RES 1B – Rules, Ethics and Skills for Securities Dealers of Non-Exchange Members

Correct: Under the Financial Advisers Act (FAA) and the MAS Guidelines on Business Conduct, financial advisers and their representatives are required to act with integrity and objectivity. Accepting significant gifts or entertainment from product providers creates a conflict of interest, as it may influence the representative to recommend products based on personal gain rather than the client’s best interests. MAS expects firms to have robust policies to prevent inducements that could compromise the independence of advice.

Incorrect: The suggestion that inducements are acceptable if reported for tax purposes is incorrect because tax compliance is separate from regulatory conduct requirements under the FAA. There is no regulatory provision in Singapore that allows gifts based on a percentage of commissions generated; such a rule would actually exacerbate the conflict of interest. While disclosure is a part of conflict management, obtaining written consent from every client does not automatically make an improper or biased inducement acceptable under professional conduct standards.

Takeaway: Representatives must avoid accepting any gifts or entertainment that could reasonably be perceived to undermine their independence and objectivity in providing financial advice.

Correct: Under Section 4A of the Securities and Futures Act (SFA), the Singapore Government and any statutory board established under any public Act are specifically defined as institutional investors. Because institutional investors are deemed to have a high level of financial sophistication, firms dealing with them are exempted from many of the conduct of business obligations that apply when dealing with retail investors, such as the requirement to provide certain risk disclosure documents or perform formal suitability assessments.

Incorrect: The classification of a statutory board as an accredited investor is incorrect because statutory boards are explicitly listed as institutional investors, which is a higher tier of sophistication; the ‘opt-in/opt-out’ regime primarily applies to accredited investors. There is no regulatory requirement for a statutory board to provide three years of financial statements to qualify for institutional status. The ‘expert investor’ category is a distinct classification under the SFA that typically applies to individuals or entities in specific professional capacities, but statutory boards are specifically categorized as institutional.

Takeaway: In Singapore, statutory boards are automatically classified as institutional investors under the SFA, allowing financial institutions to apply significant regulatory exemptions regarding conduct of business and disclosure.

Correct: Under the guidelines issued by the Monetary Authority of Singapore (MAS) for the Securities and Futures Act (SFA), an applicant for a Capital Markets Services (CMS) license must satisfy MAS that its management structure is robust. Specifically, for a company incorporated in Singapore, MAS generally requires the board to have at least two executive directors, and at least one of those executive directors must be resident in Singapore to ensure there is sufficient local management presence and accountability.

Incorrect: The requirement for a resident director specifically applies to an executive director, not just any director or the CEO alone, making the non-executive resident director insufficient. Requiring all directors to be resident is an overstatement of the actual regulatory requirement, which allows for non-resident directors. There are no automatic exemptions from these management residency requirements based solely on the amount of base capital or the status of a parent company.

Takeaway: A CMS license applicant must maintain at least two executive directors, with at least one of them being a resident of Singapore to ensure effective local oversight.

Correct: Under the Securities and Futures Act (SFA), disseminating misleading information to induce trades (Section 199) is a form of market misconduct. MAS has the discretion to pursue a dual-track enforcement process: criminal prosecution or a civil penalty action under Section 232. In a civil penalty action, the court may order the person to pay a sum not exceeding three times the amount of any profit gained or loss avoided, or a minimum of $50,000 for individuals ($100,000 for corporations), whichever is greater.

Incorrect: One approach is incorrect because the SFA explicitly provides for a civil penalty regime in addition to criminal sanctions for market misconduct. Another approach is flawed because Section 199 of the SFA applies not only to those with actual knowledge of the falsity but also to those who ‘ought reasonably to have known’ that the information was false or misleading in a material particular. The final approach is incorrect because the ‘three times profit’ calculation for civil penalties is a general provision under Section 232 applicable to various market misconduct offenses, not just insider trading.

Takeaway: The SFA provides a robust enforcement framework for market misconduct, allowing for civil penalties based on the financial gain from the offense or a statutory minimum, whichever is higher.

Correct: In accordance with the Securities and Futures (Licensing and Conduct of Business) Regulations and MAS conduct requirements, a CMS licensee must prioritize client orders over proprietary trades. Trading ahead of a client (front-running) to take advantage of price movements caused by the client’s order is a violation of market integrity and the duty to act in the client’s best interest.

Incorrect: Executing trades simultaneously without prioritizing the client (option_b) fails to meet the regulatory standard of client priority. Claiming independence of the proprietary desk (option_c) does not override the fundamental requirement to prioritize the client when a conflict is present. Disclosure (option_d) is a necessary step for many conflicts, but it does not permit a firm to disadvantage a client by trading ahead of them for the firm’s own profit.

Takeaway: CMS licensees must strictly prioritize client orders over proprietary trades to prevent front-running and maintain market integrity under Singapore regulations.

Correct: According to the Securities and Futures (Licensing and Conduct of Business) Regulations in Singapore, a holder of a Capital Markets Services (CMS) license must not enter into a transaction for a client in any contract for differences or any other OTC derivatives contract unless it has provided the client with a risk disclosure statement in the prescribed form and received a signed acknowledgement of that statement. This is a fundamental conduct of business requirement to ensure the client is aware of the risks before the commencement of trading.

Incorrect: Providing the risk disclosure statement after the trade has occurred is a violation of MAS regulations, as the disclosure must precede the transaction to ensure informed consent. Being an Accredited Investor or having experience in listed securities does not grant an automatic waiver of the requirement to provide and obtain acknowledgement for specific derivatives risk disclosures. Furthermore, essential terms such as the firm’s right to close out positions (liquidation) must be documented in the written agreement rather than being left to verbal arrangements to ensure legal certainty and protect both parties.

Takeaway: CMS license holders must ensure that a signed risk disclosure statement and a comprehensive written agreement are in place before executing derivatives trades for clients.

Correct: According to the Securities and Futures (Licensing and Conduct of Business) Regulations and relevant MAS guidelines, a principal firm is required to notify the Monetary Authority of Singapore (MAS) of any change in the particulars of its appointed representatives, such as a change in residential address or educational qualifications, within 14 days after the date of the change. This ensures that the Register of Representatives remains accurate and up-to-date for public transparency.

Incorrect: The suggestion of 7 business days is incorrect as the regulatory requirement is specifically 14 days from the date of change, not from the date of internal notification. Waiting until 30 days after the end of the calendar month is incorrect as it exceeds the 14-day statutory limit. Relying on the annual declaration of fitness and propriety is insufficient because changes to particulars are subject to continuous disclosure requirements rather than periodic annual reporting.

Takeaway: Principal firms in Singapore must notify MAS of any changes to an appointed representative’s particulars within 14 days to comply with the Securities and Futures Act framework.

Correct: Under MAS Notice SFA04-N02 on Prevention of Money Laundering and Countering the Financing of Terrorism, financial institutions are required to conduct ongoing monitoring of business relations. This includes scrutinizing transactions to ensure they are consistent with the institution’s knowledge of the customer and their risk profile. When an anomaly is detected, such as transactions inconsistent with declared wealth or source of funds, the firm must investigate and, if there are reasonable grounds to suspect money laundering or terrorism financing, file a Suspicious Transaction Report (STR) with the Suspicious Transaction Reporting Office (STRO) as required by the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA).

Incorrect: Informing the client that they are under surveillance constitutes ‘tipping off,’ which is a criminal offense under the CDSA. Waiting until the end of the financial quarter is inappropriate as suspicious activities must be addressed and reported promptly. Using simplified due diligence based solely on the length of the relationship is incorrect when there are clear red flags and anomalies that necessitate enhanced monitoring or investigation.

Takeaway: Ongoing monitoring requires financial institutions to proactively investigate transactions that deviate from a client’s established profile and report any unresolved suspicions to the STRO.

Correct: According to the MAS Guidelines on Fit and Proper Criteria (FSG-G01), the pillar of Honesty, Integrity, and Reputation is a continuous requirement. MAS expects individuals to be honest and have integrity in both professional and private dealings. If an individual is a defendant in civil proceedings involving allegations of fraud or dishonesty, it is a relevant factor in assessing their fitness. Furthermore, licensed firms have an obligation to notify MAS of any material changes that might affect a representative’s fit and proper status as soon as practicable.

Incorrect: Waiting for a final judgment is incorrect because the assessment of fitness is ongoing and must consider current circumstances that might impair reputation. The idea that only criminal convictions matter is false; civil suits involving dishonesty are explicitly listed as relevant factors. Immediate suspension is not a mandatory requirement for a filing alone, as the firm must first conduct an assessment. Treating it as a private matter is incorrect because the MAS Guidelines specifically state that conduct in other business dealings or private capacities can reflect on an individual’s integrity and reputation in their licensed role.

Takeaway: The Fit and Proper criteria regarding honesty and integrity apply to both professional and private conduct, and firms must proactively assess and report any material changes to the MAS.

Correct: In accordance with the Monetary Authority of Singapore (MAS) guidelines on risk management and internal controls, there must be a clear segregation between the front-office (trading/sales) and back-office (settlement/accounting) functions. This is a fundamental control to prevent fraud, errors, and conflicts of interest. If a breach is identified, the immediate priority is to restore the segregation by revoking access and then performing an independent audit to verify the integrity of the data and transactions handled during the breach.

Incorrect: Allowing front-office staff to continue performing back-office duties, even with front-office management oversight, fails the requirement for independent verification. Updating internal manuals to permit such cross-functional roles is generally unacceptable to regulators as it creates inherent systemic risks. Real-time monitoring is an insufficient control compared to the absolute physical and logical segregation required between trade execution and trade settlement functions.

Takeaway: Strict segregation of duties between front and back-office functions is a mandatory internal control in Singapore to ensure independent verification of transactions and prevent financial crime or operational errors.

Correct: Under Section 197 of the Securities and Futures Act (SFA), a person is prohibited from creating a false or misleading appearance of active trading. Section 197(3) specifically states that a person is deemed to have created such an appearance if they perform a transaction involving no change in beneficial ownership, commonly known as a wash sale. This is a form of market rigging because it artificially inflates trading volume to deceive other investors.

Incorrect: Executing trades with no change in beneficial ownership is not a legitimate liquidity strategy; it is a prohibited practice under the SFA regardless of the execution price. Internal crossings are subject to strict rules and do not exempt a firm from market rigging prohibitions if there is no change in beneficial ownership. Market rigging and false trading are serious offenses under the SFA and are not merely technical breaches of conduct rules; they can carry significant criminal and civil penalties.

Takeaway: Under the Securities and Futures Act, transactions that result in no change in beneficial ownership are legally deemed to create a false appearance of active trading and constitute market rigging.

Correct: According to MAS Notice SFA 04-N16 on Execution of Customers’ Orders, a CMS licensee is required to take all reasonable steps to obtain the best possible result for its customers. This includes establishing a best execution policy that considers various factors such as price, costs, speed, and likelihood of execution. The licensee must also monitor the effectiveness of these arrangements and their execution policy to identify and correct any deficiencies.

Incorrect: The suggestion that OTC trades are exempt is incorrect as MAS requirements apply to all capital markets products regardless of whether they are exchange-traded or OTC. Prioritizing price exclusively or using a fixed percentage range is insufficient because MAS requires a multi-factor approach tailored to the specific transaction. Finally, while the application of best execution can vary based on the type of customer, a dealer cannot simply use a blanket indemnity to waive its core regulatory obligation to act in the customer’s best interest during order execution.

Takeaway: In Singapore, non-exchange member dealers must maintain and regularly review a comprehensive best execution policy that accounts for multiple factors to ensure the best possible outcome for clients in the OTC market.

Correct: Under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and relevant MAS Notices (such as Notice 626), financial institutions in Singapore are required to maintain all relevant records, including customer identification data and transaction information, for a minimum period of five years. This period begins from the date the business relationship is terminated or, for one-off transactions, from the date the transaction was completed.

Incorrect: The suggestion of a three-year retention period is incorrect as it falls short of the statutory five-year minimum required by Singapore law. While some institutions may have internal policies for longer retention, there is no specific regulatory requirement in Singapore that mandates seven years for electronic records over physical ones. Retaining records indefinitely for all investigated clients is not a regulatory requirement and could potentially lead to non-compliance with the Personal Data Protection Act (PDPA) regarding the retention limitation obligation.

Takeaway: In Singapore, the CDSA and MAS regulations mandate a minimum five-year retention period for customer and transaction records following the end of a business relationship.

Correct: Under MAS guidelines, stress testing is a critical risk management tool that must be integrated into the firm’s decision-making process. Senior management and the Board of Directors are responsible for overseeing the stress testing framework and using the results to assess the firm’s risk appetite, set appropriate risk limits, and ensure adequate capital and liquidity levels are maintained during adverse conditions.

Incorrect: Reporting only upon a breach is a reactive approach that contradicts the proactive nature of stress testing required by MAS. Relying solely on historical data is insufficient because stress tests must include ‘extreme but plausible’ hypothetical scenarios that may not have occurred in the recent past. Stress testing is required for both market and credit risks for all relevant exposures, regardless of whether they are exchange-traded or over-the-counter (OTC).

Takeaway: Stress testing results must be actively reviewed by senior management and the Board to ensure they inform the firm’s capital adequacy and risk management strategies.

Correct: Under the Securities and Futures Act (SFA) and the Securities and Futures (Classes of Investors) Regulations, an individual who meets the financial thresholds (such as net personal assets exceeding S$2 million, though the primary residence contribution is capped at S$1 million) is not automatically treated as an Accredited Investor (AI). The dealer must implement an ‘opt-in’ regime where the client is informed of the specific regulatory protections they will lose (such as those under the Financial Advisers Act) and must provide a written statement electing to be treated as an AI. Until this process is complete, the client must be treated as a retail investor.

Incorrect: Option b is incorrect because the SFA requires an explicit opt-in process; meeting the wealth threshold alone does not permit AI treatment, and the primary residence value is capped at S$1 million for the S$2 million calculation. Option c is incorrect because institutional investor status is reserved for entities like banks and insurance companies, not high-net-worth individuals. Option d is incorrect because the Singapore regulatory framework for AIs is based on an ‘opt-in’ mechanism for individuals, not a ‘default-AI with opt-out’ or a cooling-off period for classification.

Takeaway: In Singapore, meeting the financial thresholds for Accredited Investor status does not automatically remove retail protections; individuals must explicitly opt-in after being informed of the consequences.

Correct: Under MAS guidelines for the sale of unlisted Specified Investment Products (SIPs), if a retail client fails the Customer Knowledge Assessment (CKA), the financial institution is required to provide advice to the client. If the client still wishes to proceed with the transaction despite the firm’s advice not to do so, the firm must ensure that a designated senior manager (who is not the representative) confirms that the client has been properly informed of the risks and the firm’s recommendation before the trade is executed.

Incorrect: The option regarding a comprehensive waiver is incorrect because retail clients cannot simply waive the CKA protections for unlisted SIPs. The option regarding a 14-day cooling-off period is incorrect as this is not the standard regulatory remedy for a CKA failure under MAS notices. The option regarding overriding the failure with a university degree is incorrect because while educational background is a component of the CKA criteria, once a client has officially failed the assessment, the representative cannot unilaterally override that result without following the mandatory advice and senior management escalation process.

Takeaway: For unlisted SIPs, a CKA failure necessitates mandatory advice and senior management oversight if the retail client insists on proceeding against the firm’s recommendation.

Correct: Under the MAS Guidelines on Individual Accountability and Conduct, financial institutions are expected to establish a whistleblowing policy that provides a safe and confidential channel for employees to raise concerns about misconduct. To ensure the integrity of the process, especially when senior management is involved, the reporting channel must be independent of the individuals being reported. Escalating such matters to the Audit Committee or an independent director ensures that the investigation is conducted without undue influence or conflict of interest.

Incorrect: Requiring whistleblowers to identify themselves to Human Resources can discourage reporting due to fear of retaliation, which contradicts the principle of providing a confidential channel. Limiting the scope to only SFA breaches is too narrow, as MAS expects firms to address broader misconduct and ethical failures. Allowing the CEO to filter reports creates a significant conflict of interest if the CEO or their direct reports are the subjects of the disclosure, undermining the independence of the mechanism.

Takeaway: A robust whistleblowing framework in Singapore must provide independent and confidential reporting channels that bypass senior management when they are the subjects of the report.

Correct: According to MAS Notice SFA04-N02 (Prevention of Money Laundering and Countering the Financing of Terrorism), if no natural person is identified as a beneficial owner through ownership interests (typically a 25% threshold) or through the exercise of control via other means, the financial institution must identify the natural person who holds the position of senior managing official.

Incorrect: Seeking a legal opinion is not a substitute for the regulatory requirement to identify a senior managing official when ownership and control tests fail. Simplified customer due diligence (CDD) is only permitted for specific low-risk entities defined by MAS and does not exempt a firm from identifying beneficial owners for standard corporate clients. Requesting the appointment of a nominee shareholder is an unethical practice that obscures true ownership and does not comply with the substance-over-form approach required by Singapore’s AML/CFT framework.

Takeaway: If no natural person is identified through ownership or control, MAS regulations require the identification of the senior managing official as the beneficial owner.

Correct: Under the MAS Guidelines on Risk Management Practices, specifically regarding internal controls and segregation of duties, it is essential that trade processing and settlement issues are handled by functions independent of the front office. This prevents conflicts of interest and ensures that operational errors are identified and corrected objectively. Root cause analysis is a standard requirement for managing operational risk to prevent recurrence of systemic failures.

Incorrect: Allowing the front-office dealer to adjust records violates the core principle of segregation of duties and increases the risk of fraud or concealment of errors. Filing a report with the STRO is premature without evidence of money laundering or terrorism financing, as the issue may be a simple operational lapse. Suspending all activities and waiting for MAS clearance is an overreaction that disrupts business operations unnecessarily, as firms are expected to manage their own operational risks and internal controls effectively.

Takeaway: Maintaining a strict segregation of duties between front-office and back-office functions is critical for the integrity of trade processing and the mitigation of operational risk in Singapore’s financial sector.

Correct: Under the Financial Advisers Act and MAS guidelines on business conduct, representatives must manage conflicts of interest effectively. The best next step is to follow the firm’s internal governance framework, which typically involves checking the specific gift and entertainment policy thresholds and making a formal declaration. This allows the compliance department or management to evaluate whether the gift could reasonably be perceived as undermining the representative’s independence or objectivity in their dealings with clients.

Incorrect: Providing a disclaimer to clients does not absolve the representative of their duty to follow internal compliance procedures and obtain firm-level approval. Failing to document a declined offer is incorrect because many firms require the reporting of all significant offers to monitor potential influence attempts by third parties. Paying for incidental costs like transportation does not change the nature of the high-value hospitality package itself, which remains a benefit that must be disclosed and approved under the firm’s conflict of interest policy.

Takeaway: Representatives must proactively disclose and seek approval for gifts and entertainment in accordance with their firm’s internal compliance policies to ensure professional objectivity is maintained under the Financial Advisers Act.

Correct: The correct approach is to prioritize the client’s order. In Singapore, front-running is a form of market misconduct under the Securities and Futures Act (SFA). It involves a person or firm trading in a security while in possession of non-public information concerning a client’s pending transaction that is likely to affect the price of that security. Non-exchange members are strictly prohibited from using such information to gain an advantage for their own accounts, as this breaches the duty of loyalty and the MAS Guidelines on Fair Dealing.

Incorrect: The other approaches are incorrect because they suggest that front-running can be mitigated by disclosure, benchmarking, or venue selection. Using a proprietary trade to ‘test the market’ or ‘establish a benchmark’ does not excuse the act of trading ahead of a client. The SFA’s prohibitions on market misconduct apply to the security regardless of the trading venue or the use of algorithms. Furthermore, a general waiver of conflicts of interest does not grant a firm the right to engage in prohibited market conduct or ignore its fiduciary duty to prioritize client orders.

Takeaway: Under the Securities and Futures Act (SFA), front-running is a prohibited form of market misconduct that requires dealers to prioritize client orders over proprietary interests to maintain market integrity.

Correct: According to the Securities and Futures (Licensing and Conduct of Business) Regulations, a Capital Markets Services (CMS) licensee is required to lodge an annual declaration in Form 12 with the Monetary Authority of Singapore (MAS) not later than 14 days after the end of its financial year. This form is a mandatory self-declaration regarding the firm’s compliance with the Securities and Futures Act (SFA) and its subsidiary legislation.

Incorrect: The requirement to submit documents within 5 months after the end of the financial year applies to the submission of audited financial statements and the auditor’s report (Form 10), not the annual declaration. Reporting to the Singapore Exchange (SGX) is incorrect because CMS licenses are regulated and overseen by MAS, and the question specifies a non-exchange member context. The annual declaration is a mandatory recurring requirement regardless of whether material changes occurred during the year.

Takeaway: CMS licensees must submit the Annual Declaration (Form 12) to MAS within 14 days of their financial year-end to certify regulatory compliance.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, when there is a change in the particulars of an appointed representative (including residential address and educational qualifications), the principal firm is required to notify the Monetary Authority of Singapore (MAS) within 14 days of the change. This notification is submitted electronically through the MAS corporate portal (such as OPAL).

Incorrect: Option b is incorrect because the legal obligation to notify MAS rests with the principal firm, not the individual representative, and the timeline is 14 days, not 30. Option c is incorrect because the 14-day notification period is a mandatory regulatory requirement and cannot be deferred to an annual cycle. Option d is incorrect because the requirement to notify MAS of changes in particulars specifically includes the residential address of the representative, regardless of whether it is perceived as an internal matter.

Takeaway: Principal firms are legally mandated to notify MAS of any changes in their appointed representatives’ particulars, including address and qualifications, within 14 days of the occurrence.

Correct: In accordance with MAS Notice SFA04-N02 on the Prevention of Money Laundering and Countering the Financing of Terrorism, financial institutions are required to identify and take reasonable measures to verify the identity of beneficial owners. For corporate clients, this means identifying the natural persons who ultimately own or control the customer. A robust process that looks through intermediate layers to find the individuals with ultimate effective control is the most effective control against the risk of shell companies or complex structures being used to hide the true controllers of illicit funds.

Incorrect: Relying solely on incorporation documents is insufficient because these documents only prove the entity’s existence and do not reveal the natural persons who control it. Applying simplified due diligence to all subsidiaries of listed companies is incorrect as the eligibility for simplified measures depends on specific risk assessments and the regulatory environment of the parent company’s home jurisdiction. Limiting beneficial owner identification to those with over 50% interest is a failure of compliance, as Singapore regulations typically require identifying those with a 25% interest or those who exercise control through other means.

Takeaway: Effective Customer Due Diligence requires identifying the natural persons who exercise ultimate effective control over a corporate client to prevent the misuse of complex legal structures for money laundering.

Correct: Under the MAS Guidelines on Fair Dealing and the Securities and Futures Act, representatives are required to provide clients with all relevant information to make an informed decision. For non-exchange traded products, this specifically includes disclosing the lack of a liquid secondary market (liquidity risk) and the fact that the investor is exposed to the credit risk of the issuer (counterparty risk). Simply highlighting returns without explaining these structural risks constitutes a failure in the disclosure process.

Incorrect: While Accredited Investors may have certain exemptions, their status does not absolve a representative from the ethical and regulatory duty to provide fair and accurate product descriptions. Providing a voluminous legal prospectus without a summary or explanation fails the requirement for clear and effective communication. Relying on historical data to minimize the perception of risk is misleading and does not fulfill the requirement to explain the actual features and risks of the product structure itself.

Takeaway: For non-exchange products, representatives must explicitly disclose liquidity and counterparty risks to ensure the client understands the product’s unique constraints compared to listed securities managed under MAS regulations.

Correct: Under the Securities and Futures Act (SFA), specifically provisions relating to the protection of customer information (such as Section 125), all holders of a Capital Markets Services (CMS) license are bound by strict secrecy obligations. This applies whether or not the entity is a member of an exchange like SGX. When transferring data, the firm must ensure the disclosure falls under ‘permitted disclosures’ defined in the SFA and simultaneously satisfy the Personal Data Protection Act (PDPA) requirements, such as the Transfer Limitation Obligation for overseas transfers.

Incorrect: The claim that SFA secrecy only applies to exchange members is incorrect because the SFA’s regulatory reach is determined by the activity (dealing in capital markets products) and the licensing status (CMS license), not just exchange membership. There is no automatic exemption for fintech entities to bypass secrecy for risk management without meeting specific regulatory conditions. Furthermore, the SFA and PDPA do not provide a blanket exemption for institutional client data; while some PDPA rules differ for business contact information, the SFA secrecy provisions protect all ‘customer’ information regardless of the customer’s classification.

Takeaway: All CMS licensees in Singapore, regardless of exchange membership, must strictly adhere to the dual requirements of SFA secrecy provisions and PDPA data protection obligations when handling client information.

Correct: According to the Guidelines on Criteria for the Grant of a Capital Markets Services License issued by the Monetary Authority of Singapore (MAS), an applicant must have at least two executive directors, and at least one of them must be resident in Singapore. This ensures that there is sufficient local management presence and accountability for the firm’s operations within the jurisdiction.

Incorrect: While MAS considers the track record of the applicant and its parent company, there is no rigid requirement for a ten-year track record specifically within Singapore. The requirement for representatives is generally a minimum of two for each regulated activity, not five. A recommendation from the Singapore Exchange (SGX) is not a mandatory requirement for all CMS license applicants, particularly for those who do not intend to be exchange members.

Takeaway: A key organizational requirement for a CMS license in Singapore is the appointment of at least two executive directors, with at least one residing in Singapore to ensure effective local oversight.

Correct: Under MAS Notice SFA04-N02, financial institutions are required to take appropriate steps to ensure that their employees are regularly trained on AML/CFT matters. This includes ensuring that new employees receive training promptly upon joining and that all relevant staff receive periodic refresher training to remain competent in identifying suspicious activities and understanding evolving regulatory requirements in Singapore.

Incorrect: Restricting training only to the MLRO or senior management is incorrect because front-line and operational staff are often the first to encounter suspicious behavior and must be equipped to identify it. Making training contingent on the occurrence of a suspicious transaction is a reactive approach that fails the regulatory requirement for proactive, ongoing education. A one-time orientation session is insufficient as it does not account for the constantly changing nature of financial crime and updates to Singaporean laws like the CDSA or TSOFA.

Takeaway: MAS regulations require both timely initial training for new hires and regular refresher training for all relevant staff to ensure a robust AML/CFT framework within the firm or institution in Singapore.

Correct: Under the Financial Advisers Act (FAA), specifically Section 30, there is a strict prohibition against ‘cold calling’. This means a person must not, by making an unsolicited call (including telephone calls), attempt to induce another person to use financial advisory services. This regulation is designed to protect consumers from aggressive and unsolicited sales tactics, ensuring that financial advice is provided in a controlled and requested environment.

Incorrect: Checking the Do Not Call (DNC) Registry is a requirement under the Personal Data Protection Act (PDPA), but it does not override the specific prohibition in the FAA regarding unsolicited financial advice. Limiting the conversation to general market commentary does not exempt the representative if the ultimate intent is to induce the person to use financial advisory services. Furthermore, the FAA’s definition of ‘unsolicited call’ explicitly includes telephone calls, not just physical visits to a residence or workplace.

Takeaway: The Financial Advisers Act strictly prohibits unsolicited telemarketing calls to individuals to prevent high-pressure sales of financial advisory services.

Correct: Under Section 99 of the Securities and Futures Act (SFA), certain entities such as banks licensed under the Banking Act, merchant banks, and finance companies are classified as exempt financial institutions. These entities are exempt from the requirement to hold a Capital Markets Services (CMS) license for regulated activities, including dealing in capital markets products like OTC derivatives, because they are already regulated under their respective primary legislation by the MAS.

Incorrect: The suggestion that any private company is exempt simply by dealing with Accredited Investors is incorrect; while there are specific exemptions for dealing with related corporations or institutional investors, there is no blanket exemption for all private companies based solely on client type without meeting specific regulatory criteria. The claim that only exchange-traded or centrally cleared instruments require a license is false, as OTC derivatives are explicitly defined as capital markets products under the SFA. The statement regarding primary dealers is too narrow; while primary dealers have specific roles, the exemption under Section 99 applies to all banks licensed under the Banking Act, not just those with primary dealer status.

Takeaway: Banks licensed under the Banking Act are exempt from holding a CMS license for dealing in OTC derivatives under the SFA but must still adhere to MAS conduct of business regulations.