The Securities and Futures Act (Cap. 289) (“SFA”) is the main Singaporean legislation regulating the capital markets and financial investments sector in Singapore. The SFA is very broad in scope and covers many regulatory aspects including the regulation of brokers, dealers, exchanges, market operators, trade depositories and clearing houses, derivative trade reporting and clearing, substantial shareholding disclosures, capital markets services licensing, market abusive conduct and offerings of financial products in Singapore. This report covers a few of these sub-areas regulated under SFA, which may be of particular interest. (For more information on Singapore's FS regulatory landscape, please see our earlier report here.)
Capital markets services licence
Part IV of the SFA provides for the regulation of capital markets services licence (“CMSL”) regime and representatives of CMSL holders (who are individual persons employed by, acting for, or have an arrangement with, a CMSL holder to carry out the regulated activity for the CMSL holder). In particular, section 82 of the SFA provides that no person shall carry on business in a capital markets services regulated activity unless he holds a CMSL. The regulated activities under the capital markets licensing regime comprise of:
- 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.
These regulated activities are very widely defined in the Second Schedule to the SFA. Generally speaking, a person carrying on any activity forming an integral part of the value chain could be viewed to be carrying on the regulated activity. The Monetary Authority of Singapore (“MAS”), the sole financial services regulator in Singapore, would thus require such person to apply for a CMSL, unless a licensing exemption could be invoked.
CMSL applicants must satisfy the MAS that they possess the relevant track record, adequate financial resources and sound operational processes to ensure orderly and fair conduct of business. As a general practice, a CMSL will only be granted to a Singaporean corporation. In exceptional cases where CMSL is granted to branches of foreign incorporated entities, such branches should also satisfy the MAS that it would be subject to proper management oversight and would be able to comply with all laws and regulations governing its operations, before a CMSL is granted to it.
CMSL holders must comply with ongoing requirements such as minimum capital and financial risk requirements and conduct of business obligations. These requirements are provided under the Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licenses) Regulations and Securities and Futures (Licensing and Conduct of Business) Regulations, which are subsidiary legislation promulgated under the SFA.
The MAS must be notified of each individual who is employed by, acts for, or has an arrangement with, a CMSL holder to carry out the regulated activity for the CMSL holder. The MAS maintains an online Register of Representatives, which may be accessible by the public.
Regulation of offering of financial products in Singapore
The SFA also regulates the offering of financial products in Singapore. These financial products include:
- Futures contracts;
- Collective investment schemes;
- Business trusts; and
- Real estate investment trusts.
Broadly, financial products offered in Singapore require a Singaporean-law compliant prospectus to be registered, unless any safe harbours may be invoked as an exemption. Offers made outside of Singapore but nonetheless target persons in Singapore (whether to retail investors or offers made on a private basis) would constitute an offer in Singapore within the scope of the financial products offering regime under the SFA (please refer to “Extra-territorial effect of the SFA” below for further information on the extra-territorial reach of the SFA).
The SFA provides for certain safe harbours which may be relied on to be exempted from the prospectus requirement, including:
- An offer made with no consideration;
- Small personal offers where the total amount raised from such offers within any 12-month period does not exceed 5 million SGD or such other amounts as may be prescribed by the MAS;
- An offer to no more than 50 persons within any period of 12 months and under certain conditions;
- An underwriting agreement relating to a financial product;
- An offer to qualifying persons like employees of the corporation or its related corporations under the specified conditions;
- An offer to institutional investors; and
- An offer to defined categories of persons, such as accredited investors, or an offer made to a person is at a consideration of not less than 200,000 SGD for each transaction.
The SFA is also the principal legislation regulating insider trading and other market abuse conduct. Under the SFA, insider trading is a strict liability offence. The SFA expressly provides that it is not necessary to prove intention to use information in order for a person to contravene the insider trading provisions. Other prohibited market conduct under the SFA include the following:
- False trading and market rigging;
- Market manipulation;
- Dissemination of false information; and
- Employment of manipulative or deceptive devices.
Violation of the insider trading and the other market abuse provisions generally attracts criminal penalties which will attract a fine of up to 250,000 SGD or up to 7 years imprisonment or to both. However, civil penalties could instead be imposed by the courts of a sum amounting up to 3 times the amount of profit gained or loss avoided as a result of the contravention.
Extra-territorial effect of the SFA
As a general rule, and as a matter of international comity, Singaporean legislation does not have extra-territorial effect unless it is expressly provided under the legislation itself. The SFA is one such legislation. Specifically, section 339 of the SFA provides for the extra-territorial reach of the main offence creating provisions of the SFA to apply to acts taking place either partly-in and partly outside Singapore, and acts completely outside Singapore which have a substantial and reasonably foreseeable effect in Singapore. This is intended to facilitate the regulation of the cross-border provision of financial services that target or are made accessible to persons in Singapore.
In determining whether extra-territorial acts/conduct has any substantial and reasonably foreseeable effect in Singapore, the MAS will take into consideration the following factors:
- The number of persons in Singapore to whom an offer of service or an invitation is made;
- Whether the act has a significant or adverse impact on the soundness, stability and safety of Singapore’s financial system, or on the public or investor confidence in the soundness, stability and safety of Singapore’s financial system, or is detrimental to the public interest of the protection of investors;
- Whether there are advertisements at or in Singapore or targeted at Singapore residents;
- Whether the foreign entity accepts or appears willing to accept orders or applications from persons in Singapore;
- Absence of appropriate and prominent disclaimers; and
- The use of Singapore dollar to price services.
Several proposed amendments to the SFA have undergone public consultation to introduce changes to the SFA regulatory regime, including introduction of additional classes of OTC derivatives contracts which are subject to trade reporting, transfer of regulatory oversight of OTC commodity derivatives to the MAS, expanding the types of OTC derivatives the trading of which will attract CMSL regulation, and expanding the range of specified investor classes.
We are very grateful to Rajah & Tann Singapore LLP for their assistance in the publication of this report.