MAS Consults on Operationalising the Changes to the Securities and Futures Act
The Securities and Futures (Amendment) Act 2017 (Amendment Act) was passed on 9 January 2017 (for more on the changes introduced by the Amendment Act, please see our update, "Slew of Amendments to the Securities and Futures Regime to Be Passed"). It is not yet in force and a number of the amendments require subsidiary legislation for their implementation. Several of them are being consulted upon in a consultation paper issued by the Monetary Authority of Singapore (MAS) on 28 April 2017, Consultation Paper I on Draft Regulations Pursuant to the Securities and Futures Act. The key proposals by the MAS in the consultation paper are set out below. The MAS intends to implement the Amendment Act changes in 2018.
Change to be effected by the Amendment Act
Proposals in the consultation paper
Facilities for the trading of OTC derivatives will be regulated. A new defined term "organised markets" was introduced which covers securities markets, futures markets, as well as derivatives markets (including OTC derivatives markets), among others.
The MAS has proposed that it will regard an entity that operates a facility to match trades in respect of products that are not exchange-traded derivatives contracts as operating an organised market.
The MAS will not, however, regard an entity as operating an organised market if the facility that it provides engages with customers to broke "block futures" or "negotiated large trades" for the purposes of registering such trades on an established organised market operated by an approved exchange or recognised market operator. Instead, it will regard such a facility as providing an intermediation service, which would not require approval or recognition. This will be so regardless of the means through which the services are provided (whether through "voice-assisted" or electronic means).
The MAS will formalise its current requirements for approved exchanges and registered market operators. It has also set out in the Consultation Paper, the factors that it will take into consideration in considering an application to approve or recognise an entity as an approved exchange or as a recognised market operator. These are as follows:
- an established track record in the business or in a related business for at least the past five years;
- key officers and directors with sufficient experience relevant to the operation of the business; and
- a statement of how the corporation intends to comply with its statutory obligations, e.g. presence of adequate and appropriate risk management practices and policies, sufficiency of financial, human, and system resources.
An entity that provides a facility for the trading of OTC derivatives will have three months from the date the new requirements come into effect to assess whether it is an organised market.
If it is, it has a further nine months to submit an application to the MAS to be either an approved exchange or a recognised market operator. If it decides not to apply, it will have nine months to cease operations.
The administering and submission of designated financial benchmarks will be regulated:
- If a financial benchmark is designated by the MAS, a person who carries on the business of administering that benchmark will need to be authorised, or exempted from authorisation, by the MAS in order to do so.
- A person who carries on a business or activity of providing information in relation to that benchmark will also need to be authorised, or exempted from authorisation, by the MAS in order to do so.
- The MAS has stated that the Singapore Interbank Offered Rate (SIBOR) and the Swap Offered Rates (SOR) will be designated financial benchmarks.
The proposed Securities and Futures (Financial Benchmarks) Regulations set out the requirements for benchmark administrators and submitters.
The key requirements for benchmark administrators are as follows:
- To be authorised as a benchmark administrator, an applicant must maintain a minimum base capital of at least SGD10,000. It must also demonstrate to the MAS that it is able to meet the obligations and comply with the requirements imposed by the Securities and Future Act (SFA) on a benchmark administrator.
- A benchmark administrator must to establish an Oversight Committee to be responsible for the maintenance and governance of the designated benchmark.
- An independent external party should audit the benchmark administration process of the benchmark administrators.
The key requirements for benchmark submitters are as follows:
- An independent external party should audit the benchmark submission process of the benchmark submitters.
There will be a transition period of six months from the date that the regulatory regime commences.
Fund management will include managing the property of a collective investment scheme. This will include property that are physical assets. The MAS will licence and regulate managers of a collective investment scheme that invests in physical assets (physical assets fund) and which is offered to retail investors. A manager of a physical assets fund which is offered only to accredited or institutional investors will be exempted from the licensing requirement.
While the manager of a physical assets funds offered only to accredited investors will not need to be licenced, the manager will be required to lodge an information memorandum, furnish certain basic fund information to the MAS, and to lodge an annual declaration. The information memorandum should disclose that the physical assets fund is exempted and has not been entered into a list of restricted schemes maintained by the MAS, and that the MAS has not approved the physical assets fund or its manager in respect of the management of the fund.
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In determining whether to recognise a collective investment scheme, the MAS may have regard to whether the laws and practices of the jurisdiction under which the scheme is constituted and regulated affords to investors in Singapore protection at least equivalent to that provided to them under the SFA, as well as such other criteria as may be prescribed in regulations.
The additional criteria to be prescribed are as follows:
- the investment policy of the fund;
- the fund’s constituent documents;
- the oversight provided by the trustee or an equivalent oversight body; and
- whether these factors, either taken individually or collectively, would accord to investors protection at least equivalent to that provided under authorised schemes.
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The MAS has also taken the opportunity to consult on the following two proposed changes to the regulation of real estate investment trusts (REIT):
- A REIT may disclose pro forma financial information in its initial public offering prospectus. The MAS will clarify that the restriction on disclosure of past performance based on simulated results of a hypothetical fund does not cover pro forma past financial information.
- Restricted funds in the form of REITs may have managers who are licenced or regulated to carry out REIT management activities in their principal place of business.