Monetary Authority of Singapore issues proposed framework for Single Family Offices

The Monetary Authority of Singapore (MAS) published, on 6 November, its responses to the feedback on the July 2023 consultation paper that set out a proposed regulatory framework for Single Family Offices (SFOs) operating in Singapore.

SFOs are exempt from licensing under the Securities & Futures Act 2001 (SFA), and the proposals are aimed at harmonising the criteria for a simplified class exemption regime and addressing potential money laundering (ML) risks posed by SFOs.

MAS said the ML risks posed by SFOs were not unlike those posed by other customers in the wealth management segment. Its regulatory and supervisory focus was on ensuring that Singapore financial institutions (FIs) address the ML risks of their customers, including SFOs, as per existing requirements in relevant MAS’ anti-money laundering and countering the financing of terrorism (AML/CFT) Notices applied to all customers.

In recognition that the bulk of transactions are likely to be done through the SFO’s fund vehicle (FV), while transactions done through the SFO itself may be largely administrative in nature, MAS is to extend the requirement to the SFO.

As part of the new simplified class exemption regime, an SFO and its FV in Singapore will be required to open and maintain an account with a MAS-regulated bank. Where the SFO has a foreign-incorporated FV, the FV must open and maintain an account with a MAS-regulated bank in Singapore or with a regulated bank in a jurisdiction that complies with AML/CFT requirements consistent with the standards set by the Financial Action Task Force (FATF).

In finalising the framework for SFOs, MAS’ responses to consultation feedback are as follows:

• Ownership structure of SFOs – MAS recognises that SFOs may operate under various ownership structures. The proposed class exemption is intended to be structure agnostic. Accordingly, an SFO can be held via a trust, foundation or any other structure, so long as the funding for such structures originate exclusively from the family.
• Permissible structures that SFOs can manage monies for – MAS clarifies that an SFO will qualify for exemption so long as the assets managed by the SFO originated from members of the same family. It recognises that family trusts and foundations, managed by the SFO, may also wish to designate charitable organisations as beneficiaries. MAS will permit such arrangements if the beneficiaries do not have control over the trust or foundation assets and are merely persons designated to receive benefits. These charitable organisations may include those not funded exclusively by the family, provided that the SFO is not appointed to manage the assets of the charitable organisations.
• Managing monies of charitable organisations – Under the class exemption, SFOs are exempt from licensing and business conduct requirements that aim to safeguard the interests of third-party customers. Permitting SFOs to manage the monies of charitable organisations that receive donation from third parties would therefore be inconsistent with the rationale under the class exemption. MAS will therefore maintain the stance that SFOs can only manage monies on behalf of charitable organisations exclusively funded by the family.
• Non-family key employees – MAS acknowledges that an SFO may wish for other employees to invest alongside the family for better alignment of economic interests. MAS will therefore expand the definition of key employees to include Executive Directors, Chief Executive Officer, Chief Financial Officer, and investment professionals. To prevent abuse of the SFO regime, however, MAS will impose a limit of 10% on the percentage of AUM that can be attributed to non-family key employees. To enable an SFO to put in place measures to anchor key employees, MAS will also allow key employees to own a non-controlling stake of up to 10% in the SFO. It will provide a one-year time allowance for key employees who cease their employment with the SFO to divest their investments managed by the SFO.
• Definition of family members – To prevent abuse of the class exemption by individuals claiming to be descendants of an extremely remote ancestor, MAS will impose a generational limit that the common ancestor must not be more than five generations back from the youngest generation that established the SFO in Singapore. All family members within five generations can be served by the SFO and subsequent generations can be included. The definition of family members will be expanded to include parents-in-law and siblings-in-law, as well as legally adopted children and stepchildren of the common ancestor.
• Timeline for initial notification – MAS agrees to extend the timeline for initial notification for SFOs under the class exemption to within 14 days after commencement of business in line with the notification requirements imposed on other exempt persons. Currently it is seven days.
• Legal Opinion – As part of the notification, MAS proposes that SFOs obtain a legal opinion supporting their exemption qualification. It will only allow legal opinions furnished by law firms in Singapore.
• Signed declaration – SFOs are also required to furnish a signed declaration to confirm that the family members are currently not the subject of any investigation by authorities, or the subject of any civil or criminal proceedings whether in Singapore or elsewhere. MAS will narrow the scope of disclosure for civil proceedings to proceedings commenced by governmental and regulatory agencies.
• Point of contact – MAS proposes that SFOs must have a designated point of contact between the SFO and MAS. The designated person must be directly employed by the SFO and be resident in Singapore.
• Timeline for annual reporting – SFOs are currently required to submit an annual return within 14 days after the end of each calendar year. MAS will extend the reporting timeline to within four months from the SFO’s financial year end, which is aligned with the tax incentive scheme reporting requirements under Section 13O or Section 13U of the Income Tax Act.
• Information reported in the annual declaration – MAS proposes SFOs to report in their annual return their total assets under management and the name(s) of MAS-regulated FI(s) with which they have established and maintained business relations with as at the end of the calendar year. The SFO and its FVs should list all the MAS-regulated banks that they have opened and maintained accounts with.
• Transitional period – MAS proposed to provide a transitional period of six months for existing SFOs operating in Singapore to comply with the class exemption framework. It will extend the transitional period to 12 months from the effective date of the SFO framework. The existing licensing exemption that an SFO has been relying on will be withdrawn, either upon the filing of the initial notification to MAS, or at the end of 12-month transitional period, whichever is earlier. SFOs that applied for tax incentive under S13O/S13U of the Income Tax Act, and previously furnished a legal opinion to MAS as part of their applications, will need to obtain a new legal opinion with reference to the class exemption.
• Case-by-case exemptions – Once the SFO framework is in place, SFOs will need to meet the qualifying criteria under the class exemption to operate in Singapore. MAS will generally not be granting case-by-case exemptions unless there are exceptional reasons.

“MAS will provide further details on the effective date of implementation, revised legislation and mode of submission for the initial notification and annual return prior to the implementation of the SFO framework,” said Andrew Galway, Managing Director of Sovereign Management Services in Singapore.

“We can enhance the success of family offices in Singapore by fostering strategic partnerships with law firms and other professional service providers, offering seamlessly coordinated solutions tailored to their unique needs. Together, we deliver a comprehensive, efficient, and integrated approach that empowers these offices to thrive in a dynamic global environment.”

For further information, please contact Andrew Galway below.