On 15 March 2021, the Monetary Authority of Singapore (MAS) issued a consultation paper inviting comments on the proposed exemption framework (Branch Framework) for cross-border business arrangements between financial institutions in Singapore (Singapore FIs) which are head offices or branches (Singapore Offices) and their respective foreign branches or head offices (Foreign Offices).
The proposed Branch Framework is analogous to the proposed exemption framework for cross-border business arrangements involving foreign related corporations (FRC Framework), in relation to which MAS issued a consultation paper on 4 December 2018 and published its response on 5 June 2020.
The streamlined approach
Under the existing regulatory framework, Foreign Offices have to fulfil the licensing and conduct requirements set out in the Securities and Futures Act (Cap 289) (SFA) and Financial Advisers Act (Cap 110) (FAA), including the requirement to appoint overseas-based representatives, in order to carry out regulated activities and provide financial services to Singapore investors.
With a view to enhancing the commercial viability of the cross-border business arrangements between the Singapore Offices and their Foreign Offices (Branch Arrangements), MAS proposes to introduce a streamlined ex-post notification approach with the following features in replacement of the current case-by-case approval approach:
- a Foreign Office operating under a Branch Arrangement is permitted to conduct regulated activities without seeking MAS’s pre-approval so long as the notification requirements and boundary conditions are duly complied with; and
- representatives acting on behalf of the Foreign Office are not required to be appointed as overseas-based representatives. It is worth noting that the exemption will not apply to overseas-based representatives acting on behalf of the Singapore Office.
Mitigating the potential risks and safeguarding the interest of Singapore investors
Given that Foreign Offices and their representatives are operating under different legal frameworks and regulatory standards in their jurisdictions, Singapore investors may be exposed to additional legal and conduct risks. For the sake of mitigating the risks associated with the Branch Arrangements, MAS intends to impose a notification requirement and a number of boundary conditions:
1. Notification requirement
- Within 14 days of commencement of the Branch Arrangement, the Singapore FI is required to notify MAS of the Branch Arrangement and confirm its compliance with the boundary conditions; and
- In the case of any specified changes to the Branch Arrangement, the Singapore FI is required to notify MAS within 14 days of the relevant changes.
2. Boundary conditions
|Regulatory status of the Singapore FI||
|Regulatory status of the Foreign Office||
|Internal control over the arrangement||
|Audit certification and annual reporting requirements||
Scope of the proposed Branch Framework
The following Singapore FIs are entitled to the exemptions under the Branch Framework:
- capital markets services licensees, excluding managers of venture capital funds;
- licensed financial advisers;
- exempt capital market intermediaries;
- exempt financial advisers; and
- exempt brokers.
Under the Financial Advisers Regulations (FA Regulations), foreign research houses are exempt from the licensing requirements relating to issuing or promulgating research analyses or reports to Singapore investors where they do so under an arrangement with a financial adviser in Singapore and subject to certain conditions. MAS proposes to expand the coverage of the FA Regulations to include Foreign Offices when they conduct such services, and exclude the cross-border arrangements to conduct such services from the Branch Framework.
Following the implementation of the over-the-counter derivatives contracts (OTCD) regulatory reforms, Singapore FIs dealing in or advising on OTCD prior to 8 October 2018 have to comply with the applicable conduct requirements after the end of the transition period on 8 October 2021 (OTCD Transition Arrangement). The OTCD Transition Arrangement also applies to Foreign Offices which have OTCD Branch Arrangements with the Singapore Offices. Foreign Offices similarly have to comply with the applicable conduct requirements and appoint representatives who deal in or advise on OTCD, after the end of the transitional period. However, MAS intends to extend the proposed Branch Framework to the OTCD Branch Arrangements such that the Foreign Offices and their representatives under these arrangements will continue to be exempt from the conduct and/or appointment requirements after the OTCD Transition Arrangement ends. Accordingly, MAS plans to implement the proposed Branch Framework on 9 October 2021, immediately after the end of the OTCD transitional period. Singapore FIs will also be provided with a transition period of six months to comply with the proposed boundary conditions and submit notifications on their existing OTCD Branch Arrangements under the proposed Branch Framework.
Operationalisation of the proposed Branch Framework and FRC Framework
Under the proposed Branch Framework and FRC Framework, a Singapore FI will be required to:
- notify MAS of the cross-border arrangement and confirm to MAS its compliance with the boundary conditions within 14 days of commencement of such arrangement;
- notify MAS of any changes to the arrangement within 14 days of such a change; and
- report annually information on the size, type of activities and other relevant metrics to allow for effective and risk-based monitoring of developments on the arrangement.
MAS proposes to require Singapore FIs to submit their notification forms and annual reporting form in a prescribed format to ensure that consistent and sufficient information is provided to MAS. The same forms will be used for both the proposed Branch Framework and FRC Framework.
To effect the proposed FRC Framework, MAS proposes to introduce regulations and notices. The regulations set out the scope of the proposed FRC Framework, exemptions to be granted to foreign related companies and their representatives, as well as the conditions to be complied with before an arrangement under the FRC Framework can be notified to MAS. The notices set out the ongoing conditions to be complied with after such an arrangement has been notified to MAS.
Our team regularly advises on cross-border arrangements. Should you have any questions or require any assistance, please do reach out to us.