Major changes to the Securities and Futures Act
The Securities and Futures Act (Cap. 289) (“SFA”) has been amended since 8 October 2018 to introduce major changes to Singapore’s capital markets regulatory framework.
In this client update, we summarise 3 key changes to the SFA:
- Changes to the Accredited Investor (“AI”) regime, which will come into effect on 8 April 2019
- Changes to the Capital Markets Services (“CMS”) licensing regime (in effect)
- Changes to the Conduct of Business Requirements under the Securities and Futures (Licensing and Conduct of Business) Regulations (“SF(LCB)R”) (in effect)
These changes would be of interest to Capital Market Intermediaries (“CMI”) (including fund managers), custodians or any businesses involved in the securities and derivatives markets.
What is going to change?
(i) Changes to the AI Regime
Previously, an individual qualified as AI under the SFA if his net personal assets exceed S$2 million in value, or if his income in the preceding 12 months is not less than S$300,000.
The recent amendments to the SFA updated the eligibility criteria to be an AI, and allows a wider class of entities to be eligible to be classified as an AI. The following table summarises the eligibility requirements based on the class of persons as follow:
| Class of Person | Eligibility Requirement to be an Accredited Investor |
| Individuals |
An individual is eligible to be an AI if:
His income in the preceding 12 months is not less than S$300,000; |
| Joint Account Holders | Any person holding a joint account with an AI would be treated as an AI in respect of dealings through that joint account. |
| Corporation and Entities |
A corporation is eligible to be an AI if its net assets exceed S$10 million in value, OR if its shareholders are all AIs. An entity (other than a corporation) is eligible to be an AI only if its net assets exceed S$10 million in value. |
| Trust |
A trustee of the following trusts is eligible to be an AI
A trust where the trust property or subject matter exceeds S$10 million in value; |
Previously, investors that qualify as an AI would automatically be deemed as an AI, even if they are unaware of their status as an AI. The recent amendments to the SFA introduces a new opt-in/opt-out regime, which provides a safeguard for AIs to decide whether to be treated as an AI:
- Under the opt-in regime, all new clients which have met the eligibility criteria for AI shall be regarded as retail clients by default, unless they opted to be treated as an AI.
- Under the opt-out regime, all existing clients which have met the eligibility criteria for AI may continue to be treated as AIs, unless they have opted not to be treated as an AI.
To facilitate this opt-in/opt-out regime, CMIs are required to provide written notification to clients.
(ii) Notable Changes to the CMS licensing regime since 8 October 2018
To streamline the list of regulated activities requiring a CMS license, the recent amendments to the SFA have introduced the term “dealing in capital markets products”, which consolidates the previous regulated activities of “dealing in securities”, “dealing in futures contracts” and “leveraged foreign exchange trading” into a single regulated activity. Subsidiary legislations and regulations have been amended to reflect this new terminology.
One notable change is that the “marketing of any Collective Investment Scheme”, which was removed from the Financial Advisers Act as a regulated activity, now falls under the definition of “dealing in capital market products”.* The effect is that in conducting marketing activities of any Collective Investment Scheme, fund managers would now have to hold a CMS licence for dealing in capital markets products unless exempted under an existing licensing exemption (e.g. where such dealing is incidental to its fund management activities for which the manager is licensed or also exempted). “
*Previously, the activities of “dealing in securities” and “marketing of CIS” were regulated separately under the SFA and FAA, even though “marketing of CIS” is a sub-set of “dealing in securities”. As a result, entities were being subject to different business conduct requirements for the conduct of similar activities.
(iii) Changes to the Conduct of Business Requirements
The SF(LCB)R has been amended to tighten rules on customer’s moneys and assets held by the CMI. The key amendments are as follow:
a. CMI’s engagement with retail investors:
- Amongst others, CMIs must disclose to retail investors that their monies will be held by a trustee, that their monies may be withdrawn by CMIs to be deposited with approved clearing houses and such organisations, whether the retail investors’ monies will be commingled with the moneys of other customers of the CMI, and the consequence of any insolvency of the custodian;
- Even with the customer’s written consent, CMIs must not withdraw monies from the customer’s trust account to pay for any of the CMI’s obligations;
- CMIs cannot transfer any rights or title in any monies and assets received from retail investors, unless an exception in the SF(LCB)R applies.
b. CMI’s engagement with custodians
- CMIs must assess the suitability of the custodian prior to opening the trust account and on a periodic basis. CMIs must also maintain records of such assessment.
- Before depositing monies with overseas custodians, the CMI is required to provide written notice to the custodian, and obtain an acknowledgment from the custodian. The full details on this notice and acknowledgement is set out in the SF(LCB)R.
What next?
Clients should review their internal policies to ensure that they are operationally ready to comply with the opt-in/opt-out procedures under the AI regime. Practical steps include:
- Ensuring that the criteria for assessing the AI-eligibility of new clients have been updated, and the AI-eligibility of existing clients has been re-assessed;
- Ensuring that proper documentation and record-keeping system is in place to comply with the opt-in/opt-out regime
Clients, especially CMIs who deal with retail investors in Singapore, should also consider whether they are able to comply with the new regulatory requirements in light of the expanded scope of regulated activities and tightened rules on conduct of business.
Authors:
Claudia Teo
Partner & Head, Corporate and Financial Services
claudiateo@eversheds-harryelias.com
Valerie Boh
Senior Associate
valerieboh@eversheds-harryelias.com
Terence Teoh
Associate
terenceteoh@eversheds-harryelias.com