustee responsible for causing those accounts to be audited; - auditors check valuation of the scheme’s assets during routine audits in accordance with the SSA (or equivalent standards) and generally sample over a period of time. ### Pricing and publication of unit prices - Pricing mechanics: - CIS operator required to issue, redeem or repurchase units at a price arrived at by dividing the NAV of the scheme by the number of units outstanding; - price may be adjusted by adding or subtracting fees and charges in compliance with the scheme’s prospectus or trust deed (SF(CIS)R Regulation 8(2)(ii); CIS Code Chapter 6—paragraph 6.4). - Publication frequency and disclosure: - CIS operator required to publish the value of a unit at least once every dealing day (CIS Code, Chapter 6—paragraph 6.4(k)); - prospectus must state where investors may obtain buying and selling prices (e.g., website, newspapers) and the dealing days to which the prices apply; - where prices are available from Singapore publications or media, the prospectus must state the names of such publications or media (SF(CIS)R Third Schedule, paragraph 42). - Market practice: - prices of all authorized CIS are published at least weekly in the local newspapers and daily on the websites of the CIS operators or distributors. - Systems and covenants: - trustee and CIS operator should have proper systems for the pricing process (such as reconciliation of prices) and to identify and rectify pricing errors; - relevant requirements concerning valuation and pricing must be set out in the scheme’s trust deed as binding covenants; - under SF(CIS)R Regulation 10, any CIS operator or trustee who fails to comply with these covenants will be guilty of an offense and shall be liable on conviction to a fine not exceeding $50,000. - MAS directions: - MAS has the power to issue directions by notice in writing to the CIS operator and trustee where it appears necessary or expedient in the public interest to do so (section 293 of the SFA). ### Pricing errors - Notification and investigation: - when a CIS operator becomes aware of an error in the calculation of the scheme’s NAV per unit, it is required to notify MAS as well as the trustee; - a revised valuation should be performed, by the person responsible for the valuation, for each valuation date during the period when the error occurred to ascertain the size of the error. - Compensation threshold and rules (CIS Code): - where the valuation error represents 0.5 percent or more of the scheme’s NAV per unit after adjustment for the error, the CIS operator is required to compensate (i) affected participants; and (ii) the scheme, for any losses incurred as a result of the valuation error; - the CIS operator need not make any compensation if the valuation error represents less than 0.5 percent of the scheme’s NAV per unit; - if the CIS operator chooses to compensate one or more participants, the CIS operator must compensate all other participants in the scheme on the same basis; - the trustee would have to notify MAS when the manager has satisfactorily completed such compensation. *International Monetary Fund — Singapore section (excerpts).* ### Chapter 6—paragraph 6.5). ### _cr13344 - Chapter 6—paragraph 6.5). ### Suspensions/terminations - A CIS operator may suspend the issue or redemption of units in an authorized scheme in exceptional circumstances, which must be disclosed in the prospectus of the scheme (SF(CIS)R Third Schedule, paragraph 43,) if the operator believes that suspension is in the best interest of participants. - The suspension should cease as soon as practicable when the exceptional circumstances cease to exist, and in any event, within 21 days of the commencement of the suspension. - The suspension may only be extended if the CIS operator satisfies the trustee that the extension is in the best interest of participants. Any such extension is subject to weekly review by trustee (CIS Code, Chapter 6—paragraph 6.2(a) and (c)). - The CIS operator is required to notify MAS of a suspension of a scheme and the reasons for the suspension. The operator and the trustee are required to keep the position under review. The trustee is required to notify MAS once dealing in units of the suspended scheme resumes. (CIS Code, Chapter 6 - Paragraphs 6.2(b) and 6.3). - MAS has regulatory tools and legal powers to deal with such situations, including the power to issue directions or take enforcement action. - Assessment: Fully Implemented Comments - MAS has robust requirements for disclosure of valuation of assets of CIS, changes in valuation methodology and the calculation of pricing and redemption of units. - Obligations on CIS operators (and trustees) include mechanisms to make valuations rigorous and provisions for pricing unquoted or illiquid assets, including tests for selecting third party valuers. - MAS should consider reviewing current market practice and consider whether enhancements to regulatory requirements are necessary given potential conflicts of interest when pricing such assets. ### Principle 28 — Hedge funds oversight Description and authorization - Fund management is a regulated activity under the SFA. All FMCs in Singapore, including hedge fund managers, are required to possess requisite authorization from MAS. - FMCs may apply for a CMSL pursuant to SFA section 82 as a LFMC or register with MAS as a RFMC. - Registration as a RFMC is available only if conditions are met: FMC carries on fund management in Singapore on behalf of not more than 30 qualified investors, of which not more than 15 are collective investment schemes, closed-end funds, or limited partnerships; total value of assets managed does not at any time exceed $250 million; the FMC is registered with MAS and the registration is, and continues to be, published on the MAS website. - An FMC seeking to be registered as a RFMC must comply with procedures and requirements prior to commencement of fund management business (paragraph 5(7) of Second Schedules of the SF(LCB)R). CIS Code definition and retail limits - The CIS Code defines a hedge fund as: a scheme which aims to achieve a high return through the use of advanced investment strategies. In assessing whether a scheme falls within this Appendix, the authority would consider, among other aspects, the following: (a) the use of advanced investment strategies which may involve financial instruments which are not liquid, financial derivatives, concentration of investments, leverage or short selling; Guidance: Advanced investment strategies include market directional, corporate restructuring, convergence trading or opportunistic strategies; and (b) the use of alternative asset classes. - If a hedge fund is classified as a CIS, offers of its units are regulated under the SFA. - Hedge funds authorized or recognized under section 286 or 287 of the SFA must comply with Appendix 3 of the CIS Code. - Under Appendix 3, a hedge fund sold to retail investors is subject to a minimum subscription requirement of S$100,000. - There are currently no hedge funds available for sale to retail investors in Singapore. The last such schemes closed at end 2012 having failed to attract investor interest. Restricted schemes and notifications - An operator may notify MAS to limit investors and, if accepted, MAS will enter the scheme on a list of restricted schemes. MAS may deny the request. - To be entered onto MAS’s list of restricted schemes, MAS must be satisfied that: - the manager for the restricted scheme must be appropriately licensed or exempted; - the manager for the restricted scheme is a fit and proper person; and - in the case of a scheme constituted as a unit trust, there is a trustee for the scheme approved under SFA section 289. - The operator of a restricted scheme must provide an annual notification to MAS. Contents are: i. Details of Scheme (structure, scheme type, identity of custodian, global AUM, Singapore AUM) and changes thereof, ii. Past disciplinary record (e.g., refused license/ registration, censure, suspension, civil proceedings, etc.), iii. Past and current financial standing of the operator (whether a receiver/judicial manager has been appointed). - MAS has recently introduced a requirement that it, and investors, must receive an initial information memorandum setting out essential features of the scheme as set out under Principle 24 (non-retail cis). Application forms and required information - All forms for the application for a CMSL as a LFMC and for registration as a RFMC are available on the MAS website. The forms state required information including: - applicant’s business to be carried out, business plans (type of fund management activity, investment strategy or focus, estimated clientele spread, estimated assets under management, approach in handling of customers’ moneys and assets, key service providers, areas of conflicts of interests); and - applicant’s directors, key officers, organization structure, shareholders; and audited balance sheet and financial information. Organizational and conduct requirements (LFMC and RFMC) - Regulation 13A(1) of the SF(LCB)R imposes organization and conduct requirements on LFMCs: - put in place a risk management framework appropriate to the nature, scale and complexity of assets; - subject assets under its management to independent valuation for determining net asset values; - segregate assets under management from proprietary assets of the LFMC and maintain them in a trust account or custody account; - accord priority to transactions done on behalf of customers; and - mitigate conflicts of interest and disclose where appropriate. - For RFMCs, similar obligations apply via regulation 54A of the SF(LCB)R, including provisions under regulation 13A and regulations pertaining to: - keeping of books, furnishing of returns and handling of customer assets; and - appointment of auditors and lodgement of annual accounts. - MAS conducts an annual survey to collate hedge funds' financial positions, including exposure to counterparties, derivative positions, etc. Risk warnings and disclosure for hedge funds - When a prospectus is required to market a hedge fund with a manager domiciled in Singapore, the prospectus cover page must state: - that the CIS Code does not prescribe investment guidelines for hedge funds; - that hedge fund investments carry different risks and may not be suitable for risk-averse persons; - that if not capital guaranteed/protected, investors may lose all or a large part of their investment; or if capital guaranteed/protected, investors face credit/default risk of guarantor/issuer; - that a hedge fund is not intended to be a complete investment program and prospective investors should consider suitability given their circumstances; - the frequency of redemption and the period within which realization proceeds will be paid to investors. - Pursuant to Appendix 3, the prospectus should also include: - a statement that the manager will ensure risk management and monitoring procedures and internal controls are adequate; - a statement that the manager has necessary expertise to control and manage risk; - the profile and role of the prime broker, if applicable; and - the material differences between the hedge fund and other types of CIS. - Managers must prepare semi-annual and annual audited accounts per RAP 7 and quarterly reports disclosing: - Qualitative manager report covering management and investments and outlook; - Performance covering: three-month, six-month, one-year, three-year, five-year, 10-year and since inception; - Financial metrics such as the Sharpe ratio, annualized standard deviation, highest and lowest NAV, fund size, NAV per unit; - Amount of borrowings and other sources of leverage, holdings which are not liquid, amount of seed money; - Aggregate exposure classified by country, industry, asset class or rating of debt security (if applicable) as at the end of the period under review; - Basis of calculation, definition and any assumptions used, wherever appropriate. - Non-retail CIS are required to provide disclosure set out under Principle 24. Prudential regulation for FMCs - Base capital as set out in the First Schedule to the SF(FMR)R: - S$250,000 for LFMCs serving only accredited or institutional investors; - S$1,000,000 for LFMCs serving retail investors; - plus a risk based capital requirement which applies to both. - For RFMCs (restricted scope) the requirement is the base capital requirement of $250,000. - The risk based element is an operational risk requirement based on revenues in line with Basel II provisions. - Regulation 14 of the SF(FMR)R: where a LFMC’s FR fall below 120 percent of its Total Risk requirement (TRR), it must immediately notify MAS, whereupon MAS may issue directions to the CMSL holder to cease fund management activity or transfer customer assets and accounts to other CMSL holders. MAS may also revoke the license of the CMSL holder. Supervision and enforcement - LFMCs and RFMCs, including hedge fund managers, must continue to meet regulatory requirements. MAS has a range of actions it may take for failures or breaches. International cooperation - MAS has wide-ranging powers to request and share public and non-public information with foreign regulators for investigations, enforcement, supervision, or to enable a foreign regulator to fulfil regulatory functions, subject to considerations such as gravity of the matter and public interest. - MAS regularly furnishes information to foreign regulators (including under the IOSCO MMOU). Powers allow exchange on timing or frequency as required and apply to any form of information. Assessment and comments on Principle 28 - Assessment: Broadly implemented - Comments: - As set out in Section VI(B) of this report 10 percent of the restricted schemes notified to MAS have been identified by MAS as hedge funds.44 - A total of S$60.9 billion in AUM, defined by MAS as hedge funds are managed in Singapore. - There are currently no retail hedge funds CIS offered to retail investors in Singapore. - MAS processes and requirements appear to meet standards under Principle 28. - Minor downgrade reason: ongoing supervision has some vulnerability in onsite inspections; consider whether hedge fund operators rated below High Risk in the risk based supervision framework should be up-rated. - Footnote 44: This is based on close to 80 percent responses to MAS’ recent survey. ### Principles for Market Intermediaries — Principle 29 (minimum entry standards) Description — services and activities subject to registration - Market intermediaries that undertake securities business must be licensed unless exempted. - A person who carries on business in any regulated activity under the SFA and the FAA is required to hold a CMS license and a FA license respectively (SFA section 82, FAA section 6). - The CMS license or FA license specifies the regulated activities allowed. - Regulated activities under the SFA include: - dealing in securities; - trading in futures contracts; - leveraged foreign exchange trading; - advising on corporate finance; - fund management; - real estate investment trust management; - securities financing; - providing credit rating services; and - providing custodial services for securities. - Regulated activities under the FAA include: - advising others concerning any investment product; - advising others by issuing research analyses or research reports concerning any investment product; - marketing of any collective investment scheme; and - arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance. - Representatives of a holder of CMSL or FAL must be registered by MAS for specific regulated activities (SFA section 99B and FAA section 23B). Names and activities of authorized representatives are on the public Register of Representatives on MAS’ website. Licensed entities and counts (as at December 31,2012) - Total number of market intermediaries supervised by MAS: 1110 - Breakdown: - 273 CMSL holders; - 62 FAL holders; - 23 Registered fund managers; - 517 Exempt fund managers; - 128 banks and insurers conducting SFA/FAA activities; - 83 Exempt corporate finance advisers; and - 24 Exempt financial advisers. - Exempt fund managers are progressively becoming registered fund managers. Licensing structure and branches - A CMSL is only granted to a corporation. Individuals acting as representatives must be registered by MAS. - Corporations providing FAA services require an FA license unless exempted; individuals providing FAA services on behalf of licensed FA must be registered. - Boutique Corporate Advisor Scheme (BCF) allows limited scope licensing for corporate finance advisers missing only corporate track record; few in number and no applications in last three years. - Banks, merchant banks, finance companies and insurance companies are exempt from holding a CMSL and/or an FAL because MAS regulates them under separate legislation (SFA section 99, FAA section 23). Representatives of these intermediaries are required to be registered with MAS as appointed, temporary or provisional representatives, except specified exemptions. - Exempt entities must comply with similar business conduct requirements by legislation and notices. MAS has same powers and supervision responsibilities as if they held licenses. - No restriction preventing foreign firms operating in Singapore. Since 2007, MAS has not granted licenses to foreign firms to provide financial services via a branch (except as a bank) as a matter of practice. There are 11 CMSL and 2 FAL holders that were branches operating before 2007. These branches must maintain internalized capital in Singapore. - Home jurisdiction of branch must be of satisfactory equivalent regulatory standard. Branch/subsidiary requirements include operating out of a physical office in Singapore, CEO resident in Singapore, and primary engagement in regulated activities. Registration requirements — admission criteria - Applicants for CMSL or FAL must meet requirements articulated in legislation, guidelines and forms. Admission criteria include: - Base capital; - Physical presence in Singapore; - Track record; - Directors and officers minimum experience; - Minimum number of representatives; - Parent and major shareholders home country supervision; - Compliance and management functions; - Management of conflicts of interest; - Fitness and propriety; - Financial soundness; - Viable business plan; and - Professional indemnity and undertakings by parent or substantial shareholders. - Applicants must pay the prescribed fee. Fit and proper and assessment considerations - In reviewing applications MAS considers: - whether applicant and officers/employees/shareholders are fit and proper (past performance/regulatory track record, qualifications, honesty, integrity, competence, financial soundness); - whether circumstances are likely to lead to improper conduct by applicant or staff (SFA Section 86 and FAA section 9); - whether minimum base capital is met; - whether applicant has adequate internal compliance systems commensurate with size and complexity; - organizational structure and internal control procedures and adequate means to supervise employees and representatives; - any potential conflicts of interest and mitigation measures. - SFA section 96 and FAA section 56 require prior MAS approval for appointment of CEO or director in Singapore. - SFA section 97A and FAA section 57A require prior approval for changes in substantial shareholder. - SFA Section 99B and FAA section 23B require registration of representatives with MAS prior to commencement of regulated activities. Registration process and timelines - MAS has documented internal procedures and approval protocols. Supervisory teams in the CMG assess applications and also undertake ongoing supervision. - Process: designated officer → team leader → division head → department head approval → in principle approval subject to conditions → license issued upon satisfaction of conditions. - Cases not meeting admission criteria are reviewed at MFSC (weekly forum chaired by DMD of Financial Supervision). Applicants that do not meet standards usually withdraw. Only one formal rejection to date, upheld on appeal. - Applicants aggrieved by MAS decisions may appeal to the minister within 30 days (SFA section 98); judicial review is available but not on merits. - MAS tracks time to process applications and strives to process complete applications within 12 weeks. Incomplete or complex cases take longer. - Key review processes include: - regulatory screening checks with local and foreign authorities for fit and proper assessment; - interviews with management and onsite review at applicant premises either before or shortly after license grant; - follow up visits or risk based inspections. - MAS launched Corporate E-Lodgement system (CeL) for online submission of application forms using interactive PDFs with guidance and built-in validation checks. Powers of MAS over securities intermediaries - MAS may refuse grant of CMSL or FAL (SFA section 86 and FAA section 9) if, inter alia: - the applicant or substantial shareholders are in course of being wound up or dissolved; - the applicant or substantial shareholders, or any officer has been convicted of an offence involving fraud or dishonesty; - education, qualification or experience of officers/employees is not satisfied for duties to be performed; - applicant or officers, employees and substantial shareholders are not fit and proper persons; - applicant or substantial shareholders have weak financial standing; - applicant lacks past performance records or expertise of the regulated activity; - there are circumstances likely to lead to improper conduct or reflect discredit on conduct of business by applicant, officers, employees or substantial shareholders. - MAS has power to refuse senior management appointments (SFA section 96 and FAA section 56). *Italicized source attribution: Chapter 6—paragraph 6.5). (Source PDF: _cr13344 - Chapter 6—paragraph 6.5).)* ### section 56). Grounds of refusal include: ### _cr13344 - section 56). Grounds of refusal include: ### Grounds for refusal of appointment of representatives - the appointee is an undischarged bankrupt; - a prohibition order has been made against the appointee; or - the appointee has been convicted of an offense involving fraud or dishonesty and punishable with imprisonment for a term of three months or more. - MAS has power to refuse the appointment of any representative by the licensed intermediary to conduct regulated activities if inter alia: - the appointee is an undischarged bankrupt; - the appointee has a judgment debt which has been returned unsatisfied in whole or in part; - the appointee has been convicted of an offense involving fraud or dishonesty, or has been convicted of an offense under the FAA/SFA; - the minimum education or other qualification or experience of the appointee having regard to the nature of the duties he is to perform in relation to the regulated activities is not satisfied; or - the appointee is not a fit and proper person (section 99M of the SFA and section 23J of the FAA). ### MAS powers over licensed intermediaries and representatives - MAS may vary or impose conditions or restrictions on a licensed intermediary under SFA (section 88(2)) and FAA (section 13(3)). - MAS may issue written directions setting out specific requirements to be complied with by a licensed intermediary (SFA section 101 and FAA section 58). - MAS may suspend or revoke the CMS license or FA license (SFA section 95 and FAA section 19). - MAS may revoke a CMSL or a FAL if: - there exists a ground on which MAS may refuse an application; - the CMS licensee or FA licensee fails to carry on business in all the regulated activities for which it was licensed; - MAS has reason to believe that the CMS licensee or FA licensee, or its officers or employees, has not performed its or his duties efficiently, honestly or fairly; - the CMS licensee or FA licensee has contravened any condition, restriction or written direction issued to it by MAS, or any provision of the SFA/FAA; - the CMS licensee or FA licensee has failed to satisfy any of its obligations under or arising from the SFA/FAA, or any written direction issued to it by MAS; - the CMS licensee or FA licensee is carrying on business likely to be detrimental to its clients or contrary to public interest; - the CMS licensee or FA licensee fails to pay license fees; - a prohibition order has been made against the CMS licensee or FA licensee; - the CMS licensee or FA licensee, or any of its officers or employees, has not performed her or his duties efficiently, honestly or fairly; - MAS has reason to believe that the CMSL or FAL holder has not acted in the best interest of the clients; or - the CMS licensee or FA licensee has furnished false or misleading information to MAS. - MAS may remove an officer of a licensed intermediary (SFA section 97 and FAA section 57) if the officer has failed to discharge the duties or functions of his office, or willfully contravened the SFA/FAA, or is not a fit and proper person for such office. - MAS may vary or impose conditions or restrictions on an appointed representative (SFA section 99N and FAA section 23K). - MAS may suspend or revoke the appointed status of the representative (SFA section 99M and FAA section 23J). ### Material changes, notification and approval requirements - Licensed intermediaries must report any change in circumstances or seek approval from MAS of matters which may materially affect the ability of the intermediary to carry out its regulated activities in a sound and proper manner, including: - any change in shareholding of the licensed intermediary; - any resignation of its CEO or directors; - when it becomes aware (a) that it or any of its officers has become the subject of an investigation or legal proceedings; (b) of any offense committed by or disciplinary action taken against it or any of its officers; (c) of any breach of law and regulatory requirements; or (d) of any other matter that would affect its or any of its officers' ability to meet the fit and proper requirements; - any matter which may adversely affects its financial position to a material extent; - any purchase, sale or merger of any part of its regulated business; - when it has fewer than two full-time representatives in respect of the regulated activities it conducts. (SFA section 88(1) and FAA section 13(2)). - The licensed intermediary must notify MAS of any change in information required to be kept in relation to the licensed intermediary, including its corporate name, address of the principal place of business, the scope and type of regulated activities to which its license relates, or any cessation of regulated activities (SFA section 93 and FAA section 18). - Apart from periodic statutory returns required (SF(FMR)R regulation 27 and FAA section 45), the licensed intermediary is also required to notify MAS immediately if it breaches any financial regulatory thresholds (e.g., base capital requirements). - Any change in shareholding that would result in a person obtaining effective control of the licensed intermediary requires the prior approval of MAS (SFA section 97A and FAA section 57A). - MAS may issue a written notice of objection requiring the shareholder to cease effective control of the licensed intermediary (SFA section 97B and FAA section 57B). - MAS may issue prohibition orders preventing a person that does not meet the fit and proper requirements from performing regulated activities (SFA section 101A and FAA section 59). ### Publicly available information and publication policy - The Directory of Financial Institutions on the MAS website contains the names of all licensed intermediaries, the names of their senior management, the activities the intermediary is permitted to carry on. The names of those exempted from licensing are also listed. - The names and the types of regulated activities of individuals who are authorized/appointed to act as representatives for the intermediary, as well as their regulatory status (including whether they are suspended or prohibited from carrying on regulated activities) are available on the public Register of Representatives on MAS’ website. - Enforcement actions taken against financial institutions and representatives are published on the MAS website however, not all actions are published. - MAS policy: not to disclose dealings with individual institutions where they are best dealt with in confidence or if disclosure of regulatory actions is unfair or unduly prejudicial to the subject of the action (MAS Approach for Publishing Market Conduct Regulatory Actions—November 9, 2004). - MAS policy with respect to reprimands for breaches of market conduct requirements is to publish them, including the circumstances justifying reprimands. Compositions and prohibition orders for breaches of market conduct requirements are also published. ### Investment advisers and custody of client assets - Market intermediaries and investment advisers are regulated according to the types of regulated activities they conduct. Regulatory requirements on record keeping, disclosure and management of conflicts of interest are applicable to both holders of a CMSL and FAL. - Under the FAR, investment advisers are not permitted to handle client assets unless otherwise provided for. - Under FAR (regulation 19), an investment adviser that distributes CIS, is only allowed to receive client money in the form of checks made payable directly to the provider of the collective investment scheme or custodians authorized by the client. The check must be handed over to the provider of the CIS or authorized custodians not later than the next business day. - As a FAL holder, such investment advisers are subject to inspections by MAS and other applicable regulatory requirements under the FAA. ### Assessment and comment on publication policy - Assessment: Fully Implemented - Comments: Given the wide scope of power that MAS may exercise against an intermediary and the range of sanctions available, MAS should consider reviewing its policy regarding publication of actions taken against intermediaries under MAS Approach for Publishing Market Conduct Regulatory Actions—2004. - IOSCO expectations support full transparency of regulatory actions, particularly on enforcement matters. Investors should know about problems with the behavior of intermediaries in the marketplace. Private sanctions should not be applied except in extraordinary cases. The normal process should be to publicly disclose all actions. ### Principle 30 — Minimum capital and prudential requirements for market intermediaries - CMSL: CMS licensees are required to meet a base capital requirement (imposed as a fixed capital requirement) and a financial resources requirement (imposed as a dynamic capital requirement) under the SF(FMR)R. - The base capital requirement serves an entry requirement and is included in the financial resources of the CMS licensee used to meet the financial resources requirement. - The base capital requirement must be met at all times and varies based on the regulated activities conducted by the CMS licensee from $250,000 to $5 million (SF(FMR)R First Schedule). - Subordinated debt is not permitted for this purpose. - The financial resources requirement is a risk-based and liquidity-adjusted requirement, meant to absorb potential losses as a going concern. - CMS licensees that are members of an approved exchange or DCH also have to comply with an aggregate indebtedness requirement in addition to the base requirement and the financial resource requirement under the SF(FMR)R. - For CMS licensees that are licensed to deal in securities or trade in futures contracts, but are not members of an approved exchange or DCH, or to carry out leveraged foreign exchange trading, an adjusted net capital (ANC) requirement, instead of the financial resources requirement, applies. - The ANC requirement is a risk- and liquidity-adjusted measure. ANC is the excess of current assets over liabilities less regulatory deductions for availability, valuation and liquidity of assets. - Under the ANC requirement, CMS licensees must ensure that their net capital funds are sufficient to meet the minimum ANC requirement. - The minimum ANC requirement in respect of CMS licensees to trade in futures contracts or carry out leveraged foreign exchange trading is also a percentage of the maintenance margins of customer transactions, and varies with the amount of business undertaken. - MAS recently completed a review of the capital requirements for CMS licensees. The revised framework commenced on April 3, 2013 with a two-year transition period (amendments to the SF(FMR)R and SFA Notice SFA04-N13 on Risk Based Capital Adequacy Requirements for Holders of CMS licensees). Under this new regime the financial resources requirement will be applied to all CMS licensees and the ANC requirement will no longer apply. ### CMS financial resources, TRR categories and leverage limits - The financial resources requirement is adjusted for liquidity and varies according to the business risks undertaken by CMS licensees. CMS licensees need sufficient financial resources to meet their TRR, which includes credit and affiliate risk. - TRR comprises the following categories: - Counterparty Risk Requirement (CRR)—generally 8 percent of risk-weighted exposure; - Position Risk Requirement (PRR)—factor of holding; - Large Exposure Risk Requirement—addresses concentrated exposure to a single counterparty (exceeding 20 percent of financial resources) or single issuer (exceeding 10 percent of financial resources or percentage of issue size—the limits are based on the CMS licensee’s financial resources or the issue size, not average aggregate resources or AAR); - Underwriting Risk Requirement—percentage of exposure depending on the type of security underwritten; - Operational Risk Requirement (ORR)—percentage of gross income; and - Such other requirement as may be imposed by MAS on the CMS licensee. - The firm must have financial resources equal to at least the sum of these requirements. - CMS licensees that are members of an approved exchange or DCH must also meet an aggregate indebtedness requirement. Aggregate indebtedness of a CMS licensee is not permitted to exceed 1,200 percent of its aggregate resources. - Aggregate indebtedness refers to the liabilities of the CMS licensee, while aggregate resources refer to the excess of the CMS licensee’s financial resources after deducting its total risk requirements. ### ANC and adjusted net capital specifics (historical) - Adjustments under ANC include deductions for excess of book value over market value of securities held, deductions for under-margined futures accounts, and deduction of non-current assets and unsecured loans. - Adjusted net capital is the excess of current assets over liabilities less regulatory deductions for availability, valuation and liquidity of assets. - Adjusted net capital requirement for dealing in securities is $250,000. - Trading in futures/leveraged forex trading ANC requirement is the higher of $2 million or a percentage of customers' maintenance margins and customers funds. - With effect from April 3, 2013, the financial resources requirement will be applied to all CMS licensees, and the ANC requirement is no longer applicable. ### FA licensee capital and ongoing requirements - The minimum paid-up capital required of FA licensees depends on the types of financial advisory services provided and is set at S$150,000 or S$300,000 (FAR (Regulation 15)). - MAS has recently issued a consultation paper to the industry on a proposal to revise the minimum capital and ongoing financial requirements for FA licensees. The proposed requirements, which include accounting for capital erosion and illiquid assets, are intended to better address liquidity and solvency risks. - On an ongoing basis, apart from the minimum paid up capital, an FA licensee’s net assets must be at least one-quarter of its relevant annual expenditure of the immediately preceding financial year; or three-quarters of the minimum paid-up capital, whichever is higher (FAR regulation 16). - MAS takes the view that FA licensees pose lower risks than CMS licensees as they do not hold customers’ positions and accordingly, FA licensees are required to maintain net asset to address operational risks only. ### Reporting of capital adequacy - All intermediaries are subject to record keeping requirements (SFA section 102 and FAA ...). *Source: _cr13344 - section 56). Grounds of refusal include:* ### section 45). They are required to maintain books that will sufficiently explain the ### _cr13344 - section 45). They are required to maintain books that will sufficiently explain the ### Financial recordkeeping - CMS licensees are required to maintain books that will sufficiently explain the transactions and financial position of their business and enable true and fair profit and loss accounts and balance-sheets to be prepared from time to time. - MAS may at any time request for the books to be produced. ### Reporting requirements for CMS licensees - CMS licensees have a statutory obligation to submit returns, using the prescribed forms, on quarterly and annual basis to provide information on the licensees’ financial position and compliance with the capital requirements. - The quarterly returns are required to be submitted within 14 days from the end of each quarter and the annual returns within five months from the end of the financial year. - The annual returns must be audited and accompanied by an auditor’s certification in the prescribed form. - CMS licensees are also required to submit their annual audited balance sheet and profit and loss statement, accompanied by an auditor’s report in the prescribed form. - CMS licensees who are members of an approved exchange or DCH are also subject to the reporting requirements of the exchange or clearing house (e.g., SGX requires returns on a monthly basis, which must be submitted within 14 days from the end of the month). ### Immediate notification requirements and early warning levels for CMS licensees - CMS licensees are required to immediately notify MAS and the approved exchange or DCH of which the CMS licensees are members whenever: - they fail to comply or become aware that they will fail to comply with the minimum requirement or fall below the early warning level, and - if any customer account is under margined by an amount that exceeds their aggregate resources. - CMS licensees are also required to notify MAS of any adverse developments in their financial condition. - There is an early warning level requirement to give immediate notice when financial resources < 120 percent of total risk requirement. MAS may take specific actions (e.g., restricting the scope of business) against such CMS licensees. - For CMS licensees that are members of an approved exchange or DCH an early warning level requirement applies at 600 percent of aggregate resources. CMS licensees who exceed this warning level are required to notify MAS and SGX immediately. - The approved exchange or DCH also imposes a higher early warning threshold (at 150 percent of financial resources over total risk requirements) on their members. The approved exchange or DCH may take specific actions against the member, including requiring the transfer of any customer’s positions, margin or collateral to another member if the member falls below the warning level. - The practice has been that if the early warning level of 150 percent is notified to the exchange, the CMS licensee will notify MAS. For the other early warning of 120 percent, both MAS and the exchange will be notified by the member. ### FA licensee reporting and disclosure - An FA licensee is required, under one of its license conditions, to immediately inform MAS of any matter which may adversely affect its financial position to a material extent. - FA licensees must submit prescribed forms to MAS on an annual basis (FAR Regulation 23(1)(b)). - One form requires a detailed breakdown of the FA licensee’s revenue and expenses, for example, fees/commission earned from each type of financial advisory service, interest income, dividend income, bad debts written off, provision for doubt debts, and Director’s remuneration. - Another form requires FA licensees to compute their assets and liabilities to ascertain whether they meet the ongoing regulatory financial requirement. ### Auditing of financial position - CMS licensees and FA licensees are required to submit annual audited returns, together with an auditor’s certification in the prescribed form. - These submissions must be accompanied by the annual audited balance sheet and profit and loss statement,56 and the auditor’s report in the prescribed form.( SF(FMR)R Regulation 27 , SFA sections 106, 107, FAA sections 47, 48). - Auditors have an obligation to notify MAS of contraventions, adverse financial position or irregularities in the accounts (SFA section 108, FAA *Source: _cr13344 - section 45). They are required to maintain books that will sufficiently explain the; PDF content provided.* ### section 49). ### _cr13344 - section 49) ### Supervision by MAS of capital adequacy - MAS follows up with a CMS licensee or FA licensee that has breached the financial requirements to ensure rectification and to assess whether to take regulatory action. - Example case: - In March 2011, upon notification by a CMS licensee that it had breached the AI/AR requirement, MAS followed up on the reason for the breach and rectification action taken. - The CMS licensee injected additional capital two days after the breach was discovered. - MAS issued a “supervisory warning” for the breach in April 2011. - MAS may impose enhanced reporting requirements; example: - Following increased volatility in Japanese securities and indices after the March 2011 Japanese tsunami, MAS required CMS licensees who were clearing members of the SGX and retail CFD dealers to submit their capital ratios on a daily basis. - MAS relies on offsite monitoring and the inspection process to identify unaffiliated entities and off-balance sheet risk in addition to monitoring the returns and accounts. - MAS is authorized to obtain reports, conduct inspections and suspend business operations depending on an adverse outcome of any review of capital of the CMS or FA licensee. - In practice, capital adequacy compliance is not an issue of concern for MAS as almost all licensees are highly capitalized compared to the base obligations and the majority maintain buffers above the minimum with low external leveraging due to the practice of reliance on internal funding. ### Powers of the MAS in relation to capital requirements - MAS may, in respect of breaches of the requirements: - allow the licensee to continue to operate its business but subject to such conditions as MAS may impose and/or require the licensee to submit weekly statements and reports on a weekly basis or such other intervals as it may require; - restrict the scope of the licensee’s business, require the business to be operated in a certain manner and under certain conditions, require the transfer of customer’s positions and assets to other licensees, or require additional or more frequent reporting from the licensee; - revoke or suspend the license of a licensee if the licensee fails to meet or continues failing to meet the minimum financial requirements; and - issue a written direction to a licensee with respect to the type and frequency of financial returns and other information to be submitted to MAS. (SF(FMR)R Regulation 4, 6, 7, 16, and 17, SFA section 101 and FAA section 10(2), 19, and 58). - Policy: MAS does not publicly disclose capital adequacy breaches of licensees that continue in business. ### Risks from affiliated entities and off-balance sheet activities - Capital requirements apply to a CMS licensee’s dealings with or exposure to its affiliates. - Financial resources requirement: - The CMS licensee is required to deduct investments in associates or subsidiaries and all unsecured loans made to other entities, including to affiliates, as illiquidity adjustments in determining the amount of its financial resources. - ANC requirement: - Non-current assets, including investments in associates or subsidiaries classified as non-current and unsecured loans are deducted in determining the net capital fund of the CMS licensee. ### Principle 31 — Internal organization, operational conduct, and management responsibility - Role of management: - MAS Guidelines on Risk Management Practices—Board and senior management Oversight set out roles and responsibilities of the Board and senior management with respect to corporate governance and sound risk management. - Guidelines for Internal Controls require the Board and senior management to establish policies, procedures and processes to provide reasonable assurance on safety, effectiveness and efficiency of operations, reliability of financial and managerial reporting, and compliance with regulatory requirement. - Admission: - Applicants must submit information on all directors, key officers and organization chart, compliance structure, internal audit function, and details of internal policies and procedures to demonstrate appropriate internal controls (SF(LCB)R Form 1 and 1A; FAR Form 1). - Ongoing supervision: - Intermediaries must obtain MAS approval for appointment of CEOs and Directors, or any change in nature of their appointments and the broader shareholding structure. - Intermediaries must disclose potential conflicts of interest for proposed CEO or director appointments. - MAS approval required for substantial change in shareholding structure, acquisitions, or setting up branches; notification required for material change in business models and for resignation or change in nature of appointment or country of residence of CEOs and directors. (SFA, section 97A; FAA section 57A; SFA section 96; FAA section 56 and license conditions). - Under MAS Guidelines on Outsourcing, intermediaries must notify MAS of any material outsourcing arrangements and must not engage in outsourcing that compromises internal control, business conduct or reputation. Boards are expected to evaluate risks and materiality, and establish structure for management and control of outsourced activity. ### Internal controls and risk management requirements - Regulations under the SFA and FAA require intermediaries and their CEO/director to implement effective written policies on operational areas commensurate with the scale and complexity of the intermediary (SF(LCB)R Regulation 13, 13A; FAR Regulation 14 and 14AA). - MAS assesses adequacy and effectiveness of internal controls, risk management systems and compliance arrangements during license application assessment, onsite inspections and offsite reviews. - Where control weaknesses are identified, MAS requires rectification plans and monitors implementation, including validation by internal or external auditors. - Annual requirement: - Intermediaries must submit to MAS an external auditor’s report (in addition to the financial audit) certifying adequacy and effectiveness of internal control systems, noting matters that adversely affect or might adversely affect the financial position or constitute breach of regulatory requirements. ### Compliance function - MAS reviews competence, independence, and work scope of the intermediary’s compliance department when assessing license applications and during reviews. - MAS reviews compliance department reports, work programs and working papers to ascertain adequacy and effectiveness. - MAS does not approve compliance staff but will review credentials and experience and notify intermediary if inadequate. - Compliance function must have independent reporting access to the board; higher risk entities must have a dedicated compliance function. - Adequacy, quality and effectiveness of compliance function are factored into the annual Common Risk Assessment Framework and Techniques (CRAFT) assessment. - MAS may direct the intermediary to engage internal or external auditors to confirm that remedial actions have been effectively implemented. ### Outsourcing - Outsourcing of compliance and internal control functions is not prohibited, but arrangements must be “commensurate with the nature, scale and complexity of its business.” - Practical implications: - Outsourcing permitted for small entities; compliance officers in appropriate cases need not be located full time in Singapore. - Outsourcing is not permitted where the intermediary deals with retail clients. - If the scale of business demands dedicated full time on-site officers, outsourcing is regarded as not fulfilling guideline obligations. - Segregation of staff: - Licensees must establish segregation of staff in the “front” and “back” office. - Compliance function may be undertaken by a person whose other functional role does not conflict with compliance; compliance staff must be independent of conflicting roles such as sales or asset management. - Reporting breaches: - All licensees must report immediately to MAS when there is a breach of the law or regulations detected by the licensee or its directors or officers; in practice reporting is made by the chief executive and/or head of compliance to the relevant MAS department. ### Management of conflicts of interest - Regulations under SFA/FAA require intermediaries and CEOs/directors to institute effective controls and segregation of duties to mitigate conflicts of interest (SF(LCB)R Regulations 13 and 13A; FAR Regulations 14 and 14AA). - MAS assesses segregation adequacy between front and back office functions, proprietary and client trading, booking and reconciliation controls, “Chinese walls”, and independence of compliance. - Annual risk-assessment questionnaire requires intermediaries to assess and disclose segregation of duties for functions posing potential conflicts (e.g., dealing and limit setting, back office and finance, compliance vs proprietary trading vs corporate finance). - MAS guidelines provide specific guidance on segregation controls (Guidelines on Risk Management Practices; Guidelines on Standards of Conduct for Financial Advisers and Representatives; Guidelines on Addressing conflicts of interests arising from Issuing Research Analyses). - Regulatory provisions and expectations: - Part IV of SF(LCB)R stipulates disclosure when the market intermediary is acting as a principal. - SF(LCB)R Regulation 47 prohibits withholding or withdrawing from a market any order or any part of a customer’s order for the benefit of itself or any other person. - FAA Section 36 requires disclosure of an intermediary’s interest in securities it recommends when issuing written communications. - Financial advisers must disclose actual or potential conflicts of interest and any material information that may compromise objectivity under the Notice on Information to Clients and Product Information. - Circular on Due Diligence Checks requires intermediaries to ensure no conflicts in representative’s personal circumstances or relationships that impair fair dealing. - Representative Notification System assists MAS in detecting multiple regulated activities by a representative that may pose conflicts; MAS follows up alerts with intermediaries. - MAS inspections include detailed assessment and validation of controls addressing conflicts, including fairness in allocation of securities among customers and representatives. - MAS assesses adequacy of controls whenever there is a proposed change in business model or activities. ### Direct Market Access (DMA) - DMA is allowed subject to risk management and controls under exchange rules (SGX-ST Listing Manual; SGX-DT Futures Trading Rules; CDP Rules; SGX-DC Clearing Rules). - Customers are not permitted direct electronic access unless sponsored by an exchange member; the exchange member is responsible for client conduct in use of systems. - MAS does not have specific “filter” requirements but requires robust order routing systems that do not adversely impact market conduct. - SGX member DMA requirements include: - Minimum customer standards such as financial standing and credit history; - Legally binding written agreements with DEA customers specifying responsibilities, compliance with market rules, unique identification of each DEA customer and termination ability; - Automated pre-trade controls, including internal controls for setting and modification of parameters, error-prevention alerts, and daily monitoring of orders and credit risks; - Automated firm-level processes to monitor risk of breaching capital requirements and other prudential concerns (e.g., exposure to single client, single security, cash flow projection and stress testing) to restrict trading or inject additional capital if necessary. (SGX-ST Rules 4.5A, 4.6.7A, 11.7, 11.8, 12.3.7, 13.8.9; CDP Clearing Rule 3.9.1; SGX-DT Futures Trading Rules 2.1.2, 2.1.2A, 2.1.2B, 2.6.2A, 2.6.3, 2.6.4, 3.4.3A; SGX-DC Clearing Rule 2.28A.1.3). ### SMX clearing and risk management - SMXCC monitors trading positions to ensure clearing members maintain sufficient collateral and collects variation margins. - SMXCC real time risk management tracks members’ usage of available collateral against initial margins and marked-to-market variation margins, and reduces trading limits accordingly when trades are matched. - SMXCC may collect special margins as necessary or delivery margins for physically delivered contracts. ### Clients’ assets protection - For moneys and assets denominated in Singapore Dollars: - Intermediaries may only use a bank, merchant bank or finance company licensed by MAS to hold trust accounts. - For custody accounts, the custodian must be a depository agent, an approved trustee for a CIS or a CMSL holder authorized and regulated for their custodian role. - Regulatory requirements for customer moneys and assets: - Deposited in a separate trust account, not commingled with the intermediary’s own funds, and not used for purposes other than allowed by regulations. - Customer moneys and assets are to be deposited into the trust/custody account no later than the next business day. - Intermediary must obtain written notice and acknowledgement from the custodian that (i) moneys/assets are held on trust for the customer and cannot be used to offset the intermediary’s own debts; and (ii) the account is designated as a trust account or customers’ account, distinguished and maintained separately from any other account containing the intermediary’s own moneys. - Recordkeeping and reconciliation: - Market intermediaries must maintain records of particulars of every transaction carried out on behalf of customers, and the amount and description of each asset paid or deposited in trust or custody accounts. - Trust accounting is on a “line-by-line” basis. - Intermediaries must conduct computation and reconciliation of customer moneys and assets maintained in trust and custody accounts on a daily basis. - Market intermediaries are required to provide a statement of account and contract note to customers, with details of transactions, positions held and financial charges arising from the transactions. *Source: _cr13344 - section 49).* ### section 104, SF(LCB)R Part III and Regulations 39, 40, 42). ### _cr13344 - section 104, SF(LCB)R Part III and Regulations 39, 40, 42) ### Reporting by market intermediaries and external auditors - On a quarterly basis, market intermediaries are required to report to MAS on the amount of money and assets segregated in trust and custody accounts (SF(FMR)R, Regulation 27. - On an annual basis, the external auditors are required to certify that the intermediaries have maintained proper records in relations to the safe custody of customers’ securities and assets, and their compliance with the trust account regulations. - MAS has the power to require daily reports of the moneys and assets held in trust accounts should circumstances warrant. - Footnotes referenced in the text: 60, 61. ### MAS powers regarding client assets and intermediary solvency - MAS has the power to require the intermediary to transfer all or part of any client’s margins, collateral, assets and accounts to another market intermediary, if the financial resources of the intermediary fall below the capital adequacy requirement (SF(FMR)R Regulation 4). - (See Principle 30). ### Investor complaints framework and dispute resolution - Prior to the grant of an FAL or CMSL, applicants that can deal with retail clients are required to become members of the Financial Industry Disputes Resolution Centre Ltd (FIDReC) (Monetary Authority of Singapore (Dispute Resolution Schemes) Regulations 2007). - FiDReC is described as an independent institution specializing in the resolution of disputes between financial institutions and consumers. ### Requirements on handling investor complaints (guidelines) - The requirements on the handling of investor complaints are set out in: - Guidelines on Risk Management—Internal Controls, - Guidelines on Fair Dealing—Board and Senior Management Responsibilities for Delivering Fair Dealing Outcomes to Customers, - Guidelines on Standards of Conduct for Financial Advisers and Representatives. - These guidelines require: - a formalized complaint handling process, - the putting in place of an independent process/unit to ensure that complaints are handled objectively, - the setting of service standards to resolve complaints, - the maintenance of a register of complaints (to be reviewed by management regularly), - the provision of regular reports to management. - Footnote referenced in the text: 62. ### Recent regulatory action - MAS recently issued a consultation paper aimed at raising the standards of practice in the financial advisory industry. *Source: _cr13344 - section 104, SF(LCB)R Part III and Regulations 39, 40, 42).* ### introduction of a set of regulations to address investor complaints. ### introduction of a set of regulations to address investor complaints. ### Investor complaint handling — proposed statutory provisions - Consultation paper proposes introduction of new statutory provisions to enhance investor complaint handling functions in firms providing financial advisory services. - Proposed provisions to supplement existing guidelines and code of conduct, including: - requiring FIs to give a complainant a final response within a stipulated time period; or, if not possible due to a complaint’s complex nature, to provide complainants with the reasons for the delay and an indicative timeframe for a final response. - requiring intermediaries to specifically designate a person or committee responsible for oversight of complaints handling and resolution mechanisms to strengthen senior management’s responsibility. - requiring intermediaries to report complaints data to MAS on a biannual basis for accountability. - During onsite inspections, MAS may review intermediaries’ policies and procedures on handling of customer complaints, taking into account: - procedures for handling customers’ complaints, - independence of the staff handling and investigating the complaints, - adequacy and appropriateness of actions taken to resolve the complaints. *Know-your-customer and suitability considerations are integrated into complaints investigations and supervisory reviews.* ### Know Your Customer (KYC) / Customer Due Diligence (CDD) - Market Intermediaries required to perform Customer Due Diligence (CDD) measures when entering into a business relationship (Notice to Capital Markets Services Licensees on Prevention of Money Laundering and Countering the Financing of Terrorism and the Notice to Financial Advisers on Prevention of Money Laundering and Countering the Financing of Terrorism). - CDD measures involve obtaining identification documents and conducting verification using independent and reliable sources (MAS Notice SFA04-N02; FAA Notice FAA-N06). - MAS assesses adequacy of CDD during onsite AML/CFT inspections, including whether intermediaries obtain adequate evidence and satisfactory verification of identities and legal existence (examples: bank statements, utilities bills, national identification documents, certificate of incorporation/Board resolutions). - Under the SFA and FAA, intermediaries must conduct know your client assessments, customer suitability tests and financial needs analysis before recommending investment products, including collecting information on: - educational background, profession and experience/knowledge in investment products, - financial objectives, risk tolerance, financial situation, existing investment portfolio. - For financial advice, intermediaries required to have a reasonable basis for recommendations and to give due consideration to the client’s investment objectives, financial situation and particular needs (FAA section 27). Records must demonstrate basis for recommendations (Notice FAA-N16). ### Required client information for investment advice (FAA Notice on recommendations and sale of investment products) - Intermediaries required to collect and assess the following before providing investment advice: - Financial objectives of the client; - Risk tolerance of the client; - Employment status of the client; - Financial situation of the client, including assets, liabilities, cash flow and income; - Source and amount of the client’s regular income; - Financial commitments of the client; - Current investment portfolio of the client, including any life policy; - Whether the amount to be invested is a substantial portion of the client’s assets. ### Record-keeping obligations - An intermediary must keep records for not less than five years (SFA section 102 and FAR regulation 26). Such records must be furnished to MAS upon request. - Types of records specified (SF(LCB)R regulation 39 and FAR regulation 25) include details of customers, transactions, placement of orders and statements of accounts. - For Specified Investment Products (SIP) or advice in respect of SIPs, intermediaries required to maintain records of all communications with the customer, including a file note or a tape recording of telephone conversations (Notice SFA04-N12; Notice FAA-N16). ### Information to clients and disclosure of remuneration - Business conduct rules under SFA and FAA require intermediaries obtain written terms of consent or acknowledgement from customers for specific areas (custodian terms, interest on trust account, foreign custody). - Notice on Information to Clients and Product Information Disclosure (FAA-N03) requires intermediaries to disclose in writing all remuneration directly related to: - making any recommendation in respect of an investment product; or - executing a purchase or sale contract relating to a designated investment product on the client’s behalf. - Intermediaries must provide information on fees and commissions in the contract note (SF(LCB)R regulation 42) and in the monthly statement of account. ### Monthly statements of account — required contents (SF(LCB)R regulation 40) - Intermediaries must issue a monthly statement of account to customers that may include: - Securities transactions of the customer and the price at which the transactions were entered into; - Futures positions and leveraged foreign exchange positions and the prices at which positions were acquired, and the net unrealized profits or losses in all futures positions and leveraged foreign exchange positions marked to market; - The status of every asset in the intermediary’s custody held for the customer; - The movement of every asset of the customer, the date of and reasons for such movement, and the amount of the asset involved; - The movement and balance of money received on account of the customer together with a detailed account of all financial charges and credits during the monthly statement period, unless included in a contract note or tax invoice. ### Oversight of compliance and MAS supervisory framework - MAS assesses and monitors appropriateness of an intermediary’s management and organization structure on an ongoing basis through: - Onsite inspections relating to management oversight and compliance function, assessing segregation of duties, outsourcing risk framework, and independence of compliance function. Onsite inspections are based on CRAFT risk assessments using the I-CRAFT framework to guide supervisory intensity. - Company visits and offsite supervision for updates on organization structure and reporting lines; frequency depends on I-CRAFT rating. - Annual risk assessments of oversight by Board and Senior Management, considering organization structure, business complexity, independence/effectiveness of compliance, reliance on outsourcing, and related-party transactions. - Inspection frequency by I-CRAFT rating: - High risk: inspected every three years. - Medium-high risk: inspected every five years. - Medium-low risk and low risk: no fixed cycle; subject to thematic inspections from time to time. - Company visit frequency under I-CRAFT: - High or medium-high: once a year. - Medium-low: once every two years. - Low risk: once every three years. - Onsite inspections may be followed up by independent audit review/certification, regulatory action, directions, follow-up visits, and on-site validation of processes. ### Onsite inspection resourcing and activities - Onsite inspection teams comprise between five and six officers and a team leader. - Onsite inspection duration varied between 18 man weeks and 28 man weeks between 2010 and 2012. - MAS may require special purpose audits conducted by direction to the intermediary, using MAS powers and methodology. ### MAS inspection activity counts (table) - MAS inspections by year: - 2009: 27 - 2010: 16 - 2011: 28 - 2012: 15 - Routine component of MAS inspections by year: - 2009: (4) - 2010: (8) - 2011: (12) - 2012: (9) - Thematic component of MAS inspections by year: - 2009: (23) - 2010: (8) - 2011: (16) - 2012: (6) - Company visits by year: - 2009: 96 - 2010: 49 - 2011: 74 - 2012: 91 - Mystery shopping: not in 2009–2010; see note for 2011 and 2012 (independent consultants conducted substantive unannounced mystery shopping in 2006 and 2012; target group was 11 banks and four insurers involving over 500 individuals). ### Offsite supervision activities - Routine offsite supervision includes: - Annual certification by external auditors; - Review of reports (internal audit, external audit, misconduct reports, SGX/SMX reports and exposure reports); - Review of financial returns; - Review of complaints; - Special purpose reviews/surveys; - Environment scans (formal quarterly reports and day to day reports such as large exposure reports). ### Assessment and recommendations on inspection program - Assessment: Broadly Implemented. - Commentary: I-CRAFT system appears reasonable, but statistics raise questions whether inspection frequency is robust enough given number of intermediaries supervised. - Recommendation: Length of time cycle between onsite inspections should be shorter; themed inspections and company visits are beneficial but limited in scope and not a substitute for comprehensive, regular onsite examinations of books and records to verify accuracy of records and client transactions. - Suggestion: Specific inspection of remisier activities is desirable given historical use of commission representatives and associated compliance/supervisory challenges. ### Procedures for failure of market intermediaries, early warning, and crisis management - MAS has documented internal plans/manual updated 4 times since 2004; last update considered Global Financial Crisis and collapse of an MF Global subsidiary in Singapore. - MAS uses a structured monitoring and escalation plan based on early warning signals, indicators and activation triggers with color-coded stages from green (normal) to red (most extreme). - In a code Red, MAS Crisis Management Team (chaired by MAS’ MD) will be activated. - MAS may take pre-emptive action under SFA/FAA by issuing directions to a distressed intermediary (examples: SFA section 101, FAA section 58, SF(FMR)R regulations 4, 6, 7, 9, 10, 11, 13, 14, 16, and 17) to restrain trading/business activities or ring-fence/transfer customers’ moneys and assets to enable proper winding-down. - MAS powers under the MAS Act include: - take control of an intermediary; - make a determination for sale or transfer of assets and liabilities, or transfer of ownership, of a failing intermediary without prior consent of the intermediary’s customers, subject to the minister’s approval; - apply to the High Court to impose a moratorium so no winding up order or legal proceedings can be commenced against the intermediary. - Factors MAS considers in exercising powers: systemic importance and impact, public interest, and any other matter MAS considers relevant. - Examples: MAS issued directions to ring-fence assets of Lehman-related market intermediaries and actions relating to MF Global Singapore Pte Ltd (MFGS) following MF Global Holdings Ltd’s Chapter 11 filing. ### Default management, clearing houses, and safeguards - SGX and SMX have established default management processes and procedures for clearing and settlement operations to mitigate financial shocks from intermediary failure. - A DCH is required (SFA section 59) to maintain a clearing fund sufficient to meet potential financial losses from simultaneous default of the member with largest exposure and the next two financially weakest members. - All three designated clearing houses (CDP, SGX-DC and SMXCC) maintain clearing funds and default management procedures. - There is no national investors’ compensation scheme. - Exchanges required to maintain a fidelity fund (SFA section 176) to compensate any retail investor who suffers pecuniary loss because of insolvency or defalcation by an exchange member. - Fidelity fund amounts cited: SGX-ST (S$31 million), SGX-DT (S$21 million) and SMX (S$2 million). - Intermediaries not members of an exchange must lodge with MAS a security deposit (S$100,000) applied for defalcations; an additional banker’s guarantee between S$2–S$5 million can be required (not common). - Intermediaries required to purchase professional indemnity insurance commensurate with scale of business for activities including fund management, advising on corporate finance, and provision of financial advisory services. ### MAS powers and remedial directions when capital falls below thresholds - Where intermediary capital falls below certain thresholds, MAS may direct it to: - cease any increase in positions, securities financing, funds accepted for management and assets accepted for custody for any account; - transfer all or part of any customer's positions, margins, collateral, assets, and accounts to one or more other license holders; - operate its business in such manner and on such conditions as MAS may impose; - cease carrying on business in any or all regulated activities until able to meet capital requirement (regulations 4, 6, 7, 9, 10, 11, 13, 14, 16, and 17 of the SF(FMR)R). ### Insolvency practices and MAS experience - MAS empowered to appoint a statutory adviser or statutory manager to assume control or management of a market intermediary. - Intermediaries are required to maintain client trust accounts and account for client assets on a line by line basis; SROs at clearing house level maintain client assets in trust. - Case examples: Lehman Brothers related ring-fencing; MF Global Singapore Pte Ltd winding down and liquidation; MAS issued directions to ring-fence funds and assets held in trust and house accounts and to cease regulated activities except closing out outstanding positions. - MAS conducted simulation exercises in 2007 (failure of a financial institution) and 2012 (business continuity); SGX participated in one exercise. - MAS staff attend supervisory colleges/conferences hosted by lead regulators overseas (examples: Japanese FSA annual supervisory colleges; FINRA roundtables in New York). ### Assessment of implementation for failure procedures - Assessment: Fully Implemented. ### Regulated markets and exchanges oversight (Principle 33 summary) - Types of regulated markets (SFA, section 6): - approved exchange (section 8(1) SFA); - recognized market operator (RMO) (section 8(2) SFA). - Guidelines on Regulation of Markets (Guideline No. SFA 02-G01): systemically important market operators regulated as approved exchanges; others as RMOs. - MAS applies a public interest test for approvals and considers factors including size, structure, nature of services, nature of securities/futures traded, nature of investors, and home jurisdiction supervision. - Licensing criteria highlights: - Applicants must be “fit and proper” and ensure market is fair, orderly and transparent (SFA sections 16 and 37). - Capital must not be less than a base amount plus a minimum of months operating expenses for approved exchanges, and base capital amount plus a percentage of annual operating revenue or of annual operating costs (whichever higher) for domestic RMOs. (The specific capital requirements are only set out in the letter granting MAS approval and are not published.) - Applicants must maintain sufficient financial, human and system resources and adequate security arrangements (SFA sections 16 and 37). - Approved exchanges must make provisions in business rules for admission/continuing requirements for members, classes of securities/futures tradable, measures to prevent manipulation, and disciplinary processes (SF(M)R Regulation 18). - Approved exchanges must establish a fidelity fund (SFA sections 176 and 181) and publish or make available information on services, fees, margin requirements, and investor compensation arrangements (SF(M)R Regulation 13). - Execution rules and algorithms are disclosed publicly on websites of approved exchanges; approved exchanges conduct annual self-assessment against obligations. - Ownership thresholds for approved exchanges requiring MAS approval: 5 percent, 12 percent, and 20 percent holdings; approval required to establish an exchange holding company. *Source: _cr13344 - introduction of a set of regulations to address investor complaints.* ### Part III of SFA. SFA (Section 55(1)) sets out MAS’ powers to designate a person operating ### _cr13344 - Part III of SFA. SFA (Section 55(1)) sets out MAS’ powers to designate a person operating ### Designated Central Counterparties (DCH) — designation and ongoing obligations - SFA (Section 55(1)) empowers MAS to designate a person operating a clearing facility as a DCH if it is satisfied that the clearing facility is systemically-important. - A DCH is subject to ongoing obligations (section 59) to: - operate a safe and efficient clearing facility; - manage risks prudently; - maintain sufficient financial, human and system resources. - DCHs are further subject to specific requirements (section 61) to: - ensure risk management systems and controls are adequate and appropriate for the scale and nature of operations; - obtain MAS’ approval for the position limits it intends to establish. - DCHs are regulated in line with the Principles for Financial Market Infrastructures. ### New authorization regime for clearing facilities - Legislative amendments to the SFA were passed in November 2012, introducing a new authorization regime for clearing facilities. - Under the amended SFA: - corporations seeking to establish clearing facilities must be approved as approved clearing houses or recognized as recognized clearing houses; - systemically-important clearing facilities will be regulated under the approved clearing house regime (generally equates to the DCH regime); - other clearing facilities will be regulated as recognized clearing houses; - all existing DCHs will be deemed to be approved as approved clearing houses under the new regime. - The legislative amendments to the SFA are expected to come into operation in Q2 2013. ### Licensing / authorization process - Applications for approval or recognition must be submitted using SF(M)R Forms #1, 2, and 3, with prescribed information and attachments. - Applicants must describe and demonstrate how they will satisfy SFA obligations, including providing relevant information on key officers and employees (qualifications and experience), track record in operating a market, systems and procedures, business rules, and risk management systems. - MAS verifies documents via staff of the Capital Markets Department; trading systems are checked by MAS IT staff for conformity with operational rules (independent IT systems evaluation is not required). - Meetings and onsite visits may be conducted by MAS as part of verification; in practice: - onsite visits are conducted for approved exchanges and domestic RMOs; - onsite visits generally do not occur for overseas market operators. - Overseas market operator applicants must provide additional information including: - names of any supervisory authority exercising oversight in the home jurisdiction; and - documentation allowing MAS to consider if the operator is subject to sufficiently comparable requirements and supervision. ### Ongoing compliance requirements for approved entities - Approval/recognition criteria continue to apply post-approval/recognition and essentially require: - maintenance of fair, orderly and transparent markets; - prudent management of risks; - sufficiency of financial, human and system resources; - notification to MAS of trading disruptions; - submission of financial and audit reports; - maintenance of a business continuity plan. - Approved exchanges must submit annually: - an auditors’ long form report (including findings on internal controls and non-compliance with the SFA); - a self-assessment report on discharge of responsibilities under the SFA; - a copy of the balance sheet of the fidelity fund of the approved exchange (SF(M)R Regulation 10). - Reporting of disruptions: - an approved exchange must notify MAS as soon as practicable of any disruption, delay, suspension or termination of any trading procedure or practice; - reports on such incidents and remedial/follow-up actions are required within 14 days of the occurrence (Regulation 9 of SF(M)R). - Business continuity: - approved exchanges must maintain a business continuity plan and notify MAS of activation of the plan or any material change (SF(M)R Regulation 12). - Major system/software changes: - exchanges are not obliged to report every software change, but MAS expects notification and discussion if changes will have substantial market impact; - major changes (e.g., replacement of a market’s “trading engine”) usually require review by MAS and Board sign-off; - certification by external consultants may be required depending on outsourcing arrangements; - MAS can order production of a report or conduct an inspection relating to such matters. ### Product assessment, listing approvals, and commodity derivative requirements - MAS established a product assessment framework guiding SGX-ST’s due diligence for new securities products. MAS considers a new product to be one not offered to retail investors in Singapore or involving material modifications in risks, characteristics or conflicts of interest. - For new products falling within MAS’ prospectus regime and traded among retail investors, SGX-ST must submit a product assessment form to MAS prior to approving listing and quotation. - Product assessment evaluates: - product structure and risks; - regulatory issues (including exemptions or approvals required); - restrictions applicable to the product or underlying assets; - whether and how the product has been offered in other jurisdictions; - whether the issuer conducted due diligence on distributors and provided sufficient training; - investor education plans for the new product. - MAS considers due diligence sufficiency and safeguards for retail investor trading. - For new commodity derivative contracts seeking approval, approved exchanges must submit: - Characteristics of the underlying commodity; - Contract size; - Price limit; - Position limit, including spot month limit; - Daily and final price settlement methodology; - Susceptibility to manipulation; - Acceptability for hedging; - Roles and obligations of the clearing house and participants; - Physical delivery procedures; - Delivery default; - Exchange-for-Physical/Exchange-for-Swap; - Existence of similar contracts at other exchanges. - MAS evaluates economic benefits, underlying market features, contract terms, settlement/delivery procedures, and other social economic factors; contracts lacking economic benefits are considered gaming contracts and will not be approved. ### RMOs (Recognized Market Operators) — ongoing obligations and supervision - RMOs: - are not specifically required to provide periodic IT reports, but must report operational incidents to MAS; - local RMOs must notify MAS of significant system changes; MAS has authority to require external certification of major changes (to date not exercised); - must (i) submit annual reports and bi-annual self-assessment reports (Regulation 24 SF(M)R); (ii) maintain business continuity plans (Regulation 25 SF(M)R); and (iii) seek MAS approval for listing and de-listing of derivatives products (Section 42 SFA). - Access: - access to RMOs is limited to professional investors who must adhere to RMO rules as approved by MAS; RMOs are required to maintain fair access for eligible professional investors; - MAS does not require RMOs to adopt the same fairness obligations as approved exchanges in practice. ### Fairness, transparency, and access to market information - Fairness of access: - an approved exchange must ensure that participation access criteria are fair, objective, designed to ensure orderly market functioning and protect investors (SFA Section 16(d)); - business rules must include admission criteria and continuing requirements for members (SF(M)R Regulation 18). - Transparency (Guidelines on Regulation of Markets): - pre-trade information (best bids and offers) should be available; - post-trade information on executed trades should be publicized to reflect market prices; - material information (corporate announcements) should be readily available in a comprehensible and timely manner. - Market operators must provide assistance to MAS, including returns, books and other relevant information (SFA Section 20). - Record-keeping and data access: - all market operators must keep all relevant books for a minimum of five years (SF(M)R Regulation 5); - MAS may obtain trading information from officers where MAS believes on reasonable grounds the person can provide relevant information (SFA sections 143 or 144); - approved exchange business rules require members and trading representatives to maintain order records (e.g., SGX-ST Rule 12.1.1; Futures Trading Rule 2.6.4; SMX Rule 4.2). - Market data dissemination: - approved exchanges provide real-time price and trade information to market intermediaries; SGX provides intraday real time market trading information to the public via its website; - SMX publishes market data to its website delayed by 15 minutes for contracts with quotes and publishes traded volumes continuously during the day and aggregated on the following business day. ### Market surveillance — exchanges, MAS, and cooperation - Exchanges as frontline regulators: - approved exchanges use electronic real-time market surveillance systems with embedded alerts to conduct daily monitoring; - SGX Market Surveillance (MS) unit uses the SMARTS system to monitor trading of all listed securities; - alerts are examined for patterns of manipulation, unfair trading practices and insider trading; suspicious matters are referred to MAS. - Exchange referrals to MAS: - MAS receives between 30 to 55 referrals each year from exchanges, with the bulk concerning low cap equities. - SGX has 14 staff dedicated to surveillance and nine for enforcement. - SMX has six staff dedicated to inspection and enforcement. - Exchange inspections and monitoring: - exchanges perform regular and ad-hoc onsite inspections of members to ensure rule compliance and adequate internal controls, and monitor member financial status. - Inter-exchange cooperation: - there are no formal agreements between exchanges to cooperate and share information; practice has not been to meet to discuss market issues or conduct of common members. - recommendation: MAS should take a leadership role and encourage dialogue among exchanges to share information about clearing members common to both exchanges (noted as a suggestion in comments). - MAS surveillance: - MAS uses intelligence from exchange monitoring, suspicious transaction reports, and public sources to detect unfair trading practices; - MAS maintains an electronic real-time market surveillance system but does not routinely conduct daily monitoring except for SGX securities; MAS systems do not generate intraday alerts. - where MAS’ information indicates possible irregular conduct, MAS may require exchanges to investigate and report findings. ### Investigation, enforcement and criminal referral process - Referral and criminal investigation: - when a referral is more suitable for criminal prosecution, MAS refers to CAD (Commercial Affairs Division) — the principal white-collar crime investigative agency within the Singapore Police Force (close to 200 professional staff). - CAD investigative teams typically comprise four or five professionals, size depending on case complexity. - once investigations complete, AGC decides whether to prosecute; prosecutions are presented to a single judge without a jury. - MAS–CAD protocol: - MAS and CAD coordinate to determine whether referrals should be criminal or civil; if MAS proceeds with civil penalty action, consent from the public prosecutor (AGC) is required. - Case volumes and outcomes (selected numbers from table): - Number of exchange referrals to MAS: between 30 to 55 referrals each year. - Civil and criminal case counts (as presented): - Market or Price Manipulation (ss. 197, 198, 206, and 208 SFA): - 2010: Civil 1, Criminal 1 - 2011: Civil 3, Criminal 3 - 2012: Civil 1, Criminal 1 - Insider Trading (Division 3, Part XII SFA): - 2010: Civil 2, Criminal 3 - 2011: Civil - , Criminal 3 - 2012: Civil 2, Criminal 1 - Front Running (Reg. 44 SF(LCB)R): - 2010: Civil - , Criminal 2 - 2011: Civil - , Criminal - - 2012: Civil - , Criminal - - Other Fraudulent or Deceptive Conduct and Market Abuse (ss. 201, 207, and 210 SFA): - 2010: Civil 3, Criminal - - 2011: Civil 1, Criminal 1 - 2012: Civil 2, Criminal - - Note: Out of the four subjects prosecuted in court in 2012, two of the subjects have been convicted; charges against the other two remain pending in court. ### Enforcement powers, civil and criminal penalties - MAS may make civil money penalty orders with consent of MAS and the Public Prosecutor; to date all such orders have been made with admissions of liability. - Civil and criminal penalties (summary as provided): - Market and price manipulation: - civil penalty: sum not exceeding three times the amount of profit gained or loss avoided, subject to a minimum of either S$50,000 (if person not a corporation) or S$100,000 (if corporation); where no profit or loss avoided, penalty not less than S$50,000 and not more than S$2 million (Section 232 SFA). - criminal penalty: fine up to S$250,000 or jail up to seven years. - Misleading information: - civil penalty: as above; - criminal penalty: fine up to S$250,000 or jail up to seven years. - Insider dealing: - civil penalty: as above; - criminal penalty: fine up to S$250,000 or jail up to seven years. - note: intention to use insider information is not required to be proved (footnote). - Front running (SF(LCB)R Regulation 44): - civil penalty: as above; - criminal penalty: fine up to S$250,000 or jail up to seven years. - Wrongful acts using fraudulent means: - civil penalty: as above; - criminal penalty: fine up to S$250,000 or jail up to seven years. ### Oversight tools, offsite and onsite supervision - MAS supervisory tools include inspections, offsite reviews, approval requirements for amendments to business rules and derivative products, regular dialogue, and legislative regulatory actions. - Offsite mechanisms: - regular meetings between MAS and approved exchanges; - notifications under SFA section 17 of changes in business, financial irregularities, disciplinary actions; - periodic reports (SFA section 19) including market statistics (SF(M)R regulation 10); - monthly reports on activities including trading, anomalous trading, financial and prudential matters, and settlement figures; - annual report including audited financial statements and annual self-assessment questionnaire; - regular communications and ad hoc meetings. - Incident reporting: - in event of disruption, approved exchanges must report outage as soon as practicable and submit an incident report within 14 days (SF(M)R Regulation 9). - Onsite supervision: - MAS conducts annual onsite inspections of approved exchanges to assess compliance with the SFA and inspect SRO functions, member supervision, market surveillance, and market operations (SFA section 150). - RMOs oversight: - for local RMOs MAS applies a risk-based approach (Guidelines on Regulation of Markets) with requirements commensurate to risk profile and scope; - MAS can impose additional recognition conditions (e.g., investor type restrictions, product restrictions, notification requirements, periodic reports); - overseas RMOs: MAS considers (SFA section 9) whether adequate cooperation arrangements exist with the home regulator and whether supervision in the home jurisdiction is comparable to MAS objectives; overseas RMOs must notify MAS of any material change to regulatory requirements within 14 days (SF(M)R Regulation 23). ### Transparency, dark pools, OTC, and market structure considerations - Approved exchanges must ensure markets are fair, orderly and transparent (SFA section 16). - RMOs: - required to publish or make available upon request information on services, products and applicable fees (SF(M)R Regulation 26); - SFA contains no obligation for RMOs to publicly disclose market trading information, though bids/offers and transactions completed in listed securities must be disclosed to members of the RMO; - domestic RMOs that provide a market for Singapore-listed securities must report trading information to SGX (two dark pool operators). - OTC trading and reforms: - MAS is implementing G20 OTC derivatives reforms: - SFA amended in November 2012 to introduce a new regulatory regime for trade repositories and expand regulatory ambit for clearing facilities to OTC derivatives, providing powers for MAS to mandate reporting and central clearing for certain OTC derivatives; - MAS expects to implement mandatory reporting in 3Q 2013 and to commence mandatory clearing by January 2014; - MAS is studying imposing mandatory trading requirements and regulation of OTC trading platforms in tandem with regional developments; - MAS implemented Basel III requirements on January 1, 2013 for non-centrally cleared contracts (CVA risk capital charge applicable); - MAS is a member of the BCBS-IOSCO Workgroup on Margin Requirements and will implement standards when finalized. - Dark pools and HFT: - none of the exchanges offer facilities for dark pools; dark pool trading of SGX-ST securities is very small and, for all domestic RMOs, comprises less than 0.05 percent of the market; - dark pool operators for Singapore-listed securities are regulated as RMOs and must report trades to SGX-ST in accordance with SGX-ST Rule 8.7 on direct business; - dark pool operators must report each trade within 10 minutes if during market hours, and between 8:30 a.m. to 8:50 a.m. on the next trading day if after market hours; - MAS requires dark pool operators to submit a quarterly report on trades and maintain an audit trail. - Anecdotal evidence suggests high frequency trading volume in Singapore is low relative to U.S. and Europe. - Consolidated post-trade transparency: - dark pool trades in SGX-ST securities must be reported to SGX-ST either as a member or through a member to ensure consolidated post-trade transparency; SGX’s total market turnover is reported to the public. - Off-exchange (OTC) trades in exchange-listed securities: - SGX members may effect “block” or “crossing” trades where transactions exceed 50,000 shares or $150,000 (SGX ST Business Rule 8.7); such trades must be reported to the exchange and are publicized like on-exchange transactions. - CFDs and bonds: - CFD trading is not conducted on exchange (no CFDs are listed); very limited activity occurs, conducted privately between intermediaries and clients. - bond trading is primarily conducted between market intermediaries and their clients. ### MAS powers to revoke approvals and other supervisory powers - MAS has powers to revoke approval and recognition (SFA section 13) if: - there exists a ground under section 8(7) to refuse an application; - the corporation does not commence operating its market(s) within 12 months from the date of approval/recognition; - the corporation ceases to operate its market(s); - the corporation contravenes any condition or restriction applicable to its approval/recognition, any direction issued by MAS, or any provision in the SFA; - the corporation operates in a manner contrary to the interests of the public; - any information or document provided by the corporation to MAS is false or misleading. - MAS may vary or impose conditions and restrictions on an approved exchange or RMO (SFA section 8(5)), and has power to issue directions to market operators. *Italic: Source — _cr13344 - Part III of SFA. SFA (Section 55(1)) sets out MAS’ powers to designate a person operating (excerpt).* ### chapter 7 of the SMX Rules. ### chapter 7 of the SMX Rules ### Exchange supervision, investigations and sanctions - Exchanges conduct ad-hoc and regular inspection of their member companies to check for compliance with their rules. - Exchanges are required to refer suspected contravention of the law to the relevant enforcement agencies for investigation. - Supervisory authority to conduct investigations and inspections: - SGX-ST Rules: rules 14.1 and 14.2 - Futures Trading Rules: rules 7.4 and 3.5 - SMX Rules: rules 4.5 and chapter 7 - Disciplinary and administrative sanction powers (on member companies, trading representatives, Catalist sponsors, registered professionals, listed issuers and their directors): - SGX-ST Rules: rule 14.3; chapters 14 and 8 referenced for powers such as trading halts, delisting, fines, suspension or revocation of authorization of Sponsors and registered professionals - Futures Trading Rules: rule 7.2; chapter 7 of the Futures Trading Rules - Catalist Rules: chapte 3 (sic) of the Catalist Rules; chapters 2, 3, and 13 of the Catalist Rules - SMX Rules: rule 8.1; chapters 5, 8, and 9 of the SMX Rules; Chapter 8 of the SMX Rules referenced for disciplinary decisions - Where evidence of a possible breach of the law is found, exchanges may refer the matter to the relevant government authority for criminal investigation and prosecution ("This is an inherent power"). - Regulatory actions taken by SGX and SMX in relation to breaches of conduct rules (summary of exchange imposed sanctions): - 2010 / 2011 / 2012 (Public / Non-Public / Public / Non-Public / Public / Non-Public) - SGX: 0 / 5 / 0 / 4 / 0 / 1 - SMX: NA / NA / 0 / 4 / 0 / 0 - Source for sanctions summary: MAS. - In practice, MAS will generally take action first and then leave it to the exchanges to take any additional action they deem appropriate. - RMOs have not taken any action concerning manipulative conduct to date. ### Cross-market issues and information sharing - MAS supervises SGX-ST, SGX-DT and SMX and will look into any issues of cross market manipulation between the exchanges. - Potential for cross-market manipulation between SGX (SGX-ST and SGX-DT) and SMX is currently low as different products are traded on the exchanges. - Exchanges have formal arrangements in place for reporting, cooperation and exchange of information with MAS (as indicated in Principle 34). - In practice, there are more dealings between SGX and MAS, as SGX is the more established market for cash and derivatives. - MAS regularly exchanges information with foreign regulators pursuant to the IOSCO MMoU. ### Monitoring large exposures, margining and position limits - Assessment: Fully Implemented - Approved exchanges are responsible for monitoring large exposures on a daily basis; MAS performs an oversight role. - SGX-ST member notification and thresholds: - Members must notify SGX-ST when exposure to a single customer exceeds 20 percent of average aggregate resources (SGX-ST Rule 11.7). - Members must notify SGX-ST if financial resources fall below 150 percent of total risk requirement (SGX-ST Rule 11.3.9). - SGX-ST has rights under SGX-ST Rule 11.7.1 to impose risk management measures to reduce a member’s risk exposure to a single customer. - SGX-DT requirements: - Members submit a daily report of open positions (SGX-DT Futures Trading Rule 3.3.18). - Upon request, members must provide ownership and control information for omnibus accounts or sub-accounts. - SGX-DT imposes position limits; higher limits require approval from SGX-DT after assessing exposure and financial condition. - Day-to-day process in SGX securities market: - large risk exposures to customers are monitored daily and SGX may require additional collateral the same day trades are executed; - exposures are aggregated to each individual direct account of clearing members and trading members; - systems track trading accounts identities to trade-by-trade positions and monitor large exposures the member faces across different accounts for the same customer; - credit concerns with the clearing member and the customer are identified, as well as the clearing member's ability to meet settlement obligations; - Members engage SGX before transacting large direct business off-market that will subsequently be cleared by SGX; - Where necessary additional margins will be called; large exposures are reviewed relative to member’s capital; - Members are required to report their exposures to their top 10 customers in their monthly financial submissions to SGX. - SGX notifications: From October 2012 to March 2013, SGX received about 50 notifications from Members. - Derivatives market: - SGX monitors customer risk exposures daily; risk system measures and aggregates exposures at the account level and across clearing members to identify concentration risks. - SGX may impose additional risk mitigating measures considering clearing fund sufficiency, credit concerns, and clearing member’s ability to meet settlement obligations. - For dual customers (trading on both ST and DT) SGX evaluates exposures across both. - SMX margin framework and rules: - SMX clearing member margin components: Initial margin; Variation margin; Delivery margin; Special margin (SMXCC rule 4.7.1 (6)). - Methods and formula for margin calculation and payment are determined by the clearing corporation and/or exchange and communicated by Notice. - Calculation methods may include gross position basis, net position basis, customer level basis or other methods as decided by the clearing corporation and/or exchange. - SMX trading systems incorporate exposure limit monitoring and alerts. - SMX imposes position limits; members must have sufficient margin before entering positions (SMXCC Rule 3.3.3). - Exposure limits prevent members from trading once initial margins and marked-to-market losses exceed a certain percentage of monies placed with SMXCC (SMXCC Rule 4.9). - SMX limits omnibus accounts based on number of omnibus accounts, volume of business, financial condition of the member and omnibus account holders (SMX Rule 4.11); members must maintain a complete list of such accounts. - MAS inspection program: - checks stress tests conducted by the exchanges (emphasis on market and liquidity risks); - looks at the risk of default under reasonable hypothetical scenarios. - Disclosure and reporting requirements: - SGX-ST: identities of all direct customers must be disclosed by members (SGX-ST Rule 12.3.7); omnibus account customers required to be disclosed in case of large exposures (SGX-ST Rule 11.7). - SGX-DT: members required to report identity of trading account holders (SGX-DT Futures Trading Rule 3.3.17) and submit daily report of open positions (SGX-DT Futures Trading Rule 3.3.18); provide ownership/control information on omnibus accounts upon request. - SMX: members required to furnish information on customers’ positions and exposures on request; SMX Rule 3.4(1) provides for disclosure of information on indirect customers; SMX Notice 3010 requires applications detailing identities of customers wishing direct trading access. - Enforcement for failure to provide information: - Disciplinary action powers: SGX-ST Rule 14.3, SGX-DT Futures Trading Rule 7.2, SMX Rule 8.1. - Exchanges may prescribe additional capital, financial and other requirements on the basis of volume, risk exposure and risk concentration (SGX-ST Rule 11.5.1). - SGX-DT powers if adverse event occurs: liquidate positions in member’s house/customer account, call additional margins, or other actions to maintain fair, orderly and transparent market (Futures Trading Rules 7.1.1, 7.3). - SMX actions for default: declare participant in default, limit trading to liquidation, require additional margins (SMX Rules 9.3 and 9.4); impose conditions to cease increase in open position, liquidate open position, or be subject to higher margin requirement (SMX Rule 5.3.3(3); SMX Rule 5.16 in emergencies). ### Default procedures and segregation - Default procedures are set out in business rules of clearing facilities: - CDP: Rule 8 of the CDP Clearing Rules - SGX-DC: Chapter 7A of the SGX-DC Rules - SMXCC: Chapter 8 of the SMXCC Rules - Actions that may be taken by approved exchanges: - declare a member to be a defaulter if it has failed, is unable or unwilling to fulfill obligations, or is apparently insolvent (SGX-ST Rule 14.12.3). - declare default of a clearing member of SGX-DC (SGX-DT Futures Trading Rule 7.1.1). - SMX may declare breach as a declared default and take action under SMX Rule 9.4; SMX Rule 9.2 referenced for default actions. - Actions to manage funds and open positions of defaulting members are taken by the clearing facility where default occurred. - MAS powers: - SFA sections 79, 80 and 81: issue directions to clearing facilities in emergencies and where necessary for ensuring fair, orderly and transparent markets. - For defaulting participants which are CMSL holders regulated by MAS: powers to revoke or suspend licenses (SFA section 99M) or issue directions to license holders (section 101). - Legal protection for default procedures: - Section 81F of the SFA: default procedures shall not be invalid at law by reason only of inconsistency with other laws relating to insolvency, bankruptcy or winding up; a relevant office holder or court shall not prevent or interfere with these default procedures. - Segregation: - The three clearing facilities must account for and keep separate customer funds and assets from other money and assets received from members. - Customer funds and assets are required to be held in trust for customers and disposed of or used only in respect of contracts of the customers of the members (SFA section 62). - Permissible use of customer funds and assets in default procedures are contained in SFA section 63. ### Market disruption measures and price controls - MAS and exchanges have power to halt the market at an exchange in appropriate circumstances (MAS formal powers: SFA sections 32, 34 and 46). - In practice, MAS staff indicated formal halts have not been necessary due to constant dialogue with exchanges. - Approved exchanges have provisions to deal with excessive volatility in derivatives to prevent wild day-to-day swings and provide a "time-out": - SMX risk management measures: daily price ranges for contracts (maximum price advance or decline allowed during any trading session with reference to previous trading day’s settlement price). - Maximum single transaction quantity applied at the member level per single order entry to minimize fat finger errors. - Note: "Currently price limits only exist for derivatives markets." SGX has powers to suspend and restrict trading in the securities market if the market is not orderly, informed or fair (SGX-ST Rule 8.10.1). SGX issued a consultation paper on June 12, 2013 proposing to introduce dynamic circuit breakers on its securities market. ### Short selling and settlement discipline - Naked short selling is not prohibited by law or by the exchange. There are no uptick rules in Singapore. - Securities borrowing and lending facilities are available at the intermediary level but are relatively expensive and not utilized at the retail client level. - Securities must be delivered on settlement date. - CDP settlement and buy-in process: - CDP must receive securities on any settlement day from a selling clearing member by debiting such securities from the clearing account of the selling clearing member before 12:00 midnight on the settlement day (CDP Clearing Rule 6.5.2). - In event of failure to deliver on settlement day, CDP must conduct buying-in against a short clearing member without giving prior notice; costs of the buying-in are paid by the short clearing member (CDP Clearing Rule 6.7). - Securities bought-in are: - credited to the securities account or sub-account of the short clearing member's customer if the customer failed to make securities available (Rule 6.5.2A or 6.5.2); - otherwise credited to the stock account of the short clearing member. - debited from the short clearing member's customer's securities account or sub-account or the short clearing member's stock account, as the case may be, and credited to the short clearing member's clearing account. - SGX short sale reporting and publication: - SGX members required to tag and report sales as short sales to the exchange which releases the information to the market. - Short sale traded volume and value is aggregated per security and published on a daily basis. - SGX provides facility for trading members to submit reports of erroneously marked orders; corrected aggregated short sale volume and value published weekly. - Procedures set out in Appendix 1 of Practice Note 8A.3.3, 8A.4.1, 8A.4.2, 8A.6.2. - Rules pertaining to short selling were published and came into effect in March 2013. - Market intermediaries indicated buying-in costs are considerable and provide a disincentive for clients to sell short. ### Assessment, comments and recommendation - Assessment for Principle 37: Fully Implemented. - Comments: - Singapore’s good track record regarding management of large exposures is noted. - Capital adequacy compliance is not an issue of concern for MAS as almost all licensees are highly capitalized compared to base obligations and the majority maintain buffers above the minimum. - Despite margining, capital and monitoring protections, the reporting threshold requiring disclosure of exposures to customers only when these exceed 20 percent of average aggregate resources "would appear to be on the high side by international standards." - Recommendation: Consideration should be given to lowering this percentage amount so that exchanges/clearing houses are informed earlier of potential buildup of large exposures in order to reduce the risk that large exposures result in financial distress to the market. *Source: chapter 7 of the SMX Rules.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13344.pdf_