© 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 1 Financial Services and Regulatory News We are delighted to share with you the latest edition of our newsletter covering the latest developments in Indonesia, Malaysia and Singapore. We trust you will find this newsletter useful and if you need any further information, please contact our team in these jurisdiction. Best regards, Indonesia Iqbal Darmawan Partner +622129608567 iqbal.darmawan@ bakernet.com Malaysia Brian Chia Partner +60322987999 brian.chia@ wongpartners.com Sue Wan Wong Partner +60322987884 suewan.wong@ wongpartners.com Singapore Stephanie Magnus Partner +6564342672 stephanie.magnus@ bakermckenzie.com March 2016 Indonesia (Page 1) Indonesia's New Rules on Self-Retention and Domestic Reinsurance Support Becomes Effective as of 1 January 2016 Malaysia (Page 4) Robust Anti-Money Laundering and CounterTerrorism Financing Framework, but More to be Done Before Full FATF Membership Singapore (Page 5) MAS Issues Series of Amendments to Various MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism and their Corresponding Guidelines Proposed Amendments to the Securities and Futures Act for the Regulation of Market Misconduct Indonesia's New Rules on Self-Retention and Domestic Reinsurance Support Becomes Effective as of 1 January 2016 Background For more than five years now, the balance of payments of Indonesian reinsurance transactions has been in deficit with an average of 5.65 trillion Rupiah per year, due to a lack of domestic reinsurance capacity. To expedite the domestic reinsurance capacity optimization efforts, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or "OJK") considers it necessary to increase insurance companies' self-retention requirements and to saturate domestic reinsurance capacity. For that purpose, on 10 November 2015, the OJK issued Regulation No.14/POJK.05/2015 on Self-Retention and Domestic Reinsurance Support ("Regulation 14"). This was followed by an implementing regulation in the form of OJK Circular Letter No. 31/SEOJK.05/2015 on Self Retention Limitation, Portion of Reinsurance Support and Reports on Reinsurance and Retrocession Program ("Circular Letter 31"), which was issued on 16 November 2015.Both Regulation 14 and Circular Letter 31 ("Regulations") became effective on 1 January 2016. © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 2 Self-Retention Under the Regulations the insurance companies self-retention are improved by increasing the minimum self-retention target to become 1.5 up to 2 times of the minimum self-retention target that was stipulated under the previous regulations. Reinsurance Support for 'Simple Risks' Insurance companies are now required to have 100% domestic reinsurance support for products that cover 'simple risks'. A 'simple risk' can be assessed based on among other things the value of the coverage amount and/or the insured object, e.g., motor vehicle insurance, health insurance, personal accident insurance, credit insurance, life insurance, and suretyship. Exempted from the requirement, but are still subject to the minimum domestic retention, are insurance companies whose products are: (a) providing international coverage, (b) specifically designed for multinational companies; and (c) newly developed and supported by a foreign reinsurer. Automatic Reinsurance An insurance company must have automatic reinsurance support from domestic reinsurers of at least 25% of the automatic reinsurance capacity of each line of insurance business or the minimum amount set out in Circular Letter 31, whichever is higher. Automatic reinsurance support must be implemented based on the following level of priority. For general insurance companies: a) obtain automatic reinsurance support from at least two domestic reinsurers; b) if they fail to meet requirement (a) above, obtain automatic reinsurance support from at least one domestic reinsurer and one domestic general insurer; and c) if they fail to meet requirements (a) and (b) above, obtain automatic reinsurance support from foreign conventional reinsurers, provided that: i. the relevant insurance product is an exempted 'simple risks' product; and/or ii. all domestic reinsurers and two domestic general insurers have declined to give support. For life insurance companies: a) obtain automatic reinsurance support from at least two domestic reinsurers / one domestic reinsurer (for shariah); and b) if they fail to meet requirement (a) above, obtain automatic reinsurance support from foreign reinsurers, provided that: i. the relevant insurance product is an exempted 'simple risks' product; and/or ii. all domestic reinsurers have declined to give support. Facultative Reinsurance An insurance company must have facultative reinsurance support from domestic reinsurers of at least 25% of the total sum insured for each line of insurance © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 3 business or the minimum amount set out in Circular Letter 31, whichever is higher. Facultative reinsurance support must be implemented based on the following level of priority: For general insurance companies: a) obtain facultative reinsurance support from at least two domestic reinsurers; b) if they fail to meet requirement (a) above, obtain facultative reinsurance support from at least one domestic reinsurer and one domestic general insurer; and c) if they fail to meet requirements (a) and (b) above, obtain facultative reinsurance support from foreign reinsurers, provided that: i. the relevant insurance product is an exempted 'simple risks' product; and/or ii. all domestic reinsurers and two domestic general insurers have declined to give support. For life insurance companies: a) obtain facultative reinsurance support from at least two domestic reinsurers / one domestic reinsurer (for shariah); and b) if they fail to meet requirement (a) above, obtain facultative reinsurance support from foreign reinsurers, provided that: i. the relevant insurance product is an exempted 'simple risks' product; and/or ii. all domestic reinsurers have refused to give support. Transitional Periods General insurance companies that have entered into automatic reinsurance agreements with foreign reinsurers before 10 November 2015 must adjust the agreements so that they comply with the Regulations at the latest 9 November 2016. Life insurance companies that have entered into automatic reinsurance agreements with foreign reinsurers before 10 November 2015 are subject to the following requirements: (a) for existing businesses can continue until the agreements expire, (b) for new businesses must comply with the Regulations by 9 November 2016. >Back to top Robust Anti-Money Laundering and Counter-Terrorism Financing Framework, but More to be Done Before Full FATF Membership Since the first Asia Pacific Group ("APG") mutual evaluation assessment on © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 4 Malaysia in 2007, significant progress has been made to address areas of noncompliance and partial-compliance with the FATF 40 Recommendations. Parliament has enacted amendments to the Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLATFA”), and Bank Negara Malaysia ("BNM") and the Securities Commission ("SC") have issued specific guidelines for the various reporting institutions. This led the APG in its second mutual evaluation assessment on Malaysia to, amongst others, conclude that Malaysia has a robust legal AML/CFT framework with generally well-developed and implemented policies. APG Second Mutual Evaluation Report Malaysia has, since the last evaluation, updated almost all the technical elements of the preventive regime for money laundering and terrorist financing which, as a result, demonstrates high degree of consistency with the Financial Action Task Force ("FATF") Standards. Malaysia’s robust policy framework for anti-money laundering and counter financing of terrorism also reflects the well-functioning coordination structures between the regulators and the reporting institutions. BNM was lauded by the evaluators as being effective and well-resourced in carrying out its supervisory functions over the majority of reporting institutions, which carry the bulk of the money laundering and terrorist financing risk. The SC also received praise for having adopted a sound approach vis-à-vis AML/CFT. Improvements in Supervision are Required The APG evaluators have also urged the regulators to develop and pursue enforcement action. Although sanctions have been deployed by the regulators for violations of AML/CFT, a deepening of the enforcement action across the entirety of the reporting institutions is necessary to improve compliance. Investigations by, amongst others, BNM and SC have increased and it is anticipated that the regulators will increase their commitment to prosecuting AML/CFT offences. Reporting institutions should therefore review their AML/CFT policies and equally step up their internal review processes to ensure their organisation are in good stead to withstand the increased scrutiny by the regulators upon any AML/CFT audit. Beneficial Ownership Remains a Concern The APG Second Mutual Evaluation Report maintained Malaysia's "partially compliant" status with respect to its effectiveness in identifying beneficial owners. While law enforcement and regulatory agencies have powers to obtain information on beneficial ownership, the timeliness and adequacy of such information is hampered by the current legislative framework - there is no legal requirement on companies or the authorities to maintain or record this information. This deficiency will be addressed through the revisions to the Companies Act 1965 (“CA”). The Companies Bill was tabled for the first reading at the lower house of the Malaysian Parliament on 19 October 2015 and if adopted, it will enhance the standards relating to the transparency of legal persons. For example, the Bill enables a company to require its members to disclose whether the shares which are registered in the name of that member are held by him as beneficial owner or as trustee and in event of the latter, to provide the company with particulars sufficient to identify the beneficial owner and the nature of his interest in the shares. Conclusion In order to strengthen its AML/CFT framework, and gain full admission to FATF, Malaysia needs to take a number of actions - intensify efforts to combat terrorist financing and foreign sourced threats through further amendments to the laws and regulations and tightening the supervision on reporting institutions, increase its focus on obtaining convictions for AML/CFT violations, ramp up its effectiveness in identifying beneficial owners and enhance the customer due diligence requirements on a risk-sensitive basis. Reporting institutions should therefore take immediate steps to ensure that their internal policies on AML/CFT are in line with the current regulatory standards, ensure that the policies are implemented and © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 5 stay abreast with the regulatory developments that will be implemented by the supervisory authorities. >Back to top MAS issues series of amendments to various MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism and their corresponding Guidelines Background On 30 November 2015, the Monetary Authority of Singapore ("MAS") issued a series of amendments to various MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism (the "Notices") and the corresponding Guidelines for each Notice. Key Amendments The key amendments to the Notices are: a) Identification of beneficiary of life policies: where a financial institution (which could be a bank, merchant bank, finance company or capital market intermediary) distributes life policies on behalf of a direct life insurer, the financial institution must: i. as soon as a beneficiary of a life policy is identified to the financial institution as a specifically named natural person, legal person or arrangement, obtain the full name, including any aliases, of such beneficiary; ii. as soon as a beneficiary of a life policy is designated by characteristics, class or other means and is known to the financial institution, obtain sufficient information concerning the beneficiary to satisfy the direct life insurer that such direct life insurer will be able to establish the identity of the beneficiary at the time of payout; b) Identification of beneficial owner in relation to a customer that is a Singapore Government or foreign government entity: financial institutions (i.e. banks, merchant banks, finance companies, credit card or charge card licensees, holders of money-changer's or remittance licence, direct life insurers, financial advisers, capital market intermediaries, approved trustees, trust companies, and holders of stored value facilities) are no longer exempt from inquiring if there exists any beneficial owner in relation to a customer that is a Singapore Government or foreign government entity; and c) Various clarifications made to individual Notices: it is specifically clarified that: i. a credit card or charge card licensee must not undertake any transaction for any person without establishing business relations with that person; ii. in determining whether business relations with or transactions © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 6 undertaken for any customer present a higher risk of money laundering or terrorism financing, a direct life insurer must include each beneficiary as a relevant risk factor; and iii. a direct life insurer must consider filing a suspicious transaction report where any beneficiary, or beneficial owner of a beneficiary is a politically exposed person ("PEP"), or a family member or close associate of a PEP, and higher risks are identified. Effective Date The amendments to the Notices and the Guidelines are effective from 30 November 2015. >Back to top Proposed Amendments to the Securities and Futures Act for the Regulation of Market Misconduct In the Consultation Paper on Proposed Amendments to the Securities and Futures Act issued on 11 February 2015, the Monetary Authority of Singapore (“MAS”) proposed amendments to the market misconduct provisions found in Part XII of the Securities and Futures Act (Cap. 289) (“SFA”). The consultation closed on 24 March 2015. MAS has now issued its feedback to the responses received to the 11 February 2015 Consultation Paper and a further Consultation Paper with proposed legislative amendments to Part XII of the SFA. The main proposals are: a) To clarify that a statement or information can be false or misleading in a material particular even if it is not likely to or does not result in observable significant price movements; b) To introduce guidelines and a statutory definition for the phrase “persons who commonly invest” for the insider trading provisions which reflect the level of sophistication of the general investing population; c) To address the inconsistency between the civil penalty quantum that can be imposed for a market misconduct offence where the offender obtains a benefit or avoids a loss and where the offender does not obtain a benefit or avoids a loss; d) To give MAS’ civil penalty claims under the SFA priority over any other debt that has accrued after the contravention giving rise to the civil penalty claim; and e) To give MAS officers gazetted as Commercial Affairs Officers the power to exercise powers under the Criminal Procedure Code (Cap. 68) ("CPC") and SFA concurrently. Concept of “Materiality” for the Purposes of an Offence Under the SFA Against the Making or Dissemination of Information that is False or Misleading in a Material Particular Section 199 of the SFA makes it an offence to make a statement, or disseminate information that is false or misleading in a material particular. In Madhavan Peter v Public Prosecutor and other appeals  4 SLR 613, the High Court held that the expression “a material particular” in section 199 refers to a particular that is likely to materially affect the price or value of © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 7 securities. The amendments make it clear that for a statement or information to be false or misleading in a material particular, it is not necessary that the statement or information has, or is likely to materially affect the price or value of securities. Accordingly, to establish an offence under section 199 of the SFA, it is sufficient that either the statement or information is likely to induce other persons to subscribe, sell or purchase securities or is likely to have an effect (whether material or otherwise) on the price of securities. The amendments have the potential to make it easier for MAS or the prosecution to prove a case under section 199 of the SFA, as it is no longer necessary to prove that a disclosure would likely result in significant price movements in the counter. Introduction of a Statutory Definition for the Phrase “Persons Who Commonly Invest” for the Insider Trading Provisions The insider trading provisions found in Division 3 of Part XII of the SFA prohibit trading on inside information which a reasonable person would expect to have a material effect on the price or value of the securities. A reasonable person is taken to expect information to have a material effect on the price or value of the securities if the information would, or would be likely to, influence “persons who commonly invest in securities” in deciding whether or not to subscribe for, buy or sell the securities. There was no statutory definition for “persons who commonly invest in securities” (“the Common Investors”). In Lew Chee Fai Kevin v Monetary Authority of Singapore  2 SLR 913, the Court of Appeal equated the Common Investors to investors with “general professional knowledge” to analyse and evaluate securities. MAS intends for the definition of Common Investors to reflect the level of knowledge and qualities of the general investing population, which includes retail investors. To do so, MAS proposes to define the Common Investors as one or more members of the public who deal in securities of the type in question on a regular basis and to issue guidelines on the level of knowledge and qualities which the Common Investors should possess. In MAS’ view, a person who commonly invests in securities is one who: a) is a rationally and economically motivated investor with at least some experience and knowledge of investing in the relevant asset, but may or may not be investment professionals; b) is aware of the prevailing price of the relevant asset class from time to time; and c) has knowledge of, or the ability to obtain, generally available information concerning the relevant industry of the asset class in question and, in particular, information concerning the company in question, and would have the ability to draw inference from and assess the reliability of the information in question. The amendments pitch the level of sophistication of the Common Investors at a level above an inexperienced investor, but below an investor with the “general professional knowledge” to analyse and evaluate securities as the Court of Appeal envisaged. MAS invites comments on the proposed definition of the Common Investors and the proposed level of knowledge and qualities that such investors should possess. © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 8 Addressing the Inconsistency Between the Civil Penalty Quantum That Can Be Imposed for a Market Misconduct Offence Where the Offender Obtains a Benefit or Avoids a Loss, and Where the Offender Does Not Obtain a Benefit or Avoid a Loss Section 232 of the SFA empowers the MAS, with the consent of the Public Prosecutor, to seek an civil penalty order in respect of a market misconduct offence. Currently, if a person gains a profit or avoids a loss as a result of the market misconduct, the maximum civil penalty payable is 3 times the amount of profit gained or loss avoided, or $50,000 (for individuals) or $100,000 (for corporations), whichever is greater. If a person does not gain a profit or avoid a loss, the civil penalty payable is between $50,000 and $2 million. This results in an ironic situation where a person who gains a small profit may be liable to a maximum civil penalty amount of $50,000, while a person who gains no profits or does not avoid a loss is liable to a maximum civil penalty of $2 million. The amendments are intended to address this inconsistency by raising the maximum civil penalty payable in all cases to 3 times the amount of profit gained or loss avoided, or $2 million, whichever is greater. Incidentally, MAS also proposes to raise the minimum civil penalty payable by a corporation for a contravention committed by an employee or officer with the consent or connivance of the corporation or when the corporation fails to prevent or detect the contravention from $50,000 to $100,000, where the corporation did not gain a profit or avoid a loss due to the contravention. Similar amendments were not made in relation to partnerships and limited liability partnerships. Prioritising MAS' Civil Penalty Claims Over Any Other Debt That Has Accrued After the Contravention Giving Rise to the Civil Penalty Claim Under section 10 of the Government Proceedings Act (Cap. 121), all debts due and claims owing by any person to the Government shall be entitled from the date of the accrual to a preference of payment over all other debts or claims accrued subsequent to such date. The amendments are intended to accord MAS' civil penalty claims for contravention of the market misconduct provisions similar priority over other debts or claims that have accrued after the date of contravention. Empowering MAS Officers Gazetted as Commercial Affairs Officers With the Power to Exercise Powers Under the CPC and SFA Concurrently Since 17 March 2015, MAS and the Commercial Affairs Department have entered into an arrangement to jointly investigate market misconduct offences. Pursuant to this arrangement, certain MAS officers have also been gazetted as Commercial Affairs Officers, which enables them to exercise criminal investigation powers under the CPC. Currently, section 324 of the SFA allows MAS to apply to prohibit payment or transfer of certain assets when its officers are carrying on an investigation in the exercise of the powers under the SFA. The amendments are intended to ensure that when investigating a contravention of the SFA, MAS may rely on section 324 of the SFA, even though the investigation is carried on in the exercise of the criminal © 2016 Baker & McKenzie Financial Services and Regulatory Newsletter | 9 investigation powers under the CPC. The consultation period ends on 23 September 2015. Please feel free to contact us if you have any comments or queries. >Back to top ©2016 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.