Regulatory framework

Regulatory authorities

What national authorities regulate the provision of financial products and services?

The Monetary Authority of Singapore (MAS) is the sole national authority in Singapore regulating the provision of financial products and services. It is also the central bank of Singapore.

In addition to the MAS, the approved exchanges in Singapore are also relevant in the regulation of financial products and services. For example, the Singapore Exchange Securities Trading Limited (SGX-ST) is a self-regulatory organisation that issues and administers rules for the marketplace, conducts surveillance on the activities of its participants and enforces compliance by its members and issuers. The approved exchanges are regulated by the MAS.

What activities does each national financial services authority regulate?

The MAS supervises the conduct of business in relation to banking, operation of exchanges and trading markets, trade repositories, clearing facilities, capital markets activities, financial advisory activities, finance companies, money changing and remittance, moneylending, trust companies, and payment and settlement systems.

Capital markets activities generally comprise the following regulated activities under the Securities and Futures Act (Cap. 289) (SFA):

  • dealing in capital markets products (which include securities, units in a collective investment scheme, derivatives contracts and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading);
  • advising on corporate finance;
  • fund management;
  • real estate investment trust management;
  • financing of certain financial products;
  • providing credit rating services; and
  • providing custodial services.

Financial advisory activities generally comprise the following regulated activities under the Financial Advisers Act (Cap. 110) (FAA):

  • advising others on investment products (whether directly or through publications or writings, and whether in electronic, print or other form, including by issuing or promulgating research analyses or research reports);
  • advising on corporate finance; and
  • marketing of any collective investment scheme.

The MAS also supervises the offer of investments to the public, including offer of shares and debentures of a corporation and offer of units in business trusts and collective investment schemes.

In addition, the MAS has resolution powers over financial services firms, and supervises and enforces disclosure obligations in relation to interests in securities of corporations listed on a securities exchange, measures in anti-money laundering and countering the financing of terrorism, targeted economic sanctions and market misconduct offences.

What products does each national financial services authority regulate?

Generally, the MAS regulates the products and services offered in relation to the supervised activities above.

Authorisation regime

What is the registration or authorisation regime applicable to financial services firms and authorised individuals associated with those firms? When is registration or authorisation necessary, and how is it effected?

Banking activities

A corporation that wishes to carry on a full commercial banking business in Singapore must apply for a licence under the Banking Act (Cap. 19) (BA). However, if its banking business is limited, it may apply to the MAS for approval to operate as a merchant bank instead. The typical activities of a merchant bank include corporate finance, mergers and acquisitions, underwriting of share and bond issues, portfolio investment management and other fee-based activities.

Exchanges, market operators, clearing houses and trade repositories

Corporations establishing or operating a market must apply to be an approved exchange or recognised market operator under the SFA, unless exempted by the MAS. Corporations establishing a clearing facility must apply to be an approved clearing house or a recognised clearing house under the SFA, unless exempted by the MAS.

Generally, corporations operating systemically important markets or clearing facilities will be regulated by the MAS as approved exchanges or clearing houses, which are subject to a higher level of statutory obligations than recognised market operators or clearing houses.

Corporations establishing a trade repository must apply for a licence under the SFA.

In addition, no corporation may be the holding company (a controller or majority shareholder) of an approved exchange, approved clearing house or licensed trade repository unless the MAS has granted it approved holding company status.

Capital markets activities

Corporations carrying on business in any capital markets activities must apply for a capital markets services licence under the SFA. However, financial services firms carrying on regulated activities may be exempted from the requirement to hold a capital markets service licence. For example, the following are exempted:

  • any bank licensed under the BA in respect of any regulated activity;
  • any merchant bank approved by the MAS in respect of any of its approved regulated activities;
  • any finance company licensed under the Finance Companies Act (Cap. 108) (FCA) in respect of any regulated activity that is not prohibited by the FCA;
  • any securities exchange, futures exchange, recognised market operator or approved holding company in respect of any regulated activity that is solely incidental to its operation of a securities market or futures market or to its performance as an approved holding company; and
  • any approved clearing house or recognised clearing house in respect of any regulated activity that is solely incidental to its operation of a clearing facility.

Financial advisory activities

Corporations carrying on business in any financial services activities must apply for a financial adviser’s licence under the FAA.

However, exemptions similar to those relating to capital markets services licences above are applicable to financial advisory activities, too. There are also other exemptions available under regulations issued under the FAA (eg, where financial advisory services are only provided to certain persons).

Money-changing and remittance businesses

Corporations carrying on, or advertising that they carry on, money-changing or remittance business must apply for a licence under the Money-changing and Remittance Businesses Act (Cap. 187) (MCRBA).

Moneylending

Persons carrying on or holding themselves out as carrying on the business of moneylending must apply for a licence under the Moneylenders Act (Cap. 188) (MA), unless exempted or excluded under the MA.

 

Finance companies

Only public companies incorporated in Singapore may conduct financing business. They must apply for a licence under the FCA to carry out such business.

Trust companies

Corporations proposing to carry on trust business, or holding themselves out as carrying on trust business, must apply to the MAS for a trust business licence under the Trust Companies Act (Cap. 336) (TCA).

Payment and settlement systems

The MAS may classify a payment system as a designated payment system under the Payment Systems (Oversight) Act (Cap. 222A) (PSOA), if satisfied that it is systemically important to the financial system of Singapore or if it is in the interests of the public. An operator and settlement institution of the designated financial system is subject to statutory obligations under the PSOA.

In addition, the PSOA governs the issuance and management of stored value facilities.

Criteria for obtaining a licence, approval or recognition

Generally, the MAS will take into account, among others, the following factors when determining whether to grant a licence, or approve or recognise an organisation in respect of its regulated activities:

  • the financial soundness, track record, international standing and reputation of the applicant and its parent institution or major shareholders;
  • the strength of the home country supervision and the willingness and ability of the home supervisory authority to cooperate with the MAS;
  • the ability to meet the minimum financial requirements prescribed under the relevant statutes;
  • the strength of internal compliance systems;
  • fitness and propriety of key office holders;
  • risk management systems and processes that are robust and commensurate with the size and complexity of its proposed business;
  • a well-considered strategy in banking or financial services, supported by sound business plans that include a detailed assessment of the sustained economic viability as well as the nature and criticality of the business; and
  • whether the public interest will be served by the granting of a licence or approval.

Authorised individuals associated with financial services firms

Individuals who wish to conduct capital markets or financial advisory activities on behalf of a financial services firm must be appointed as representatives under the MAS’s Representative Notification Framework. The register of representatives is publicly accessible via the MAS’s website.

In addition, generally, key decision-makers of a financial services firm such as the chairman, chief executive officer and directors must be approved by the MAS.

Legislation

What statute or other legal basis is the source of each regulatory authority’s jurisdiction?

The MAS Act (Cap. 186) gives the MAS the authority to conduct integrated supervision of the financial services sector and financial stability surveillance.

What principal laws and financial service authority rules apply to the activities of financial services firms and their associated persons?

The MAS’s specific powers and jurisdiction over each particular financial sector are contained primarily in the following legislation:

  • the MAS Act;
  • the BA;
  • the SFA;
  • the FAA;
  • the MCRBA;
  • the MA;
  • the FCA;
  • the TCA; and
  • the PSOA.

There is also subsidiary legislation promulgated under the Acts above setting out the applicable regulations. For example, the Securities and Futures (Conduct and Licensing of Business) Regulations and Financial Advisers Regulations apply to the conduct of business of capital markets services licence holders and financial advisers, respectively.

Further, the MAS regularly issues guidelines, codes, circulars, FAQs and notices to provide clarity, guidance or rules in relation to regulated activities. Notices are typically issued by the MAS pursuant to specific powers under an Act, and are legally binding. For example, the MAS notices in relation to anti-money laundering and countering the financing of terrorism are issued pursuant to the MAS Act, and a breach of the provisions of the notices may constitute an offence.

Scope of regulation

What are the main areas of regulation for each type of regulated financial services provider and product?

Generally, the main areas of regulation in relation to financial services providers include:

  • licensing and registration;
  • safety and soundness (in particular, the resolution and recovery planning regime under the MAS Act);
  • capital and liquidity;
  • risk management;
  • fitness and propriety of financial services providers and their representatives;
  • conduct of business;
  • (in relation to banks and trust companies) confidentiality and secrecy;
  • market misconduct;
  • (in relation to capital markets activities and clearing) custody in relation to customers’ moneys and assets;
  • anti-money laundering and targeted economic sanctions; and
  • keeping of books, furnishing of returns, regular auditing and other regulatory requirements.

In relation to products, the main areas of regulation pertain to offers of investments, clearing and the reporting of derivatives contracts.

Additional requirements

What additional requirements apply to financial services firms and authorised persons, such as those imposed by self-regulatory bodies, designated professional bodies or other financial services organisations?

If listed on an approved exchange such as the SGX-ST, financial services firms must comply with the rules of the exchange. Typically, the rules set out the requirements that apply to issuers and the manner in which securities are to be offered, and the continuing obligations of issuers.

In addition, financial services firms engaged in wholesale markets for foreign exchange (spot and forwards, debt securities, money market instruments), derivatives products and other market instruments should comply with the Singapore Guide to Conduct & Market Practices for Treasury Activities (the Blue Book) issued by the Singapore Foreign Exchange Market Committee (SFEMC). The Blue Book focuses on how market participants should conduct their business with each other and is meant to foster a high standard of business conduct and good market practices and to ensure equitable and healthy relationships between market participants. Although the Blue Book does not have any formal contractual or legal effect, it is an industry code of conduct that states that any failure of an employee of an SFEMC member to comply with its provisions may call into question whether that individual’s professional behaviour in the market is appropriate and beyond reproach.

Banks should also comply with guidelines and codes issued by the Association of Banks in Singapore (ABS). These include, among others, the ABS Private Banking Code of Conduct, the ABS Guidelines on Anti-Money Laundering and Countering the Financing of Terrorism, and the ABS Guidelines on Responsible Financing.

As mentioned under question 6, there are also guidelines, codes, circulars and FAQs issued by the MAS. Although these do not have the force of law, the MAS will take into account any failure to observe them in its supervision of financial services firms generally.

Enforcement

Investigatory powers

What powers do national financial services authorities have to examine and investigate compliance? What enforcement powers do they have for compliance breaches? How is compliance examined and enforced in practice?

Examination and investigations into contraventions in general

The MAS has at its disposal a suite of supervisory and investigation powers, and may impose administrative actions for breaches. For example, the MAS may:

  • inspect and order the production of books of a financial services firm;
  • require a person to appear before an officer of the MAS for examination;
  • require the financial services firm to provide such information as the MAS may require;
  • enter the premises of the financial services firm without a warrant in connection with an investigation;
  • issue written directions to financial services firms;
  • transmit information in the possession of the MAS to a regulatory authority of a foreign country in respect of any investigation or enforcement by that regulatory authority; and
  • refer the case to the Commercial Affairs Department (CAD) of the Singapore Police Force for criminal investigation where the offence is serious.

Examination and investigations of offences under the SFA and FAA

Since March 2015, the MAS and CAD have been conducting joint investigations into market misconduct offences under the SFA using criminal investigation powers. The joint investigations arrangement was extended to cover all offences under the SFA and the FAA from March 2018. Under this arrangement, MAS officers are vested with all available criminal investigation powers under the Criminal Procedure Code including the powers to:

  • obtain documents;
  • record statements from persons under investigation or persons who may have information to assist in investigations;
  • arrest and to conduct search and seizure;
  • access, inspect and decrypt the data contained in the computers and devices where computers and electronic devices are seized; and
  • require suspects to surrender their travel documents to prevent suspects from leaving the country.

In addition, the MAS may apply to court for an order to freeze and prohibit any transfers of suspects’ money and securities. It may also seek a range of other injunctive relief, including court orders restraining a person from carrying on a business dealing in securities, restraining a person from trading, and declaring a securities contract void.

Disciplinary powers

What are the powers of national financial services authorities to discipline or punish infractions? Which other bodies are responsible for criminal enforcement relating to compliance violations?

The MAS can pursue a wide range of enforcement sanctions as set out in its Enforcement Monograph (revised in September 2018), which include:

  • referring a case for criminal prosecution;
  • civil penalty actions (court action or settlement);
  • withdrawal or suspension of a licence or regulatory status;
  • removal from office;
  • prohibition orders;
  • compositions;
  • reprimands; and
  • warnings or letters of advice.

Criminal prosecutions

As part of the joint investigation arrangement, the MAS may seek stiff imprisonment terms or fines for serious offences under the SFA and the FAA that have been referred to the Attorney-General’s Chambers (AGC) for criminal prosecution. For criminal offences under MAS-administered written laws that are not covered under the joint investigation arrangement, the MAS may refer these to the CAD for criminal investigation, or to the AGC with a view to making a criminal prosecution.

Revocation or suspension of regulatory status

The MAS may revoke or suspend the regulatory status of financial services firms where the financial services firm:

  • is found to have widespread control failures;
  • has pervasive patterns of non-compliance; or
  • has ineffective governance over its operations such that there is gross misconduct by its staff or serious breaches of laws.

Removals

The MAS may direct a financial services firm to remove directors and officers under relevant legislation such as the BA and SFA. The MAS may do so if it is satisfied that such a removal would be in the interests of the public or for the protection of the stakeholders of the financial services firm. The severity of the misconduct and the impact caused by the non-performance of the individual’s duties will determine the MAS’s decision on the period for which the individual should remain removed from his or her office or employment.

Compositions, reprimands and warnings

Compositions, reprimands and warnings are administrative sanctions issued by the MAS without the need to go to court. The MAS will take into account the facts and circumstances of each case, including the effect of the breach, the compliance record of the offender, the degree of cooperation shown, and the culpability of the offender in determining which sanction should be administered.

Compositions

A composition is a financial penalty. An offence may be compounded by the MAS if it is prescribed as compoundable under the relevant legislation. The MAS may seek to retrieve an amount with reference to the fine prescribed by the particular offence. Generally, compositions will be entered in lieu of prosecution where the breach is less serious. Acceptance of compositions does not amount to a guilty plea.

Reprimands

A reprimand is a form of supervisory warning that is more severe than an ordinary supervisory warning or letter of advice. The MAS may issue reprimands where it has found failures in a financial services firm’s internal compliance function or control systems.

The MAS may also reprimand representatives of financial services firms whom it deems guilty of misconduct, if it is satisfied that a reprimand would be in the interests of the public and for the protection of investors.

The MAS may make reprimands public to deter the industry or to safeguard the interests of customers. Such situations include where formal actions have been taken for significant breaches of laws or regulatory requirements and failures to take remedial action following repeated warnings from the MAS.

Warnings and letters of advice

In less serious cases of misconduct or breaches, or cases of first time breaches with low impact on the market, the MAS may issue warnings or letters of advice to the offender. These are usually not published. The fact that an offender has been previously warned by the MAS would be taken into account in any future investigations and enforcement actions against the same person.

Prohibition orders

Prohibition orders may be issued to bar persons from conducting regulated activities, taking part in the management, acting as a director or becoming a substantial shareholder of a financial services firm in Singapore. These orders are usually issued to persons who do not meet the MAS’s fit and proper requirements, and in more serious cases of misconduct. The severity and effect of the misconduct will determine the MAS’s decision on the duration of the prohibition order.

Powers in relation to market misconduct offences under the SFA and the FAA

Civil penalty actions in court

The MAS may also choose to bring civil penalty actions in court for market misconduct offences. Under the civil penalty regime, action may be taken as long as the contravention can be proven on a balance of probabilities, which is a lower threshold than the criminal standard of proof.

In determining if a civil penalty or criminal sanction is the more appropriate enforcement measure, the MAS will consider factors such as the evidential strength of the case, the severity of the misconduct, the impact on the market, and whether the imposition of a civil penalty is a fair and proportionate sanction that will be an effective deterrent. Before it commences a civil penalty action in court, the MAS will seek the Public Prosecutor’s consent.

Civil penalty settlement

The MAS may also reach an out-of-court settlement with persons who have contravened the market misconduct provisions. However, it is the MAS’s policy to enter into civil penalty settlement agreements only on the basis of an admission of liability.

In determining the civil penalty settlement amount, the MAS will consider a wide range of factors, including:

  • impact on the market;
  • difficulty in detecting the misconduct (eg, where misconduct was deliberately concealed by using sophisticated trading methods or withholding information); and
  • the existence of prior misconduct.

Tribunals

What tribunals adjudicate criminal and civil financial services infractions?

Tribunals that adjudicate financial services civil infractions include the Financial Industry Disputes Resolution Centre (FIDReC), and arbitration tribunals for civil infractions if the contract provides for dispute resolution through arbitration.

The jurisdiction of FIDReC in adjudicating disputes between consumers and financial services firms is up to S$100,000 per claim. FIDReC’s services are available to all consumers who are individuals or sole proprietors. Consumers who have not been able to resolve a dispute with a financial services firm can file a complaint free of charge with FIDReC.

Criminal infractions are adjudicated in the Singapore courts only.

Penalties

What are typical sanctions imposed against firms and individuals for violations? Are settlements common?

See question 10.

Compliance programmes

Programme requirements

What requirements exist concerning the nature and content of compliance and supervisory programmes for each type of regulated entity?

The MAS Risk Management Guidelines detail the nature and content of compliance and supervisory programmes expected of financial services firms. The Guidelines do not have the force of law, but will be taken into account by the MAS in its supervision of financial services firms generally. These include the following:

  • The Guidelines on Risk Management Practices - Board and Senior Management highlight the corporate governance roles of the board of directors and senior management pertaining to risk management.
  • The Guidelines on Risk Management Practices - Internal Controls provide guidance on sound and prudent policies and procedures on the safety, effectiveness and efficiency of the firm’s operations, the reliability of financial and managerial reporting, and compliance with regulatory requirements.
  • The Guidelines on Risk Management Practices - Credit Risk articulate the broad principles that should be embedded in a risk management framework covering strategy, organisational structure, policy, and credit control processes for origination, monitoring and administration of credit transactions and portfolios.
  • The Guidelines on Risk Management Practices - Market Risk provide guidance on the sound management of risk resulting from movements in market prices, in particular, changes in interest rates, foreign exchange rates, credit spreads, and equity and commodity prices.
  • The Guidelines on Risk Management Practices - Liquidity Risk provide guidance on sound management of risk of a financial services firm being unable to meet its financial obligations as they fall due without incurring unacceptable costs or losses through fund raising and assets liquidation.
  • The Technology Risk Management Guidelines set out risk management principles and best practice standards to guide financial services firms in establishing a sound and robust technology risk management framework, strengthening system security, reliability, resiliency and recoverability, and deploying strong authentication to protect customer data, transactions and systems.
  • The Guidelines on Risk Management Practices - Business Continuity Management provide guidance on sound principles to minimise the impact to businesses due to operational disruptions and serve as standards that financial services firms are encouraged to adopt.
  • The Guidelines on Outsourcing set out the MAS’s expectations of a financial services firm that has entered into any outsourcing arrangement or is planning to outsource its business activities to a service provider. Firms are expected to conduct a self-assessment of their outsourcing arrangements against these Guidelines.

In addition, the following regulations on corporate governance, which have the force of law, apply to banks incorporated in Singapore and approved exchanges, approved clearing houses and approved holding companies respectively:

  • Banking (Corporate Governance) Regulations 2005; and
  • Securities and Futures (Corporate Governance of Approved Exchanges, Approved Clearing Houses and Approved Holding Companies) Regulations 2005.

In November 2018, the BA was amended to specifically allow the MAS to issue regulations relating to the risk management of banks. In February 2017, the MAS published a consultation paper on proposed amendments to the Banking Regulations and the Banking (Corporate Governance) Regulations in relation to these regulations. At the time of writing, the MAS has not issued these regulations.

Gatekeepers

How important are gatekeepers in the regulatory structure?

Compliance function

The MAS Guidelines on Risk Management Practices - Internal Controls provide that the compliance function is expected to assist senior management in managing effectively the compliance risks faced by the financial services firm. Compliance officers are expected to report to the board on matters such as:

  • an assessment of the key compliance risks the firm faces and the steps being taken to address them;
  • an assessment of how the various units in the firm are performing against compliance standards and goals;
  • compliance issues involving persons in positions of major responsibility within the firm and the status of any actions being taken; and
  • material compliance violations involving any person or unit of the firm and the status of any actions being taken.

Compliance officers are expected to address compliance shortcomings and violations, including ensuring that adequate disciplinary actions are taken where appropriate and requisite reports are promptly made to the firm’s supervisor or other authorities.

They are also expected to provide advice and training on regulatory requirements and standards of professional conduct to staff, conduct periodic reviews to assess compliance with policies, procedures and regulatory requirements, and facilitate a whistle-blowing process.

The head of compliance is expected to promptly inform the chair of the board directly in the event of any major non-compliance by a member of management or material non-compliance by the firm with an external obligation if he or she believes that senior management or other persons in authority at the firm are not taking the necessary corrective actions and a delay would be detrimental to the firm or its stakeholders.

Audit function

Under the MAS Guidelines on Risk Management Practices - Internal Controls, internal auditors are expected to have appropriate independence from reporting lines to the firm’s board or to an audit committee of the board. They should have sufficient stature within the firm to ensure that senior management reacts to and acts on their recommendations. Internal auditors are expected to, among other things:

  • be empowered to initiate a review of any area or any function consistent with their terms of reference;
  • employ a methodology that identifies the material risks run by the firm;
  • prepare an audit plan that is reviewed regularly based on their own risk assessment and allocate audit resources accordingly;
  • ensure that policies and processes are complied with; and
  • check for proper and adequate segregation of duties and reporting lines for front office and risk management personnel, and whether there is adequate oversight by competent managers.

Directors' duties and liability

What are the duties of directors, and what standard of care applies to the boards of directors of financial services firms?

All directors on the board of Singapore-incorporated companies are subject to directors’ duties under Singapore law. Sources of directors’ duties arise from statute (the Companies Act (Cap. 50) (CA)) and from common law. These duties overlap substantially, and generally include:

  • the duty to act honestly and use reasonable diligence;
  • the duty to act in the interests of the company;
  • the duty to avoid conflicts of interest;
  • the duty to act for proper purposes;
  • the duty to disclose potential conflict; and
  • the duty not to make improper use of information acquired by virtue of their position as ‘an officer or agent’ of the company to gain a personal advantage or advantage for any other person or cause detriment to the company.

Under the common law, directors are regarded as fiduciaries and therefore owe fiduciary duties to the firms.

A director is required to exercise the same degree of care and diligence as a reasonable director found in his position. This standard depends on factors such as the individual’s role in the firm, the type of decision being made, and the size and the business of the firm.

When are directors typically held individually accountable for the activities of financial services firms?

Under certain statutes, directors may be held individually accountable for contraventions of financial services firms. Examples include the following:

  • where the financial services firm had contravened the market misconduct provisions with the consent or connivance of the director or as a result of any neglect on the part of the director; and
  • where the director failed to take all reasonable steps to secure compliance by the financial services firm of the relevant statutory provisions.

In April 2018, the MAS published a consultation paper on proposed guidelines on individual accountability and conduct, which provide guidance on, among other things, the MAS’s expectations of directors of financial services firms. The proposed guidelines are intended to supplement the existing regulatory framework, focusing particularly on the measures that financial services firms should put in place to promote ethical behaviour and responsible risk-taking, and strengthen the accountability of senior managers for the actions of their staff and the conduct of the business under their purview. At the time of writing, the proposed guidelines have not been issued by the MAS.

Private rights of action

Do private rights of action apply to violations of national financial services authority rules and regulations?

Yes, in relation to certain violations. In particular, the SFA creates an express right of civil action against persons who contravene any of the market misconduct provisions in the SFA, if they had gained a profit or avoided a loss as a result of the breach. The contravening person shall be liable to pay compensation to a claimant who had suffered loss arising from the contravention.

A claimant may also potentially sue for breach of statutory duty. Generally, to establish a cause of action, the plaintiff must show that:

  • the defendant is under a statutory duty;
  • the defendant has breached that statutory duty;
  • the breach caused the damage suffered by the plaintiff; and
  • the damage is within the scope of protection of the statute.

However, the scope and application of the tort of breach of statutory duty has been regarded as uncertain and severely restricted by the courts. The primary reason for this is because, for the tort to be established, the court must be satisfied that the legislature had intended to create an entitlement to damages at common law for a breach of the statutory provision. As a result, the courts have generally shown a tendency to refuse claims brought for breach of statutory duty.

Standard of care for customers

What is the standard of care that applies to each type of financial services firm and authorised person when dealing with retail customers?

The standard is that of reasonable care (Deutsche Bank v Chang Tse Wen [2013] 4 SLR 886 at [72]). Generally, this is a common-sense inquiry: ‘whether the reasonably prudent banker, faced with the same circumstances, would regard the course of action taken on the facts justifiable’ (Yogambikai Nagarajah v Indian Overseas Bank and another appeal [1996] 2 SLR(R) 774 at [62]).

Does the standard of care differ based on the sophistication of the customer or counterparty?

Yes. In Go Dante Yap v Bank Austria Creditanstalt AG [2011] 4 SLR 559 at [46]-[48], the Court of Appeal held that the standard of care was informed by, among other factors, the experience and sophistication of the customer. As the customer in the case was someone who was commercially savvy and had sufficient knowledge of investment principles to understand the types of risks involved, this lowered the standard of care to be expected of the bank as it would have been entitled to assume that the customer could rely on his own judgment and sources of information, without requiring constant updates and advice.

In addition, it is unclear whether the court’s view of non-reliance or exclusion clauses, which are often relied on by banks to negate their duty of care, may vary based on the sophistication of the customer. There is commentary in case law that suggests that as against unsophisticated investors, such clauses may not guarantee that a bank will not be liable. The Court of Appeal in Als Memasa and another v UBS AG [2012] 4 SLR 992 commented that it may be desirable for courts to reconsider whether financial services firms should be accorded full immunity for ‘misconduct’ by relying on non-reliance clauses as against unsophisticated investors. The position is clearer, however, with regard to sophisticated investors, where the courts have held that exclusion or non-reliance clauses may be relied upon by financial services firms against a claim by the customer for breach of representations or duties (Orient Centre Investments and another v Société Générale [2007] 3 SLR(R) 566, Tradewaves Ltd v Standard Chartered Bank [2017] SGHC 93 at [128]).

Rule making

How are rules that affect the financial services industry adopted? Is there a consultation process?

The MAS typically engages in a public consultation process and invites responses from the public or industry members. There may be multiple rounds of consultation and responses before the proposed rules are finally passed by the Singapore Parliament and come into force.

Cross-border issues

Cross-border regulation

How do national financial services authorities approach cross-border issues?

Generally, if an activity outside Singapore could have a substantial and foreseeable effect in Singapore that would have been otherwise regulated in Singapore, that activity must be regulated in Singapore by way of the necessary licences or approvals from the MAS.

In this regard, the SFA in particular contains provisions that extend its application to cross-border activities and activities that are wholly outside Singapore that could have a substantial and foreseeable effect in Singapore.

In addition, where a person commits an act partly in and partly outside Singapore that, if done wholly in Singapore, would constitute an offence under the SFA or FAA, that person will be guilty as if the act were carried out wholly in Singapore.

International standards

What role does international standard-setting play in the rules and standards implemented in your jurisdiction?

International standards generally play a role in the rules and standards implemented in Singapore. For example, rules and proposed developments in relation to resolution and recovery planning of financial services firms are generally in line with the Financial Stability Board’s formulation of the Key Attributes of Effective Resolution Regimes for Financial Institutions.

Clifford Chance Pte Ltd and Cavenagh Law LLP are registered as a formal law alliance in Singapore under the name Clifford Chance Asia.

Update and trends

Recent developments

Are there any other current developments or emerging trends that should be noted?

The Banking (Amendment) Act 2016 came into effect in November 2018, which amends the BA to enhance the MAS’s supervision and control over banks’ risk management framework. The amendments include the following:

  • Banks will be required to establish a comprehensive risk management framework and internal controls that match their risk appetite as well as the scale and complexity of their operations. Banks must also notify the MAS of certain material adverse developments affecting the bank or its key appointment holders.
  • The MAS will be empowered to make regulations (which will have the force of law) under the BA with respect to the risk management systems and controls of banks, where the MAS will be able to impose penalties on banks in breach of such regulations. Currently, the framework of risk management systems and controls is contained in guidelines issued by the MAS (see question 13).
  • The MAS will be empowered to prescribe the duties of key appointment holders at banks, whose appointments must be approved by the MAS, and to specify the maximum term of each appointment.

The Securities and Futures (Amendment) Act 2017 came into effect in October 2018. Key amendments include the following:

  • The accredited investor (AI) regime has been amended to afford more protection to investors. Previously, investors who had met the threshold for AI classification did not receive the full range of regulatory safeguards when issuers and financial services firms dealt with them. Under the new AI regime, new customers who are AI-eligible will be treated as retail investors by default, unless these customers choose to opt-in to AI status and give up certain regulatory safeguards that only apply to retail investors.
  • Regulatory oversight of certain commodity markets, clearing houses and trading activities has been transferred from the International Enterprise Singapore Board to the MAS.
  • The scope of regulation of over-the-counter (OTC) derivatives contracts has been expanded, including the regulation of the activity of dealing in OTC derivatives contracts.
  • A new short-selling regime.
  • Fine-tuning of the offering regime for investments.
  • A new offence of manipulation of financial benchmarks, which includes commodities benchmarks, has been introduced.
  • Enhancement of the enforcement regime applicable to market misconduct.

In October 2018, the MAS Act was amended to enhance the resolution powers of the MAS. The amendments include the introduction of bail-in powers of the MAS and the MAS’s rights to temporarily stay termination rights in certain contracts between financial services firms and their counterparties.

The Payment Services Bill was passed by the Singapore Parliament on 14 January 2019. At the time of writing, the resulting Payment Services Act 2019 has not come into force. Once the Act is operative, it will replace the current regulatory framework for payment systems and services under the PSOA and the MCRBA with a single regulatory framework, and extend the ambit of regulated payment services to a wider range of payment activities, including digital payment token services, e-money issuance services and cross-border money transfer services. Persons carrying on a business of providing any type of regulated payment service will have to be duly licensed, unless an exemption or exclusion applies.

The MAS, in a consultation paper released in December 2018, has proposed streamlining the framework for business arrangements between certain financial services firms regulated under the SFA or the FAA in Singapore (the Singapore Entities) and their foreign related corporations, in order to allow the foreign related corporations to more easily provide cross-border financial services to Singapore customers of the Singapore Entities. Instead of having to apply to the MAS on a case-by-case basis to be exempted from licensing, the MAS has proposed allowing the foreign related corporations to commence the conduct of regulated activities so long as they comply with a set of boundary conditions that will be set out in legislation.