Private banking and wealth management

Regulation

What are the main sources of law and regulation relevant for private banking?

The conduct of banking business (defined to include receiving money on current or deposit accounts, paying and collecting cheques, and making of advances) in Singapore is regulated and subject to the licensing requirement under the Banking Act, Chapter 19 of Singapore (Banking Act).

Merchant banks operate within the Guidelines for Operation of Merchant Banks issued by the Monetary Authority of Singapore (MAS) and are approved financial institutions under the Monetary Authority of Singapore Act, Chapter 186 of Singapore (MAS Act).

The conduct of fund management in Singapore is separately regulated under the Securities and Futures Act, Chapter 289 of Singapore (SFA). A corporation that carries on business in fund management would need to either hold a capital markets services licence (CMSL) in fund management or be registered with MAS as a registered fund management company (RFMC), unless otherwise exempt. RFMCs are limited to servicing a maximum of 30 qualified investors (of which no more than 15 may be funds or limited partnership fund structures) and managing up to S$250 million in assets under management. Qualified investors refer broadly to accredited investors (ie, high net-worth persons (HNWIs)), institutional investors or a fund or limited partnership whose underlying investors or limited partners are all accredited and institutional investors. Licensed banks and merchant banks are exempt from the requirement to hold a CMSL in fund management provided they file the relevant notifications with MAS.

MAS also issues notices, guidelines, circulars and other written directions that apply to banks, merchant banks, CMSL holders and RFMCs, which are available on the MAS website.

In addition to the above, the Private Banking Code of Conduct (Code of Conduct) issued by the Association of Banks in Singapore (ABS) sets out the standards of good practice on competency and market conduct expected of financial institutions that provide financial services to accredited investors.

Regulatory bodies

What are the main government, regulatory or self-regulatory bodies relevant for private banking and wealth management?

MAS is Singapore’s central bank and financial regulatory authority, and it administers:

  • the SFA;
  • the Financial Advisers Act, Chapter 110 of Singapore;
  • Banking Act; and
  • the MAS Act.

Separately, the ABS is a non-profit organisation that represents the interests of the commercial and investment banking community.

Private wealth services

How are private wealth services commonly provided in your jurisdiction?

Private wealth services in Singapore are provided by a variety of financial institutions including banks, merchant banks and fund management companies (FMCs).

Definition of private banking

What is the definition of private banking or similar business in your jurisdiction?

There is no legal definition of private banking business.

Licensing requirements

What are the main licensing requirements for a private bank?

A bank incorporated in Singapore is required to maintain paid-up capital and capital funds of at least S$1,500 million; however, a Singapore-incorporated wholesale bank is only required to maintain paid-up capital of S$100 million. A bank incorporated outside Singapore is required to maintain head office capital funds of at least S$200 million. Licensed banks are also required to comply with risk-based capital requirements as well as other regulatory capital requirements imposed by the MAS. Key personnel, including all directors (including the chairman of the board of directors), the chief executive officer, deputy chief executive officer and the head of treasury of a bank, are also required to fulfil the fit and proper criteria in the MAS’ Guidelines on Fit and Proper Criteria.

A merchant bank incorporated in Singapore is required to maintain paid-up capital and capital funds of at least S$15 million at all times, while a merchant bank whose head office is situated outside Singapore is required to maintain net head office funds of not less than S$15 million at all times. Merchant banks are also required to comply with risk-based capital requirements as well as other regulatory capital requirements imposed by MAS. Key personnel, including the chief executive officer, deputy chief executive officer and the head of treasury of a merchant bank, are also required to fulfil the fit and proper criteria in the MAS’ Guidelines on Fit and Proper Criteria.

The base capital requirement that applies in respect of fund management depends on the target clientele of the FMC. FMCs that carry out fund management in respect of any collective investment scheme (CIS) offered to any investor other than an accredited or institutional investor are required to maintain a base capital of S$1 million. FMCs that carry out fund management (non-CIS) on behalf of any customer other than an accredited or institutional investor are required to maintain a base capital of S$500,000. FMCs that carry out fund management solely as a venture capital fund manager are not subject to base capital requirements. FMCs that carry out fund management in all other cases (including RFMCs) are required to maintain a base capital of S$250,000. CMSL holders for fund management (excluding venture capital fund managers) are also required to comply with risk-based capital requirements imposed by MAS. The shareholders, directors, representatives and employees, as well as the FMC itself, are also required to fulfil the fit and proper criteria in the MAS’ Guidelines on Fit and Proper Criteria. There are also, among other things, minimum competency requirements (eg, minimum number of appointed representatives) and compliance arrangements that apply to FMCs as set out in the MAS’ Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies.

Licensing conditions

What are the main ongoing conditions of a licence for a private bank?

Licensed banks are required to comply with the ongoing compliance requirements under the Banking Act and the subsidiary legislation promulgated thereunder, as well as the notices and guidelines issued by MAS. These include:

  • complying with restrictions on prohibited businesses;
  • banking secrecy obligations;
  • restrictions on the grant of loans and limitations on exposures; and
  • regulatory filing obligations.

Banks are also required to comply with the anti-money laundering obligations prescribed under MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism - Banks.

Merchant banks operate within the Guidelines for Operation of Merchant Banks. Accordingly, merchant banks may only conduct the activities specified in the Guidelines, and are not permitted to accept deposits or borrow from the public in any form except from banks, finance companies, shareholders and companies controlled by shareholders. A merchant bank may, however, with MAS’ approval, establish and operate an Asian Currency Unit (ACU) that can conduct non-Singapore dollar denominated banking business. Merchant banks are also required to comply with the ongoing compliance requirements under the notices and guidelines issued by MAS. Similar to banks, this includes complying with obligations relating to banking secrecy, restrictions on the grant of loans and limitations on exposures, as well as regulatory filing obligations. Merchant banks are also required to comply with the anti-money laundering obligations prescribed under MAS Notice 1014 on Prevention of Money Laundering and Countering the Financing of Terrorism - Merchant Banks.

FMCs are required to comply with the ongoing compliance requirements under the SFA and the subsidiary legislation promulgated thereunder, as well as the notices and guidelines issued by MAS. These include ensuring that assets under management are subject to independent custody and independent valuation and customer reporting, mitigating conflicts of interest and ensuring adequate disclosures to customers, as well as regulatory filing obligations (but venture capital fund managers are not subject to certain regulatory requirements that are imposed on other FMCs). An RFMC is also required to monitor the size of the assets being managed to ensure that it adheres to the limit of S$250 million in assets under management. FMCs are also required to comply with the anti-money laundering obligations prescribed under the MAS’ Notice to Capital Markets Intermediaries on Prevention of Money Laundering and Countering the Financing of Terrorism. Separately, banks and merchant banks that have invoked the licensing exemption to carry on fund management as exempt persons are also subject to certain ongoing compliance requirements under the SFA by virtue of regulation 54 of the Securities and Futures (Licensing and Conduct of Business) Regulations. These include appointing its staff as representatives for fund management under the representative notification framework and ensuring that they comply with the Notice on Minimum Entry and Examination Requirements for Representatives of Holders of Capital Markets Services licence and Exempt Financial Institutions under the SFA.

Organisational forms

What are the most common forms of organisation of a private bank?

Private banks in Singapore are commonly banks or merchant banks, and include local banks as well as subsidiaries and branches of foreign banks.

Licences

Obtaining a licence

How long does it take to obtain a licence for a private bank?

As a rough estimate, it will take about 12 to 18 months to obtain a bank licence or approval to establish and operate a merchant bank.

Licence withdrawal

What are the processes and conditions for closure or withdrawal of licences?

MAS has wide powers to revoke the licence of a bank or CMSL holder (as the case may be) on various grounds specified under section 20 of the Banking Act and section 95 of the SFA respectively, including where the licence holder contravenes a provision of the relevant act. MAS may similarly withdraw the status of an RFMC on various grounds specified under section 99(6) of the SFA, including where the RFMC contravenes any provision of the SFA. MAS may also withdraw approval of a merchant bank under the MAS Act if, among other things, it is in the public interest to do so.

Wealth management licensing

Is wealth management subject to supervision or licensing?

Yes, see question 1. Fund management is a licensable activity under the SFA and is defined to mean managing the property of, or operating, a collective investment scheme or undertaking on behalf of a customer (whether on a discretionary authority granted by the customer or otherwise) of:

  • the management of a portfolio of capital markets products; or
  • the entry into spot foreign exchange contracts for the purpose of managing the customer’s funds.

There is a separate licensing requirement for the provision of financial advisory services under the FAA, which is defined to include, inter alia, advising others, either directly or through publications or writings, concerning any investment product. CMSL holders, banks and merchant banks are exempt from the FAA licensing requirement provided they file the relevant notifications with the MAS.

Requirements

What are the main licensing requirements for wealth management?

See question 5.

What are the main ongoing conditions of a wealth management licence?

See question 6.

Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

The main legislative acts to combat money laundering and financial crime are:

  • the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, Chapter 65A of Singapore (CDSA), which criminalises the laundering of proceeds derived from more than 400 drug dealing and other serious offences;
  • the Terrorism (Suppression of Financing) Act, Chapter 325 of Singapore (TSOFA), which criminalises terrorism financing;
  • the Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Act 2019 (No. 7 of 2019) (PSPMA); and
  • the MAS Act, Chapter 186 of Singapore, which empowers MAS to issue direc¬tions or regulations to financial institutions to give effect to, amongst others, targeted financial sanctions under United Nations Security Council Resolutions.

The CDSA makes it mandatory for a person, in the course of his or her business or employment, to lodge a suspicious transaction report (STR) if he or she knows or has reason to suspect that any property may be connected to criminal activity. The TSOFA also imposes a duty to provide information pertaining to terrorism financing to the police. The PSPMA imposes similar customer due diligence and reporting requirements on dealers of precious stones, precious metals and precious products (including a person who sells or redeems tokens backed by one or more precious metals, precious stones or precious products), but banks, merchant banks and FMCs are exempt from these requirements. However, banks, merchant banks and FMCs are still required to submit cash transaction reports to Suspicious Transaction Reporting Officers in respect of cash transactions for precious stones, precious metals, precious products or asset-backed tokens exceeding S$20,000.

In addition, MAS has issued separate notices and guidelines on money laundering and terrorism financing to financial institutions. In particular, MAS has issued notices and guidelines to, among others:

  • banks (MAS Notice 626 and Guidelines to MAS Notice 626);
  • merchant banks (MAS Notice 1014 and Guidelines to MAS Notice 1014);
  • capital markets intermediaries (MAS Notice SFA04-N02 and Guidelines to MAS Notice SFA04-N02); and
  • financial advisers (MAS Notice FAA-N06 and Guidelines to MAS Notice FAA-N06).

The notices and guidelines issued by MAS require the financial institutions to implement procedures for, among others, customer due diligence, record keeping and reporting of suspicious transactions.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

A PEP is defined in the MAS Notices as a natural person who is, or has been, entrusted with prominent public functions, whether in Singapore, a foreign country, or an international organisation, including persons who hold the roles held by a head of state, a head of government, government ministers, senior civil or public servants, senior judicial or military officials, senior executives of state-owned corporations, senior political party officials, members of the legislature and senior management of international organisations.

A financial institution is required to perform enhanced customer due diligence measures where a customer or any beneficial owner of the customer is determined by the financial institution to be a PEP or a family member or close associate of a PEP. Enhanced customer due diligence measures include:

  • obtaining approval from the financial institution’s senior management to establish or continue business relations with the customer;
  • establishing, by appropriate and reasonable means, the source of wealth and source of funds of the customer and any beneficial owner of the customer; and
  • conducting, during the course of business relations with the customer, enhanced monitoring of business relations with the customer.
Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

The standard due diligence measures to establish a private banking relationship would include the following:

  • obtaining and verifying information pertaining to the customer and, where the customer is not a natural person, certain other persons associated with that customer;
  • where the customer is not a natural person, identifying and verifying the identity of the natural persons appointed to act on the customer’s behalf;
  • determining whether any beneficial owners exist and applying the identification and verification procedures to those beneficial owners; and
  • where business relations are to be established, obtaining information as to the nature and purpose of the intended business relations.

To open a private banking account, the minimum identification documentation that would typically be required are documents evidencing:

  • the customer’s full name, including any aliases;
  • unique identification number (such as an identity card number, birth certificate number or passport number, or where the customer is not a natural person, the incorporation number or business registration number);
  • the customer’s residential address, registered or business address, and if different, principal place of business (as may be appropriate);
  • the customer’s date of birth, establishment, incorporation or registration (as may be appropriate);
  • nationality, place of incorporation or place of registration (as may be appropriate); and
  • in the case of a customer who is a not a natural person, constitutional documents and resolutions authorising the opening of the account and appointment of authorised signatories.

MAS has provided guidance on financial institutions’ use of MyInfo for non-face-to-face customer identification and verification. MyInfo is a digital service that enables individuals to authorise service providers to access their personal data that has been submitted to and verified by the Singapore government. Where MyInfo is used, MAS will not require financial institutions to obtain additional identification documents to verify a customer’s identity.

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Tax offences have been designated in the CDSA as money laundering predicate offences.

The main predicate offences are:

  • domestic and foreign drug dealing offences;
  • serious offences such as bribery, corruption, criminal breach of trust, cheating, misappropriation of property and the foreign counterparts of such offences (ie, an offence under foreign law which if the conduct had occurred in Singapore would have constituted an offence);
  • domestic tax offences; and
  • foreign tax offences (regardless of whether the foreign tax concerned is of a type that is imposed in Singapore).

The predicate offences include conspiracy to commit or an attempt to commit the relevant offences.

Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

Financial institutions in Singapore are generally required to undertake ongoing monitoring of their business relations with customers, and to have adequate systems and processes to detect and report suspicious transactions. Financial institutions must also have internal policies, procedures and controls in order to meet their obligations to report suspicious transactions and to help prevent money laundering and terrorism financing.

Under the MAS’ Guidelines to its Notices on Prevention of Money Laundering and Countering the Financing of Terrorism, financial institutions are expected to reject a prospective customer where there are reasonable grounds to suspect that the customer’s assets are the proceeds of serious crimes, including wilful and fraudulent tax evasion. Where there are grounds for suspicion in an existing customer relationship, the institution should conduct enhanced monitoring and (if the customer is to be retained) approval must be obtained from senior management with the substantiating reasons properly documented, and the account subjected to close monitoring and risk mitigation measures. This requirement applies to serious foreign tax offences, even if the foreign offence relates to a type of tax for which no equivalent obligation exists in Singapore. Appendix B to the Guidelines sets out examples of tax crime-related suspicious transactions and red flags, such as negative tax-related reports from the media.

In addition, Addendum 1 to the ABS’ Code of Conduct sets out industry sound practices relating to the designation of serious tax offences as predicate offences to money laundering in Singapore. Among other things, a financial institution should have procedures to assess the bona fides of clients and assets booked, and to carefully evaluate the tax-related risks. Prior to on-boarding a client, the relevant staff should assess the client’s tax-risk profile and determine whether there are any reasonable grounds for suspecting that the client’s funds are proceeds from serious tax crimes. An institution’s relationship manager should also provide written confirmation that, from the information provided by the client during the due diligence process at on-boarding and during the maintenance of the account, there is no indication that the funds are proceeds from serious tax crimes. At the time of account opening, clients should acknowledge in writing that they are responsible for their own tax affairs. In addition, clients should provide any information relating to their tax affairs as may be required by the institution, including signing a declaration to confirm that they have, to the best of their knowledge, not committed or been convicted of any serious tax crimes. Financial institutions also need to continuously monitor and assess tax-related risks that may stem from the conduct of their businesses.

See also question 31 on reporting requirements applicable to private banks or financial intermediaries in relation to the US Foreign Account Tax Compliance Act (FATCA) and the Standard for Automatic Exchange of Financial Account Information in Tax Matters or Common Reporting Standard.

Separately, on 14 May 2018, the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP) published a best practice paper, ‘Legal Persons - Misuse Typologies and Best Practices’, which highlights recent typologies involving the misuse of companies and other legal persons. The ACIP is a private-public partnership that is co-chaired by the Commercial Affairs Department (CAD) of the Singapore Police Force and MAS. The practice paper highlights red flags that led to detection of such typologies, and sets out industry best practices that could detect or prevent such abuses. The paper is relevant to the private banking industry and includes red flags and best practices relating to suspected tax fraud and tax-motivated activities. CAD and MAS have encouraged all relevant firms to adopt the red flag indicators and recommended measures set out in the paper to strengthen resilience against money laundering and terrorism financing risks.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

Failure to comply with the CDSA and TSOFA may constitute a criminal offence, which is punishable by fines and imprisonment.

Non-compliance with notices and guidelines issued by MAS under section 27B of the MAS Act (ie, in relation to money laundering and terrorism financing) may amount to an offence that is punishable with a maximum fine of S$1 million and, in the case of a continuing offence, with a further fine of S$100,000 for every day during which the offence continues after conviction.

In addition, MAS has broad powers to revoke the licence of a bank or CMSL holder, withdraw the status of an RFMC or withdraw approval of a merchant bank.

Client categorisation and protection

Types of client

Does your jurisdiction’s legal and regulatory framework distinguish between types of client for private banking purposes?

The main investor classes under Singapore’s regulatory framework include accredited investors, institutional investors, expert investors and retail investors.

As of 8 April 2019, accredited investors are subject to an opt-in regime under the SFA and must specifically opt in (unless certain transitional exemptions apply) pursuant to certain prescribed disclosure requirements under the Securities and Futures (Classes of Investors) Regulations 2018 (SFCIR) in order to be treated by a private bank as an accredited investor. The eligibility criteria for accredited investors include:

  • an individual whose net personal assets exceed S$2 million (with that individual’s primary residence capped at a value of S$1 million);
  • an individual whose financial assets (ie, deposits or investment products) net of related liabilities exceed S$1 million;
  • an individual whose income in the preceding 12 months is not less than S$300,000;
  • a corporation or other entity with net assets exceeding S$10 million;
  • the trustee of a trust all the beneficiaries of which are accredited investors;
  • the trustee of a trust all the settlors of which are accredited investors, and where the settlors have reserved to themselves all powers of investment and asset management functions under the trust and the power to revoke the trust; and
  • the trustee of a trust the subject matter of which exceeds S$10 million.

There is a transitional mechanism under the SFCIR in respect of existing investors (ie, accredited investors that the bank transacted with prior to 8 April 2019) such that private banks do not have to obtain opt-in consent provided that they provided an option to such investors to opt out before 8 April 2019. The opt-out notification is similarly subject to prescribed disclosure requirements under the SFCIR. However, in respect of individual investors, this transitional mechanism will only operate until 8 July 2020 - subsequently, private banks will have to obtain opt-in consent from individual investors in order to treat them as accredited investors.

Institutional investors include:

  • licensed banks;
  • merchant banks;
  • licensed insurers;
  • licensed finance companies;
  • certain other licensed financial institutions;
  • the Singapore government;
  • Singapore statutory bodies prescribed under the Second Schedule to the SFCIR;
  • sovereign wealth funds;
  • government-owned entities whose funds are managed by sovereign wealth funds;
  • foreign central banks;
  • foreign government agencies; and
  • multilateral agencies, international organisations and supranational agencies as prescribed under the Third Schedule to the SFCIR.

Expert investors are persons whose business involves the acquisition and disposal, or the holding, of capital markets products, whether as principal or agent.

Client categorisation

What are the consequences of client categorisation?

FMCs that only carry on business in fund management with qualified investors as well as RFMCs are generally subject to less onerous requirements, such as lower base capital requirements and reduced minimum competency requirements. For instance, RFMCs are only required to have at least two appointed representatives residing in Singapore, while FMCs who serve retail investors are required to have at least three appointed representatives residing in Singapore.

Licensed banks, merchant banks and FMCs will also be able to take advantage of several exemptions from ongoing compliance requirements when servicing accredited investors, institutional investors or expert investors.

Consumer protection

Is there consumer protection or similar legislation in your jurisdiction relevant to private banking and wealth management?

The provision of financial products and financial services is subject to the Consumer Protection (Fair Trading) Act, Chapter 52A of Singapore (CPFTA) and the Consumer Protection (Fair Trading) (Regulated Financial Products and Services) Regulations 2009. Under the CPFTA, a consumer may sue a provider of financial products and financial services for any ‘unfair practice’ (as defined in the CPFTA).

As claims by consumers are subject to a monetary limit of S$30,000, the impact of the consumer protection legislation on the private banking industry has not been significant. However, the impact of such consumer protection legislation has been more pronounced for the retail wealth management industry.

Exchange controls and withdrawals

Exchange controls and restrictions

Describe any exchange controls or restrictions on the movement of funds.

Licensed institutions in Singapore are subject to limits on providing Singapore dollar credit facilities to non-resident financial institutions. However, there are no such limits on lending to individuals.

Withdrawal restrictions

Are there restrictions on cash withdrawals imposed by law or regulation? Do banks customarily impose restrictions on account withdrawals?

No.

Are there any restrictions on other withdrawals from an account in your jurisdiction?

None.

Confidentiality

Obligations

Describe the private banking confidentiality obligations.

Banking secrecy in Singapore is regulated pursuant to section 47 of the Banking Act. Section 47 states that customer information shall not in any way be disclosed by a bank in Singapore or any of its officers to any other person except as expressly provided in the Banking Act.

Section 47 of the Banking Act also applies, with some modifications, to merchant banks approved as financial institutions by MAS.

In addition, the statutory banking secrecy regime does not preclude a bank from contracting with its customers to assume a higher standard of confidentiality.

Scope

What information and documents are within the scope of confidentiality?

The banking secrecy obligation under section 47 of the Banking Act applies to customer information. ‘Customer information’ is defined in the Banking Act as:

  • any information relating to, or any particulars of, an account of a customer of the bank, whether the account is in respect of a loan, investment or any other type of transaction; or
  • ‘deposit information’, which in turn is defined as information relating to:
    • any deposit of a customer of the bank;
    • funds of a customer under management by the bank; or
    • any safe deposit box maintained by, or any safe custody arrangements made by, a customer with the bank.

Customer information does not include any information that is not referable to any named customer or group of named customers.

Expectations and limitations

What are the exceptions and limitations to the duty of confidentiality?

Exceptions to the general prohibition against disclosure in section 47 are set out in the Third Schedule to the Banking Act. Examples of such exceptions include:

  • written permission has been obtained;
  • bankruptcy or insolvency of the customer;
  • where the disclosure is necessary to comply with an order made, under any specified written law, to furnish information for an investigation or prosecution of an offence;
  • compliance with a court order under the Evidence Act, Chapter 97 of Singapore;
  • internal audit or risk management;
  • suspension or cancellation of a credit or charge card;
  • assessment by a credit bureau; and
  • creditworthiness for a commercial transaction.
Breach

What is the liability for breach of confidentiality?

An individual who breaches the provisions of section 47 commits an offence punishable by a fine not exceeding S$125,000, or imprisonment for a term not exceeding three years, or both. In the case of a corporation, the offence is punishable with a fine not exceeding S$250,000.

In addition, a breach of contractual confidentiality obligations is a breach of contract, which attracts liability for damages. The contractual confidentiality obligations may also be enforced by an injunction prohibiting any disclosures by the bank in breach of the contractual confidentiality obligations.

Cross-border services

Framework

What is the general framework dealing with cross-border private banking services into your jurisdiction?

Section 339 of the SFA governs the extraterritorial application of the SFA. Section 339(1) provides that an act done partly in and partly outside Singapore, which, if done wholly in Singapore, would constitute an offence under the SFA, shall be treated as if the act were carried out wholly in Singapore. Separately, section 339(2) provides that if a person does an act outside Singapore that has a substantial and reasonably foreseeable effect in Singapore, and if that act would, if carried out in Singapore, constitute an offence under certain specified parts of the SFA, that person shall be guilty of that offence as if the act were carried out by that person in Singapore. Accordingly, fund management services provided from partly or wholly outside Singapore may still attract licensing requirements in Singapore.

Separately, section 4A(1) of the Banking Act provides that no person shall, in the course of carrying on (whether in Singapore or elsewhere) a deposit-taking business, accept in Singapore any deposit from any person in Singapore, unless such person is a licensed bank or merchant bank. Section 4A(2) of the Banking Act further provides that no person shall, whether in Singapore or elsewhere, offer or invite or issue any advertisement containing any offer or invitation to the public or any section of the public in Singapore:

  • to make any deposit, whether in Singapore or elsewhere; or
  • to enter or offer to enter into any agreement to make any deposit, whether in Singapore or elsewhere, unless such deposit is to be made with a licensed bank or merchant bank.
Licensing requirements

Are there any licensing requirements for cross-border private banking services into your jurisdiction?

See question 25.

Regulation

What forms of cross-border services are regulated and how?

See question 25.

Employee travel

May employees of foreign private banking institutions travel to meet clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

If the employees of foreign private banking institutions are regarded as carrying on any regulated activities in Singapore or are in breach of any of the other restrictions outlined in question 25, this may constitute an offence under Singapore law.

Exchanging documents

May foreign private banking institutions send documents to clients and prospective clients in your jurisdiction? Are there any licensing or registration requirements?

A foreign private banking institution may attract licensing requirements under the SFA if it is regarded as conducting a regulated activity in Singapore, unless it is otherwise exempt. See question 25 for guidelines on the extraterritorial application of the SFA as well as restrictions on the solicitation of deposits from persons in Singapore under the Banking Act. Offers of securities in Singapore may also separately attract prospectus registration requirements under the SFA.

Tax disclosure and reporting

Taxpayer requirements

What are the main requirements on individual taxpayers in your jurisdiction to disclose or establish tax-compliant status of private banking accounts to the authorities in your jurisdiction? Does the requirement differ for domestic and foreign private banking accounts?

Apart from the ordinary tax reporting requirements where individual taxpayers are to report income taxable in Singapore to the Inland Revenue Authority of Singapore (IRAS), there are no specific requirements for individual taxpayers to disclose information on their private banking accounts (whether domestic or foreign) to the IRAS.

Reporting requirements

Are there any reporting requirements imposed on the private banks or financial intermediaries in your jurisdiction in respect to their domestic and international clients?

Licensed banks, merchant banks and FMCs are generally subject to certain obligations to furnish MAS with periodic returns under the respective governing acts. This may include furnishing statements on assets and liabilities in relation to both domestic and international clients.

Pursuant to the Model 1 Intergovernmental Agreement, which Singapore has signed with the United States to facilitate compliance with FATCA, specified financial institutions are required to report the account information of specified persons to the IRAS.

Singapore has also committed to implementing the Standard for Automatic Exchange of Financial Account Information in Tax Matters or Common Reporting Standard (CRS) developed by the Organisation for Economic Co-operation and Development. Regulations to allow Singapore to implement the CRS came into operation on 1 January 2017. Pursuant to these regulations, specified financial institutions are required to report specified information to the IRAS.

The IRAS also has broad information-gathering powers, which empowers the IRAS to obtain information and documents from financial institutions on their clients and accounts for the purposes of, inter alia, enabling the IRAS to fulfil its obligations in relation to FATCA and the CRS.

In addition, as domestic tax offences and foreign tax offences have been designated as money laundering predicate offences under the CDSA, a bank must lodge a suspicious transaction report if it knows or has reasonable grounds to suspect that any property of its customers may be connected to domestic tax offences or foreign tax offences.

Client consent on reporting

Is client consent required to permit reporting by the private bank or financial intermediary? Can such consent be revoked? What is the consequence of consent not being given or being revoked?

Client consent is not required for the private bank or financial intermediary to carry out its reporting obligations to the IRAS under FATCA or the CRS. Further, the said reporting requirements are generally not affected by any general duty of confidentiality imposed by Singapore laws that may be applicable to the private bank or financial intermediary.

For the purposes of banking secrecy (see questions 41 and 42), client consent is not required for the disclosure of customer information to MAS in compliance with:

  • in the case of licensed banks, the Banking Act or any notice or directive issued by MAS to banks; or
  • in the case of merchant banks, any notice or directive issued by MAS to merchant banks under section 28 of the MAS Act.

In relation to other types of financial intermediaries, there is no regulatory requirement to obtain client consent for reporting to MAS.

Structures

Asset-holding structures

What is the most common legal structure for holding private assets in your jurisdiction? Describe the benefits, risks and costs of the most common structures.

Private assets are commonly held through a Singapore incorporated investment holding company or a private family trust.

Singapore incorporated companies provide for limited liability and may generally be more cost-effective to maintain, but are subject to the regulatory and reporting requirements under the Companies Act, Chapter 50 of Singapore; for example, they are required (subject to certain exceptions) to file audited accounts and annual returns with the Registrar of Companies. Information on, inter alia, the directors and members of a Singapore incorporated company as well as its audited accounts can be purchased by members of the public for a nominal fee.

Private family trusts, on the other hand, need not comply with the Companies Act (and therefore have greater flexibility in their potential structure) and may provide more confidentiality since the trust deed, related trust documents and the trust accounts are generally not publicly available. However, in practice a trust may be more expensive to maintain as compared to a Singapore incorporated company given that a trust company licensed in Singapore must be appointed to administer the trust.

Know-your-customer

What is the customary level of know-your-customer (KYC) and other information required to establish a private banking relationship where assets are held in the name of a legal structure?

Under each of the notices issued by MAS to licensed banks, merchant banks, CMSL holders and RFMCs on the Prevention of Money Laundering and Countering the Financing of Terrorism, such persons are required to perform customer due diligence measures on their customers, natural persons appointed to act on the customer’s behalf, connected parties of the customer and beneficial owners of the customer. ‘Connected party’ means any director or any natural person having executive authority in a legal person (other than a partnership), any partner or manager in relation to a partnership, and any natural person having executive authority in a legal arrangement. ‘Legal arrangement’ means a trust or other similar arrangement while ‘legal person’ means an entity other than a natural person that can establish a permanent customer relationship with a financial institution or otherwise own property.

Where the customer is a legal person or legal arrangement, the customer due diligence measures would include identifying the legal form, constitution and powers that regulate and bind the legal person or legal arrangement.

Separately, the ACIP practice paper on the misuse of companies and other legal persons, ‘Legal Persons - Misuse Typologies and Best Practices’ (see question 17), includes best practices relating to the conduct of client due diligence.

Controlling person

What is the definition of controlling person in your jurisdiction?

See question 34.

Obstacles

Are there any regulatory or tax obstacles to the use of structures to hold private assets?

Different asset holding structures would give rise to different tax issues depending on the structure and assets involved. There is a wide range of investment income that may be exempt from Singapore income tax if the investments are held directly by an individual, but which may be subject to tax if instead the investments are held by a Singapore incorporated investment holding company or a private family trust. That said, there are certain tax incentives available for private family trusts administered by licensed trust companies in Singapore that can mitigate the potential Singapore tax exposure, provided the prescribed conditions are met (these incentives are available for specified periods and as such are subject to renewal). Stamp duty may also be payable if interests in, inter alia, immovable property in Singapore, certain equity interests in prescribed property holding entities (which include partnerships and trusts) that have an interest (directly or indirectly) in residential properties in Singapore or stocks or shares of Singapore incorporated companies or foreign incorporated companies whose stock or shares are registered in a register kept in Singapore are transferred to the Singapore incorporated investment holding company or private family trust.

Contract provisions

Types of contract

Describe the various types of private banking and wealth management contracts and their main features.

The main types of private banking and wealth management contract are:

  • discretionary contract, where the investment manager may make any investments he or she thinks suitable for the customer without reference to the customer. Under such contracts, the investment manager has broad discretion to make investments in accordance with the manager’s professional judgement, without the need to seek the customer’s prior approval. Such contracts sometimes require the manager to manage the portfolio in accordance with agreed investment objectives and restrictions;
  • advisory contract, where the customer is in charge of making his or her own investment decisions in respect of his or her portfolio, with the benefit of the bank’s advice. Under such contracts, the bank cannot make investments or enter into any transactions without the approval of the customer. The bank has a contractual duty to advise and a duty to take care when giving advice; and
  • execution-only contract, where the customer is in charge of making his or her own investment decisions in respect of his or her portfolio, but the bank has no obligation to provide advice. Under such contracts, the bank cannot make investments or enter into any transactions without the approval of the customer. The bank has no duty to provide advice.

The parties are generally free to agree on the applicable governing law for the various types of private banking and wealth management contracts, and the courts would generally respect the parties’ choice of governing law.

Liability standard

What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?

Generally, the liability standard provided for by law is that of negligence, which needs to be proven by the plaintiff on a balance of probabilities.

In execution-only contracts, it is common to include disclaimers and non-reliance clauses to exclude any duty of care in relation to the introduction of products or recommendations made by relationship managers. Such disclaimers and non-reliance clauses are subject to the test of reasonableness under the Unfair Contract Terms Act, Chapter 396 of Singapore (UCTA). If the parties to the agreement are sophisticated businesspeople of equal bargaining strength, the courts would be less likely to hold that the disclaimers and non-reliance clauses are unreasonable.

Mandatory legal provisions

Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?

There are no mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation. However, there are various rules and regulations in relation to conduct of business that may be applicable to private banking.

The FAA imposes specific obligations on licensed financial advisers and exempt financial advisers in the conduct of their business, such as:

  • disclosing to every client and prospective client all material information relating to any designated investment product that the financial adviser recommends to such person; and
  • not making a recommendation with respect to any investment product if the financial adviser does not have a reasonable basis for making the recommendation.

Regulation 18B of the Financial Advisers Regulations also requires a financial adviser to carry out a due diligence exercise to ascertain whether a new product is suitable for the client before selling or marketing such new product.

Note, however, that some of the obligations in the FAA and the Financial Advisers Regulations (including those specifically identified above) do not apply to institutional investors, accredited investors and expert investors or banks who have a ‘unit exemption’ (ie, exemptions for specialised units serving HNWIs) from MAS.

There are also separate obligations imposed on CMSL holders, financial advisers and exempt persons in relation to the conduct of business under the SFA or the FAA, such as:

  • furnishing customers with a written risk disclosure document prior to opening a trading account; and
  • giving the investor clear and prominent notice in writing of his or her right to cancel an agreement to purchase units in a unit trust or an unlisted debenture.

MAS also issues other notices, guidelines, circulars and other written directions that may be applicable to private banking, such as:

  • the Notice on the Sale of Investment Products;
  • Notice on Recommendations on Investment Products; and
  • Fair Dealing Guidelines.

As mentioned in question 1, the ABS’ Code of Conduct is supposed to ‘provide guidance on standards of good practice’ for private banks that provide services to HNWIs. These include disclosure standards, such as a requirement for private banks to provide clients with a fee schedule covering fees, charges and other quantifiable benefits for all investment products and services at the time of account opening. The Code of Conduct does not have the force of law but MAS expects private banks to comply with the Code of Conduct and will take into consideration the extent of the private bank’s compliance with the Code of Conduct when considering whether a private bank is a fit and proper person for licensing purposes. Further, the Code of Conduct may provide prima facie evidence on the standard of care expected by the industry.

Limitation period

What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?

The Limitation Act, Chapter 163 of Singapore, provides generally that for actions for negligence or breach of contract, the limitation period is six years from the date on which the cause of action accrued (ie, six years from the events that give rise to the claim).

The limitation period can be varied contractually, although limitation periods which are shorter than the statutorily prescribed limit will be subject to a reasonableness test under the Unfair Contract Terms Act, Chapter 396 of Singapore (UCTA).

The limitation period can be suspended or waived by mutual agreement between the parties. Further, the normal limitation period may potentially be extended where the damage claimed consists of latent injuries and damage, the plaintiff was a minor or mentally incapacitated when the cause of action accrued or the action is based on fraud or a mistake.

Disputes

Competent authorities

What are the local competent authorities for dispute resolution in the private banking industry?

The main dispute resolution options for the private banking industry in Singapore are:

  • the courts;
  • arbitration; and
  • the Financial Industry Disputes Resolution Centre Ltd (FIDReC).

The civil court structure in Singapore consists of four layers:

  • magistrates’ court;
  • district court;
  • High Court; and
  • Court of Appeal.

All Singapore courts are created by legislation and their jurisdiction is therefore determined by statute.

The magistrates’ court, for instance, generally hears disputes in which the amount claimed or the value of the subject matter in dispute does not exceed S$60,000. On the other hand, the District Court generally hears cases where the amount claimed or the value of the subject matter in dispute does not exceed S$250,000.

The High Court has original jurisdiction to hear disputes where the amount claimed or the value of the subject matter in dispute is greater than S$250,000. In January 2015, the Singapore International Commercial Court (SICC) was launched as a division of the High Court. SICC is designed to deal with transnational commercial disputes where the claim in the action is of an international and commercial nature.

Besides court proceedings, disputes may also be resolved by arbitration by mutual consent of the parties. The Singapore courts encourage the use of arbitration as a means to resolve disputes and this is evidenced by the fact that they recognise arbitration agreements and have stayed legal proceedings because of such agreements.

FIDReC is an independent organisation that specialises in the resolution of disputes between financial institutions and consumers in a cost-effective and relatively informal process. FIDReC adjudicates disputes between banks and consumers, capital market disputes and all other disputes (including third-party claims and market conduct claims) up to a limit of S$100,000 per claim. The FIDReC adjudication procedure is considerably less formal than court proceedings and arbitration - parties often represent themselves without lawyers. The dispute resolution process at FIDReC comprises mediation (at the first stage) followed by adjudication (at the second stage, if the dispute is not settled by mediation).

Disclosure

Are private banking disputes subject to disclosure to the local regulator? Can a client lodge a complaint with the local regulator? How are complaints investigated?

Private banking disputes, by themselves, need not be disclosed to MAS. However, under MAS Notice 641, a bank is required to report to MAS ‘any suspicious activities and incidents of fraud where such activities or incidents are material to the safety, soundness or reputation of the bank’. In addition, financial advisers, CMSL holders and exempt financial institutions are required to report any misconduct committed by their representatives.

If a private banking dispute relates to incidents of fraud or misconduct of the bank’s representatives or is otherwise material to the safety, soundness or reputation of the bank, the dispute would probably have to be reported to MAS.

A customer can lodge a complaint with MAS. There is an online feedback form for such complaints on the MAS website. MAS is unable to resolve commercial disputes between the bank and customer but will investigate any violations of MAS rules and regulations, and breaches of other relevant codes of practice and guidelines. In conducting its investigations, MAS will usually contact the bank and give the bank an opportunity to respond to the complaint.

UPDATE & TRENDS

Recent developments

Describe the most relevant recent developments affecting private banking in your jurisdiction. What are the trends in this industry for the coming years? How is fintech affecting private banking and wealth management services in your jurisdictions?

Recent developments and fintech47 Describe the most relevant recent developments affecting private banking in your jurisdiction. How is fintech affecting private banking and wealth management services in your jurisdictions?

With effect from 1 October 2020, banks and merchant banks will no longer need to maintain two separate accounting units (ie, the Domestic Banking Unit and the ACU).

In line with this, MAS has proposed in a consultation paper dated 21 May 2019 to consolidate the regulation of merchant banks under the Banking Act, and to migrate the current approval framework under the MAS Act to a licensing regime under the Banking Act, similar to the licensing regime presently in force for other banks. That said, MAS stated in the consultation paper that such consolidation of merchant bank regulation is not intended to introduce new requirements or modify existing ones, except for changes that have been previously communicated or under consultation with merchant banks.

Separately, on 28 June 2019, MAS announced that it will issue up to five new digital banking licenses, up to three of which will be wholesale banking licences (serving small and medium-sized enterprises and other non-retail customers). The key requirements applicable for the digital wholesale banking licence are similar to those applicable to wholesale banks, although a digital wholesale bank must be locally incorporated, and a digital wholesale bank is permitted to open and maintain business deposit accounts for small and medium enterprises and other corporates. However, based on the keynote address by MAS chairman Tharman Shanmugaratnam at the 2019 Association of Banks in Singapore annual dinner where this announcement was made, this initiative appears to cater to the commercial banking space, and it is not clear that this initiative will have a large impact on private banking and wealth management.

Singapore has also witnessed the recent emergence of digital advisers or ‘robo-advisers’, which advise clients on investments, using automated, algorithm-based tools, with limited or no human adviser interaction in the advisory process. MAS has issued the Guidelines on Provision of Digital Advisory Services to clarify that such digital advisory services are still subject to the prevailing licensing framework in the SFA and the FAA.