On September 5, 2014, the Monetary Authority of Singapore (“MAS”) issued two related consultation papers
entitled “Consultation Paper on Notice on Outsourcing” and “Consultation Paper on Guidelines on
Outsourcing” (the “Consultation Papers”), which propose (i) the issuance of a new Notice on Outsourcing,
that defines a set of minimum standards for outsourcing management (the “Notice”) and (ii) amendments to
the existing Guidelines on Outsourcing (the “Guidelines”).
Under the Consultation Papers, the Guidelines remain applicable to all financial institutions including fund
management companies (“FMCs”), both registered and licensed. However, the proposed Notice will apply to
only some but not all financial institutions, for example, licensed FMCs will be subject to the Notice, but not
Key proposals under the Notice
1. Material outsourcing
The scope of “material outsourcing” has been expanded to include an arrangement which:
• in the event of a service failure or security breach, has the potential to adversely affect an institution’s ability
to manage risk and comply with applicable laws; or
• involves customer information and may, in the event of any unauthorized access or disclosure, loss or theft,
materially impact an institution’s customers.
2. Outsourcing to regulated financial institutions outside Singapore (“overseas FIs”)
Where the service provider is an overseas FI, an institution must provide the MAS with a written confirmation
by the service provider’s supervisory authority that:
• The MAS and any independent auditors appointed by it will be allowed access to the institution’s documents,
records of transactions etc. stored or processed by the service provider, and that the institution and any
auditor appointed by it may inspect the service provider’s control environment, insofar as it relates to the
institution’s data processed by the service provider, and may report any findings to the MAS;
• in the case where the supervisory authority is a host supervisor, it shall not access any customer information
of the institution that is in possession of the overseas FI and in the case where it is the home supervisor, it INVESTMENT FUNDS UPDATE
shall not access such information unless required solely for the purpose of carrying out its supervisory
functions (a prior written notification must be provided to the MAS for such access); and
• the supervisory authority is prohibited under its laws from disclosing the information to any other person, or
it undertakes to safeguard the confidentiality of the information.
An institution is required to ensure that periodic independent audits of all its material outsourcing
arrangements are conducted. The scope of such audits must include an assessment of the service providers’ and
its sub-contractors’ physical and IT security and control environments, incident management process and the
institution’s observance of the Guidelines and compliance with the Notice (if applicable). A copy of the audit
report is to be submitted to the MAS for information.
4. Outsourcing agreements
Outsourcing agreements must include provisions that indemnify and hold the MAS, its officers, agents and
employees harmless from any liability, loss or damage to the service provider and its sub-contractors arising out
of any access and inspection action.
5. Protection of customer data
Only those service providers that operate in jurisdictions which generally uphold confidentiality provisions and
agreements may be engaged by an institution. Where customer information is to be disclosed, an institution
must obtain appropriate legal advice in respect of the overseas jurisdiction where the outsourcing arrangement
is to be performed. An institution is also required to notify the service provider in writing of its obligations of
confidentiality under applicable laws and common law.
Key proposed amendments to the Guidelines
1. Notification of adverse developments
An institution is required to notify the MAS as soon as possible of any adverse development or breach of legal
and regulatory requirements by itself or its service provider and sub-contractors from its outsourcing
arrangement. The MAS must also be notified of such adverse development or breach encountered within the
2. Fit and proper assessment of service providers
An institution must ensure that the employees of the service provider and its sub-contractors undertaking any
part of the outsourcing have been assessed to be fit and proper, consistent with the criteria applicable to its own
employees. Any adverse findings should be considered in light of their relevance and impact to the outsourcing
arrangement. INVESTMENT FUNDS UPDATE
An institution must ensure that independent audits of all its outsourcing arrangements are conducted. The scope
of such audits must include an assessment of the service providers’ and its sub-contractors’ physical and IT
security and control environments, incident management process and the institution’s observance of the
Guidelines and compliance with the Notice (if applicable), in relation to the outsourcing arrangement.
4. Register of outsourcing arrangements
The Guidelines now provide for a table format for the institutions to maintain an updated register of all existing
Invitation for Comments
Please refer to the Consultation Papers for the complete set of proposals. The deadline for comments and
feedback to be submitted to the MAS is October 7, 2014. We are collating comments from clients and industry
participants for submission to the MAS. If you have any comments on the proposals that you would like us to
submit on your behalf, please contact Han Ming Ho (+65.6230.3966, email@example.com) or Josephine
Law (+65.6230.3916, firstname.lastname@example.org).
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work.
The Investment Funds, Advisers and Derivatives practice of Sidley Austin LLP
Sidley has a premier, global practice in structuring and advising investment funds and advisers. We advise clients in the formation
and operation of all types of alternative investment vehicles, including hedge funds, fund-of-funds, commodity pools, venture
capital and private equity funds, private real estate funds and other public and private pooled investment vehicles. We also
represent clients with respect to more traditional investment funds, such as closed-end and open-end registered investment
companies (i.e., mutual funds) and exchange-traded funds (ETFs). Our advice covers the broad scope of legal and compliance
issues that are faced by funds and their boards, as well as investment advisers to funds and other investment products and
accounts, under the laws and regulations of the various jurisdictions in which they may operate. Our practice group consists of
approximately 120 lawyers in New York, Chicago, London, Hong Kong, Singapore, Shanghai, Tokyo, Los Angeles and San
Francisco. In Asia, our practice includes Singapore, U.S., English, Hong Kong and Japanese-qualified lawyers. For further
information on our Investment Funds, Advisers and Derivatives practice, please contact the co-heads of Sidley’s Asia Investment
Funds practice: Han Ming Ho, Singapore (+65.6230.3966, email@example.com), or Effie Vasilopoulos, Hong Kong
To receive future copies of this and other Sidley updates via email, please sign up at www.sidley.com/subscribe
BEIJING · BOSTON · BRUSSELS · CHICAGO · DALLAS · GENEVA · HONG KONG · HOUSTON · LONDON · LOS ANGELES NEW YORK ·
PALO ALTO · SAN FRANCISCO · SHANGHAI · SINGAPORE · SYDNEY · TOKYO · WASHINGTON, D.C.
Sidley Austin refers to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer. www.sidley.com