EXECUTIVE SUMMARY
LEGISLATION AND REGULATION
- All Foreign Tax Crimes Were Made Predicate Offences as from 1September 2014
The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) (Amendment) Act came partially into force on 1 September 2014. Accordingly, with effect from that date, all foreign tax crimes committed with wilful intent became a predicate offence. This is regardless of whether there is a corresponding equivalent tax offence in Singapore. Financial institutions may therefore have to re-consider their KYC account opening and AML surveillance parameters. Other related changes are as follows:
- The removal of the requirement of dual criminality has also been applied to the Mutual Assistance in Criminal Matters Act.
- The financial institutions required to comply with the record keeping requirements set out in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act have been expanded.
CASES
- Napier Park European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO 2 B.V. & Ors [2014] EWCA Civ 984 (England, Court of Appeal, 11 July 2014)
- A collateralised loan obligation structure provided for certain obligations to apply if “the ratings of the Class A1 Notes have not been downgraded below their Initial Ratings”.
- The Class A1 Notes had been downgraded from AAA to AA in the past but had been upgraded again to AAA at the relevant point in time.
- The English Court of Appeal held that the phrase “have not been downgraded” should be construed as meaning that the Class A1 Notes had been and remained downgraded at that relevant point in time.
- Accordingly, as the Class A1 Notes were no longer downgraded, the obligations that were argued to apply were indeed applicable.
CONSULTATION PAPERS
- MAS Issues Consultation Paper on Implementation of FAIR Proposals
On 2 October 2014, the Monetary Authority of Singapore released a consultation paper on legislative amendments to the Financial Advisers Act and Insurance Act to implement the policy proposals under the Financial Advisory Industry Review. The main proposals deal with the following matters:
- A more structured Continuing Professional Development training framework;
- Enhancements to the admission and ongoing criteria relating to financial and minimum standard requirements;
- Financial advisory activities of registered insurance brokers;
- Non-financial advisory activities conducted by licensed financial advisers and their representatives;
- Use of introducers by financial advisory firms;
- Remuneration structures;
- Improving access to life insurance products; and
- Authorising inspections by foreign regulatory authorities.
The Singapore Exchange (“SGX”) and the Monetary Authority of Singapore (“MAS”) have proposed changes to the regulatory regime for bond offerings:
- The proposed changes will only apply to plain vanilla bonds that meet the specified characteristics.
- The SGX is proposing to allow retail investors to purchase bonds that were initially acquired by institutional and accredited investors through secondary trading on the SGX Mainboard after a six-month period (“Seasoning Framework”).
- To rely on the Seasoning Framework, the trustee, the issuer, and the offer must meet specified criteria.
- The issuer may also make additional offers of new bonds to retail investors on the same terms of the initial offer after the initial six- month period. The aggregate amount of bonds to be offered cannot exceed 50% of the size of the initial offer.
- The MAS is proposing to exempt issuers that meet specified criteria from prospectus requirements for offers of plain vanilla bonds.
- Issuers will, however, have to issue a products highlight sheet and a simplified disclosure document.
LEGISLATION AND REGULATION
The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) (Amendment) Act came partially into force on 1 September 2014. Accordingly, with effect from that date, all foreign tax crimes committed with wilful intent became a predicate offence. This is regardless of whether there is a corresponding equivalent tax offence in Singapore.All Foreign Tax Crimes Were Made Predicate Offences as from 1 September 2014
The term “foreign serious tax offence” was added to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”). This comprises any foreign tax evasion offence, so long as the offence has been criminalised in the foreign jurisdiction and it is committed wilfully with intent to evade tax. The forms of evasion specified in the defined term are as follows:
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•gonmeyerenft,therequredmannr,ofanyincorrctinformatinappariginany assssentmadebytheauthoriy,wenreuiredtodoso;
•Prepringrmaintainig,orauthrsigtheprparationormatenace, ofanyfalsebooksofaccuntorotherrecrs,orfalsifyingorauhorsig enfys ofaccontorrcrs;and
•Makigusefanyfraud,artorcontrivnce,orauthrisigtheuseofsuch ,tr c
Financial institutions may therefore have to re-consider their KYC account opening and AML surveillance parameters.
This removal of the requirement of dual criminality has also been applied to the Mutual Assistance in Criminal Matters Act. The Mutual Assistance in Criminal Matters (Amendment) Act also came into force on 1 September 2014. The amendments provide that for foreign tax evasion offences, the dual criminality requirement will not be required for:
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To discuss the possible implications of this for your business, please contact:
Elaine CHAN
d: +65 6416 8010
e: elaine.chan@ wongpartnership.com
Joy TAN
d: +65 6416 8138
e: joy.tan@ wongpartnership.com
•reqessthatinvolvesechadseiureortheforfetureofasse,where esnefen,eInformationarranement,orinterationaltaxcmpliaceareeent betwenSinaporeandtereqestigcontry.
The financial institutions required to comply with the record keeping requirements set out in the CDSA have been expanded to include the following, among others:
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Finally, the amendment to the CDSA also established a cash transaction reporting regime in a new Part VIB. This new Part VIB came into force on 15 October 2014.
CASES
Where a collateralised loan obligation structure provided for certain obligations to apply if “the ratings of the Class A1 Notes have not been downgraded below their Initial Ratings” and where the Class A1 Notes had been downgraded from AAA to AA in the past but had been upgraded again to AAA at the relevant point in time, held that the phrase “have not been downgraded” should be construed as meaning that the Class A1 Notes had been and remained downgraded at that relevant point in time.
-- Napier Park European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata CLO 2 B.V. & Ors [2014] EWCA Civ 984 (England, Court of Appeal, 11 July 2014)
This case concerned the interpretation of contracts in a collateralised loan obligation (“CLO”) structure. The CLO structure involved Harbourmaster Pro- Rata CLO 2 BV, as issuer, issuing 14 classes of notes, such notes being divided into senior notes, mezzanine notes, and subordinated junior notes. Under the waterfall provisions of the CLO, each class of notes are subordinated to the payments of principal and interest on the class of notes above them in the structure. The funds raised from the issue of such notes are in turn used to purchase a portfolio of loans and participations in loans (the “Portfolio”).
Under the terms of the notes, the collateral manager may apply unscheduled principal proceeds (repaid early by borrowers under the underlying loan
To discuss the possible implications of this for your business, please contact:
HUI Choon Yuen
d: +65 6416 8204
e: choonyuen.hui@ wongpartnership.com
obligations) received under the Portfolio to acquire more loan obligations during a stipulated time frame (the “Reinvestment Period”). Under the same terms, such reinvestment after the Reinvestment Period is only allowed if “the ratings of the [Senior Notes] have not been downgraded below their Initial Ratings”. If the above condition is not satisfied, the unscheduled principal proceeds would be used to redeem the Senior Notes instead of reinvesting such proceeds into the Portfolio.
The Senior Notes in the CLO structure had initially been rated as “AAA” but had been downgraded to “AA” for over two years and nine months after which time they were upgraded back to “AAA”. The collateral manager, having received over £7 million in unscheduled principal proceeds after the Senior Notes had been upgraded back to AAA, considered that there had been a downgrade and, therefore, the unscheduled principal proceeds had to be directed to redeem Senior Notes instead of being reinvested into the Portfolio. The Junior Noteholders disagreed.
Decision
The English Court of Appeal stated that, following the decision of the Supreme Court in Re Sigma Finance Corp, it should interpret tradable financial instruments such as the CLO using an iterative process. This involved weighing each interpretation and investigating its commercial consequences, and adopting the interpretation which was the most sensible.
The Court first considered whether the phrase “have not been downgraded” was ambiguous. While it noted that other parts of the relevant documents used the phrase “has occurred and is continuing” or other similar language, it did not think that too much weight should be placed on the tense used. It noted that even viewed simply as a matter of grammar the disputed phrase was capable in normal English usage of referring to something which was continuing or something which had continuing effect, and its grammatical construction often was used in that sense.
The Court then considered the overall structure of the transaction and observed that a historical downgrade of Notes was not, in various parts of the documentation, treated as an irreversible event that had continuing consequences. In addition, during the Reinvestment Period a downgrade of the Notes had no contractual effect. That being the case, it was difficult to interpret that the same terms would provide a sea-change in the nature of the obligation to reinvest (i.e., a restriction against investment) at the end of the Reinvestment Period.
Furthermore, the obligation to reinvest related to unscheduled principal proceeds, that is, monies that arose from borrowers making early repayments. If borrowers simply repaid in accordance with the underlying loan obligations, then no unscheduled principal proceeds would be received. As such, the contract merely provided for the contingency that such unscheduled principal proceeds be received and did not create new entitlements on the part of the Senior Noteholders. The Court observed that if the Rating Agencies took the view (through the conferment of an AAA rating) that there was no insolvency risk to the Senior Noteholders and that they would be paid in full and on time, there did not seem to be a good reason to prohibit reinvestment simply due to a downgrade that happened years ago and which was no longer extant.
CONSULTATION PAPERS
MAS Issues Consultation Paper on Implementation of FAIR Proposals
On 2 October 2014, the Monetary Authority of Singapore (“MAS”) released a consultation paper on legislative amendments to the Financial Advisers Act and Insurance Act to implement the policy proposals under the Financial Advisory Industry Review. The main proposals in the “Consultation Paper on
(1) Draft Legislation and Proposed Legislative Amendments to Effect the Policy Proposals under the Financial Advisory Industry Review; and (2) Proposed Legislative Amendments to Authorise Inspections by Foreign Regulatory Authorities under the Financial Advisers Act” (“Consultation Paper”) are summarised below.
Continuing Professional Development
A more structured Continuing Professional Development (“CPD”) training framework will be put in place for representatives of Financial Advisers (“FAs”) who provide financial advisory services in respect of life insurance and other investment products. Under this framework, a FA representative must fulfil prescribed a number of minimum hours of CPD training: 16 hours for FA representatives who only advise on or arrange mortgage reducing term assurance and/or group life insurance policies, and 30 hours for all other FA representatives. At least four of those hours must be in Ethics and eight in Rules and Regulations.
To discuss the possible implications of this for your business, please contact:
Elaine CHAN
d: +65 6416 8010
e: elaine.chan@ wongpartnership.com
Enhanced Financial Admission Criteria and Ongoing Requirements
The MAS will be enhancing the financial admission criteria and ongoing requirements for licensed FAs (“LFAs”) as follows:
•Minimum Base Capital:
- LFAs who only advise others by issuing or promulgating research analyses or research reports concerning investment products will be required to maintain a minimum base capital of S$250,000.
- All other LFAs will be required to maintain a minimum base capital of S$500,000. However, if the LFA purchases Professional Indemnity Insurance (“PII”) coverage of S$500,000 on top of the minimum statutorily specified amount it may maintain a lower base capital of S$300,000 instead.
•Financial Resources:sledonlrs thatarethehgherof:
- one quarter of their relevant annual expenditure of the immediately preceding financial year; or
o S$150,000.
•Minimum PII Coverage:
- LFAs with an annual revenue of up to S$5 million will be required to obtain minimum PII coverage of S$1 million.
- LFAs with an annual revenue of more than S$5 million will be required to obtain minimum PII coverage of 20% of their audited gross revenue of the immediately preceding year, subject to a cap of S$10 million.
- LFAs who only advise others by issuing or promulgating research analyses or research reports concerning investment products will be required to obtain minimum PII of S$500,000.
- The amount of deductible for the PII policy will be capped at 10% of the LFA’s base capital.
Existing LFAs will be given a two-year transitional period to meet the new requirements on base capital and financial resources, and a one-year transitional period to meet the new PII requirement.
Enhanced Admission Criteria and Minimum Standards
In addition, an LFA applicant should be able to show the following:
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•Itshouldeployaminimumofthreefull-time,rsientprofssnalswith ttesftce
•Itshouldhaveacompliacefunctinthatisindepndentoftheadvisry andsalsfnction.orAswithmorethan0FArersentatesra grssanualrevenueofmorethanS5,eeshuldbeothindeendtanddedcaed.
•Whreaprpriate,theholdingcmanyofthe LFAapplicantshould earfyoe
FA Activities of Registered Insurance Brokers
Registered insurance brokers will be required to meet the same management expertise, financial, and compliance requirements applicable to LFAs, failing which their FA activities will be restricted.
Non-FA Activities Conducted by LFAs
The non-FA activities of LFAs will be restricted to:
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•Providing trning nd cnsultncy in rspct of financal plnning or alcydtngadempwringcosuers;nd
•Providingwillwriting,stateplannng,ndtaxplannngsrvics.
The gross revenue generated by LFAs from such activities must not exceed 5% of their total annual revenue derived from their FA business, based on their last audited financial returns. They must also establish and maintain a register of representatives who carry out any of the above non-FA activities.
Non-FA Activities Conducted by FA Representatives
FA firms should only recruit representatives whose professional focus is primarily on their FA role. Accordingly, the MAS will require FA firms to, among other things, assess the non-FA activities of their representatives to ensure that:
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The following are prohibited non-FA activities:
•Carryingnamoneylendgbusnss;
•Promotingjnkesforcasnos;
•Actingasrealestateagnts;and
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Use of Introducers by FA Firms
The following restrictions are proposed to apply to the use of introducers by FA firms:
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•Introdcrsaynotprovieprouctinfrmationtocstomrs.
•FAfirmsmaynotactsitrodcrsnresectofinestmentructsfr chyedoeice,unessacstomrinitatesn enquryonthatclassofivestmentprducsorasecificrouctwithin thatclass.
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Remuneration Structures
Commissions for regular premium life policies paid by product manufacturers to FA firms, representatives, and supervisors are to be distributed over a minimum period of six years or the premium payment period of the policy, whichever is shorter. First year commissions will be capped at 55% of total commissions; the remaining commissions of at least 45% will be paid out over the next five years or the remaining premium payment years, whichever is shorter.
To further align the interests of FA representatives and their supervisors with that of their customers, the following additional measures are proposed:
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•eSlnremelatedicivesthatrewardFA firms,rprsentativs,andsuprsorsforrcomendngspcific investmentodctsraspecifccsofinvestmentproucs.Prodct- relatediceniveswhichegivenfrtesaeofureprotectinproucs ledme
Access to Life Insurance Products
The MAS will be launching an online web aggregator to enhance the transparency of information in respect of life insurance products. Participating life insurers must submit information on life insurance products to the MAS for publication on the web aggregator, and pay a fee for the hosting, operation, and maintenance of, and system changes to, the web aggregator. In addition, life insurers catering to the retail market will be required to offer a class of life insurance products directly to consumers, without charging any commissions.
Authorising Inspections by Foreign Regulatory Authorities
The MAS is proposing to amend the Financial Advisers Act to allow it to grant permission to foreign regulatory authorities or their appointed agents to conduct inspections of FA firms in Singapore.
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SGX and MAS Issue Consultation Papers on Bond Listings
The Singapore Exchange (“SGX”) and the Monetary Authority of Singapore (“MAS”) have proposed changes to the regulatory regime for bond offerings. In brief, these are as follows:
•TheSGXisproosngtoallowretailinvestorstopurchsebndsthat wereinitiallyacqurdbyinstituldcddsh scodarytradingonteSGXMainbordafterasix-monhperid (“Seasoning Framework;
•TheMASisproosngtoexemptissusthatmeetspcifiedcrieriafrm ssrsfna
The last day for feedback was 30 September 2014.
Scope
Both of the proposed changes will only apply plain vanilla bonds which meet the following characteristics:
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•providefrrpaymentofthepricilmtedfed
•haveperodcinterestpamentswhichcanotbedeerred;
•carry a fixed interst rae or flating rate of intrest coprsed of a refereceraeplusafixedmarginwhhcanotbeecresed;
•arenotconvrtibleintoorchagebleforotherscrities;
•arenotsset-backdscritiesorstrcturedotes;nd
•areusbrdnated.
To discuss the possible implications of this for your business, please contact:
HUI Choon Yuen
d: +65 6416 8204
e: choonyuen.hui@ wongpartnership.com
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The bonds must be listed and traded on the SGX. The scope excludes convertible bonds, perpetual bonds, and other hybrid instruments.
Issuer and Trustee Requirements
In order to be able to avail itself of the Seasoning Framework, an issuer must meet requirements as to size, listing, and credit as set out below:
•Size Test:erteatnf1netsf0
•Listing Test:Theissur’sequitysecuriesmsthavebeenlistdonthe Xradseortte,rthavelisted,orguarantedtheissaceof,bondsontheSGXforatleast es.
•Credit Test:er tyefeg:
- It has not recorded a net loss over the previous five years;
- It has a credit rating of BBB or higher, or the bonds to be offered are rated BBB or higher; or
- It has listed, or guaranteed the issuance of, bonds listed on the SGX of at least S$750 million over the previous five years.
An issuer is also able to avail itself of the Seasoning Framework if it is the wholly-owned entity of a guarantor that satisfies these criteria.
The SGX also proposes that for debt securities that are to be issued under the Seasoning Framework, the trustee to be appointed must meet the requirements applicable to trustees and trust deeds under rule 308 of the Listing Manual.
Offer under the Seasoning Framework
An offer of bonds under the Seasoning Framework must have an initial minimum principal amount of S$300 million in the initial issuance to institutional and accredited investors. The issuer should prominently disclose its intent to season the debt securities in the offer documents to the accredited and institutional investors.
This initial offering circular will be made available to investors by the SGX on its website. The SGX will host this and other information about the issuer and the debt securities on a dedicated webpage. The other information to be made available will include:
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The SGX also proposes to provide the daily calculated fair value of the bonds for at least six months after they are listed in order to enhance price transparency and to facilitate price discovery when the debt securities are seasoned.
Re-tapping
Under the Seasoning Framework, an issuer may also make additional offers of new bonds to retail investors on the same terms of the offer to the institutional and accredited investors six months after the initial offer (“re- tapping”). The aggregate amount of bonds offered through such re-taps cannot exceed 50% of the size of the initial offer. The issuer should have also have prominently disclosed in the offer documents to the accredited and institutional investors that it has the option to offer a re-tap issue to retail investors and the maximum size of the re-tap.
Once the issuer decides to conduct a re-tap on an existing seasoned issue, it must make a SGXNet announcement of the re-tap containing the following details:
•Tersofthedebtscritis tobeissud;
•s toepcse;
•Modeofsbscriptinfortedebt scritiesisseduderthere-ta.
The MAS proposes to grant a prospectus exemption for the re-tap. The issuer must, however, provide investors with a product highlights sheet which sets out the key features and risks of the bonds offered in a clear and concise manner. Updated or supplemental offer documents may be issued to reflect changes relating to the issuer or terms of the debt securities. Issuers may invite subscriptions to the debt securities offered during a re-tap through placements via brokerage firms and subscription via automated teller machines.
Prospectus Exemption for Exempt Bond Issuers
As noted above, the MAS is also proposing to exempt issuers that meet specified criteria from prospectus requirements for offers of plain vanilla bonds. In addition to being able to satisfy the size test and listing test under the Seasoning Framework, the issuer or guarantor must also meet the following credit requirements:
•ItmusthaveacreditratigofAA-orgher,whretheratingsdoneby naldtg;
•ThebodstobeofferederatedAA-rhighr,wretheratigisdoe ynltg;
•Theissur/uarntorhslisted,orguarnteedteissacef,bonds dneXftt1nrese
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An offer to retail investors made pursuant to this exemption must also meet the following conditions:
•Theonsofered prsuattotheeeptionmstbe listedndtrdedn e
•Theoffermstcoprsetranchstohdandretailinestors;
•Aprodcthihlightsshetmustberovdedtoretailnvestors;
•Asimplifieddisclsredocumntmustbeprovidedtoboth dorsadreailinvestors;and
•etstdedetedheXdeeo s s
SOME OF OUR OTHER UPDATES …
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DATE |
TITLE |
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13 November 2014 |
LegisWatch: Trade Reporting for FX Derivatives Contracts to Commence on 1 May 2015 |
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7 November 2014 |
CaseWatch: Arbitral Award Held Enforceable Despite Applicant’s Failure to File Expert Witness Statement |
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7 November 2014 |
CaseWatch: Reserve Powers of Management May Devolve to Shareholders When Board is Deadlocked |
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4 November 2014 |
LegisWatch: SGX Introduces A New Regulatory Framework for Secondary Listings |
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