CMFAS CACS – Client Advisor Competency Standards (CACS) ​Paper 2 Exam Set Two

Correct: In the Singapore reinsurance market, proportional treaty accounting requires the exchange of technical accounts that include not only premiums and paid claims but also outstanding loss reserves (OSLR). Under the Insurance Act and MAS guidelines, reinsurers must maintain adequate technical provisions. The broker plays a critical role in ensuring that the data provided in the bordereaux is complete so that the reinsurer can accurately reflect its liabilities in its regulatory returns and financial statements.

Incorrect: Recording accounts on a cash-received basis only is inappropriate for proportional reinsurance which typically follows accrual-based technical accounting to reflect true liabilities. Unilaterally estimating reserves without the ceding company’s data can lead to significant financial misstatements and regulatory breaches. Offsetting missing reserves against premiums is an improper accounting treatment that obscures the actual loss experience and violates the principle of gross reporting for technical accounts.

Takeaway: Effective accounting for proportional reinsurance in Singapore requires complete bordereaux data, including outstanding loss reserves, to ensure reinsurers meet MAS requirements for technical provision adequacy.

Correct: According to the MAS Guidelines on Corporate Governance, the Board of a Tier 1 insurer should establish a Risk Management Committee to oversee the design and implementation of the risk management system. To ensure objective and independent judgment, the RMC should comprise at least three directors, and a majority of them, including the Chairman of the RMC, should be independent directors.

Incorrect: The suggestion that the RMC should be composed primarily of executive directors is incorrect because it fails to meet the independence requirements necessary for objective oversight. Delegating the final approval of the risk appetite framework to the Chief Risk Officer is inappropriate as the Board must retain ultimate responsibility for the risk appetite. Having the CEO chair the RMC is generally discouraged in corporate governance frameworks as it creates a conflict between management execution and independent oversight.

Takeaway: MAS Guidelines require Tier 1 insurers to maintain a majority-independent Risk Management Committee to ensure robust and objective oversight of the institution’s risk profile.

Correct: Under MAS guidelines and general insurance principles in Singapore, a licensed insurer must not act as a mere ‘post box’ for another entity. Even in a fronting arrangement where a large portion of the risk is ceded, the direct insurer remains the primary party liable to the policyholder. MAS expects the direct insurer to maintain effective control over underwriting decisions and claims management to ensure the integrity of the insurance business and the protection of policyholders.

Incorrect: Option b is incorrect because while collateral may be used for credit risk mitigation, it does not waive the requirement for operational oversight. Option c is incorrect because regulatory compliance is focused on risk management and control, not the specific level of commission earned. Option d is incorrect because there is no specific ‘95% rule’ in the Insurance Act that leads to automatic revocation; rather, MAS evaluates the substance of the insurer’s risk management and its ability to meet obligations.

Takeaway: MAS requires Singapore-licensed insurers to maintain ultimate responsibility and operational control over policies they issue, even when significant risk is ceded through fronting arrangements.

Correct: In the Singapore reinsurance market, achieving contract certainty is a fundamental requirement aligned with the Monetary Authority of Singapore (MAS) expectations for sound risk management. The reinsurance slip serves as the binding evidence of the contract. It must contain all essential terms and conditions so that both the cedant and the reinsurer have a clear, common understanding of the risk and coverage at the moment the risk attaches. This prevents legal disputes and ensures that the full policy wording, when issued, is a true reflection of the bargain struck.

Incorrect: Leaving major terms ‘to be agreed’ after the risk has attached is a failure of contract certainty and can lead to significant legal disputes and regulatory scrutiny. Relying on verbal agreements over written slip terms is legally risky and contradicts professional standards in the Singapore market where the written slip is the primary evidence of the contract. Using standard wordings without checking for specific manuscript changes in the slip can lead to coverage gaps or unintended exposures, as the slip terms usually take precedence in defining the specific intent of the placement.

Takeaway: Contract certainty in Singapore requires that all material terms are documented and agreed upon in the reinsurance slip at the time of inception to ensure legal clarity and regulatory compliance.

Correct: Under the MAS Risk-Based Capital (RBC 2) framework, proportional reinsurance reduces an insurer’s net risk exposure, which in turn reduces the required capital for insurance risk (C1). However, to benefit from this reduction in the solvency margin calculation, the insurer must ensure the reinsurer is ‘authorized’ or ‘certified’ by MAS. This allows the insurer to take ‘credit for reinsurance,’ effectively lowering the capital requirement while ensuring the counterparty risk is within acceptable regulatory limits.

Incorrect: Maximizing ceding commissions does not directly increase Tier 2 capital; commissions are generally accounted for in the profit and loss or as an offset to acquisition costs. Proportional reinsurance reduces but does not eliminate the C1 Insurance Risk requirement, and it is applicable to various risk types, not just non-catastrophic ones. Relying on premium reduction without assessing counterparty risk is a regulatory failure, as MAS requires insurers to account for the credit risk of their reinsurers, which could lead to a higher capital charge if the reinsurer is of low credit quality.

Takeaway: To effectively improve solvency margins in Singapore, proportional reinsurance must be placed with MAS-recognized reinsurers to ensure the reduction in insurance risk capital is not offset by high counterparty risk charges.

Correct: In standard reinsurance wordings used in Singapore, the Hours Clause (or Event Clause) permits the cedant (the reinsured) the flexibility to select the starting point of the specified window (e.g., 72 or 168 hours) to maximize their recovery. This is subject to the condition that no two periods for the same event overlap and that all losses claimed within that window are attributable to the same peril or occurrence.

Incorrect: The start time is typically at the discretion of the reinsured to allow for optimal claim aggregation, rather than being tied to an external agency’s timestamp like the SCDF. Standard durations for natural perils in reinsurance are significantly longer than a single calendar day, often 72 hours for wind and 168 hours for flood or earthquake. The application of the Hours Clause is a contractual mechanism between the insurer and reinsurer and does not require a formal declaration of catastrophe by the Monetary Authority of Singapore (MAS).

Takeaway: The Hours Clause provides the reinsured with the right to select the start of the aggregation window for a single event, ensuring flexibility in managing deductibles and limits for natural perils.

Correct: In the Singapore insurance market, a primary function of reinsurance is capacity expansion. This allows a direct insurer to underwrite risks that are larger than its own capital base would safely permit. By ceding the portion of the risk that exceeds its retention to a reinsurer, the insurer can participate in large-scale projects (like those in Jurong Island) while protecting its financial stability and ensuring that a single large claim does not breach its capital adequacy ratios under the MAS RBC 2 framework.

Incorrect: Reinsurance does not provide a regulatory waiver from MAS regarding solvency levels; rather, it is a tool used to help meet those solvency requirements through risk transfer. It is not an investment instrument designed to guarantee returns on reserves, nor does it absolve the direct insurer of its primary responsibility for due diligence and claims management under the Insurance Act and relevant MAS Guidelines on Risk Management.

Takeaway: Reinsurance enables Singapore insurers to expand their underwriting capacity and maintain financial stability by transferring risks that exceed their individual capital retention limits.

Correct: Under the Singapore Insurance Act and MAS guidelines, reinsurance is fundamentally the insurance of risks undertaken by an insurer. For a contract to be legally and regulatorily recognized as reinsurance (and thus qualify for capital relief under the Risk-Based Capital framework), there must be a ‘transfer of significant insurance risk’. This means the reinsurer must potentially face a significant loss based on the occurrence of an insured event, distinguishing it from a purely financial or derivative transaction.

Incorrect: The suggestion to create a tripartite agreement is incorrect because reinsurance is ‘insurance for insurers’ and typically maintains the principle of privity of contract, where the original policyholder has no direct claim against the reinsurer. Classifying the arrangement as deposit accounting or a financial guarantee would likely disqualify the contract from being treated as reinsurance for regulatory capital purposes under MAS rules, as these do not reflect the transfer of insurance risk required by the Insurance Act.

Takeaway: In Singapore, the legal validity of a reinsurance contract depends on the actual transfer of significant insurance risk from the ceding insurer to the reinsurer.

Correct: Under MAS Notice 314, financial institutions (including life insurers and reinsurers) are required to perform Enhanced Due Diligence (EDD) for customers who are foreign PEPs or their close associates. This mandatory process includes obtaining senior management approval to establish or continue the business relationship, and taking reasonable measures to establish the source of wealth and source of funds of the customer and the beneficial owner.

Incorrect: Simplified customer due diligence is not permitted when a customer or beneficial owner is identified as a PEP or a close associate of a PEP, regardless of the transaction amount. Standard customer due diligence is insufficient for high-risk categories like foreign PEPs, which require immediate escalation rather than a six-month monitoring period. While suspicious transactions must be reported to the STRO, the identification of a PEP associate alone does not require freezing a transaction or seeking MAS clearance, but rather requires the application of EDD measures.

Takeaway: Under MAS Notice 314, close associates of foreign PEPs are automatically considered high-risk, requiring senior management approval and source of wealth verification before establishing a business relationship in Singapore’s insurance sector.

Correct: In Singapore proportional reinsurance, a sliding scale commission is a performance-based incentive. It involves a provisional commission paid by the reinsurer to the cedant, which is later adjusted (upwards or downwards) based on the actual loss ratio of the business. This adjustment is always subject to a ‘floor’ (minimum commission) and a ‘cap’ (maximum commission) defined in the treaty wording to limit the volatility for both parties.

Incorrect: Basing the commission on historical data without adjustment describes a flat commission, not a sliding scale. Linking commissions to investment income is not the standard practice for sliding scale commissions, which are fundamentally tied to underwriting loss ratios. While the SIAC may handle disputes, it does not serve as a standard mechanism for routine quarterly commission adjustments, which are governed by the contractual formula in the treaty.

Takeaway: Sliding scale commissions in proportional reinsurance provide a mechanism to adjust the ceding commission based on actual loss performance within predefined minimum and maximum limits.

Correct: Under the Securities and Futures Act (SFA), specifically Section 305, restricted schemes are not authorized or recognized by the Monetary Authority of Singapore (MAS) for the retail public. Instead, they are offered to ‘relevant persons’ (such as accredited investors). A key requirement is that a notification must be lodged with MAS through the CISNet portal, and any offer must be made in or accompanied by an information memorandum that includes specific cautionary statements as prescribed by the regulations.

Incorrect: Formal authorization is reserved for schemes offered to the retail public, whereas restricted schemes only require notification. A full prospectus and Product Highlights Sheet (PHS) are mandatory for authorized or recognized schemes under the SFA, but not for restricted schemes offered to accredited investors. Listing on the Singapore Exchange (SGX) is not a regulatory requirement for a restricted scheme to be offered to accredited or institutional investors.

Takeaway: Restricted schemes offered to accredited investors in Singapore require a notification to MAS and the use of an information memorandum with prescribed warnings rather than a full prospectus authorization process.

Correct: In Singapore, the register of unitholders is the authoritative record of ownership for a Collective Investment Scheme. According to standard trust deeds and regulatory practices under the Securities and Futures Act (SFA), the register is considered prima facie evidence of the legal title of the unitholders. This means that the person whose name is entered in the register is deemed the legal owner of the units unless proven otherwise in a court of law.

Incorrect: The suggestion that the register is a secondary record is incorrect because it is the primary legal record of title, not a backup to the manager’s ledger. The claim that the register is a public document for monthly disclosure on MAS OPERA is incorrect; while MAS has regulatory oversight, the register is not a public document for general inspection. The idea that the register is only a temporary log until physical certificates are issued is incorrect, as most modern CIS in Singapore operate on a scripless basis where the electronic register itself constitutes the evidence of title.

Takeaway: The register of unitholders is the definitive legal record and prima facie evidence of ownership for units in a Singapore-authorized Collective Investment Scheme.

Correct: Under the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations, restricted schemes (which are offered only to relevant persons such as accredited investors) do not require a MAS-registered prospectus. Instead, the manager must notify the MAS of the offer through the CISNet portal. The scheme must be successfully entered into the MAS’s list of restricted schemes before any offer can be made to the targeted investors.

Incorrect: Filing a full prospectus is a requirement for authorized or recognized schemes offered to the retail public, not restricted schemes. Maintaining only an internal register is insufficient as the law requires formal notification to the MAS via CISNet. Obtaining a separate capital markets services license for every individual scheme is not the regulatory framework in Singapore; licenses are generally granted to the entity (the manager), while the schemes themselves undergo authorization, recognition, or notification processes.

Takeaway: Managers of restricted schemes must notify the MAS via the CISNet portal and be listed before offering units to accredited investors in Singapore.

Correct: According to the MAS Code on Collective Investment Schemes (Appendix 1), an authorized scheme may borrow only on a temporary basis for the purpose of meeting redemption requests or bridging requirements. Such borrowing is strictly capped at 10% of the scheme’s Net Asset Value (NAV) at the time of borrowing, and the duration of the borrowing must not exceed one month.

Incorrect: The suggestion that trustee approval allows for a breach of the 10% limit is incorrect as regulatory limits are mandatory. Notification to MAS does not waive the quantitative restrictions on borrowing limits or duration. The 50% aggregate leverage limit mentioned is specific to Property Funds (REITs) under a different appendix of the Code and does not apply to standard authorized retail schemes which are governed by the 10% temporary borrowing rule.

Takeaway: Authorized retail schemes in Singapore are restricted to temporary borrowing of no more than 10% of NAV for a maximum period of one month to manage liquidity needs like redemptions.

Correct: Under the Second Schedule to the Securities and Futures Act (SFA), the definition of ‘fund management’ specifically excludes carrying out fund management for related corporations. Since the unit only manages assets for its parent and subsidiaries (related corporations) and does not serve external clients, it does not perform the regulated activity of fund management as defined for licensing purposes and thus does not require a CMS license.

Incorrect: The requirement for a CMS license is based on whether the activity falls within the regulated definition; the number of entities managed is not the primary trigger if those entities are related corporations. Registration as an RFMC is a regime for managers serving a limited number of qualified third-party investors, not for intra-group exemptions. AUM thresholds like SGD 250 million are used to distinguish between types of licensed fund managers (A/I LFMC vs Retail LFMC) but do not apply if the activity itself is excluded from the definition of fund management under the SFA.

Takeaway: Fund management activities conducted solely for related corporations are excluded from the licensing requirements of the Securities and Futures Act in Singapore.

Correct: According to the Code on Collective Investment Schemes (CIS Code) issued by the Monetary Authority of Singapore (MAS), the MAS may waive or modify compliance with any provision of the Code upon application. The manager or trustee must formally apply to the MAS, provide a robust justification for the request, and ensure that the proposed waiver is not prejudicial to the interests of the unitholders.

Incorrect: The approach involving trustee and unitholder consent is incorrect because the MAS is the sole authority that can grant waivers from the CIS Code; private agreements cannot override regulatory requirements. Relying solely on a legal opinion is insufficient as it does not constitute a formal regulatory waiver. The suggestion that the SGX has primary jurisdiction is incorrect because the MAS, not the SGX, is the regulator responsible for the administration and enforcement of the CIS Code for authorized schemes.

Takeaway: A formal application and prior approval from the Monetary Authority of Singapore (MAS) are mandatory requirements for any waiver or modification of the provisions within the CIS Code.

Correct: Under the Securities and Futures Act (SFA) in Singapore, schemes offered to ‘relevant persons’ (such as accredited investors) are classified as restricted schemes. These schemes do not require the rigorous authorization or recognition process, nor do they require a MAS-registered prospectus. However, the offeror must still notify MAS of the offer through the CISNet portal and comply with specific information memorandum requirements.

Incorrect: Recognized schemes are foreign-constituted funds intended for the retail public and actually do require a MAS-registered prospectus. Authorized schemes are Singapore-constituted funds intended for the retail public and also require a prospectus. While private placements exist, restricted schemes are not ‘completely exempt’ from oversight; they must still be notified to MAS and are subject to the restricted scheme framework under the SFA.

Takeaway: Restricted schemes are intended for sophisticated investors and require MAS notification rather than the full authorization or recognition process required for retail schemes.

Correct: Under Section 287 of the Securities and Futures Act (SFA), a representative for a foreign recognized scheme must be a public company incorporated in Singapore, a holder of a capital markets services (CMS) license for fund management, or a licensed financial institution such as a bank, merchant bank, or finance company. This ensures the entity is subject to appropriate regulatory oversight by the Monetary Authority of Singapore (MAS) and has the corporate structure necessary to fulfill statutory obligations like maintaining the register of Singapore participants and providing information to the MAS.

Incorrect: Private limited companies do not meet the criteria unless they hold a specific license like a CMS license for fund management; general administrative experience does not override the corporate structure requirement. Foreign-incorporated branches are generally ineligible as the representative must be incorporated in Singapore (if a public company) or be a specifically licensed financial institution. A licensed financial adviser that is a private limited company does not automatically qualify unless it also holds a CMS license for fund management or meets the public company requirement.

Takeaway: The Singapore representative for a foreign recognized scheme must be a locally incorporated public company or a specifically licensed financial institution under the Securities and Futures Act.

Correct: Under Section 2(1) of the Securities and Futures Act (SFA), a key element of a Collective Investment Scheme is that the participants do not have day-to-day control over the management of the property. Furthermore, the property must be managed as a whole by or on behalf of the manager, or the contributions and profits must be pooled. In this scenario, the fact that a third-party firm handles all operational decisions while investors remain passive satisfies these statutory criteria.

Incorrect: The number of participants (50) is relevant to whether an offer requires a prospectus or qualifies for certain exemptions, but it is not a defining characteristic of what constitutes a CIS under Section 2. Holding legal title as tenants-in-common does not prevent an arrangement from being a CIS; in fact, many CIS structures involve various forms of legal ownership while maintaining centralized management. The specific type of return (rental income vs. capital gains) is also not a differentiator, as the SFA definition encompasses any profits, income, or returns derived from the property.

Takeaway: A Collective Investment Scheme is defined under the SFA by the participants’ lack of day-to-day control and the centralized management or pooling of the property and its returns.

Correct: In the context of Singapore’s Collective Investment Schemes (CIS) and general fund management best practices, side pockets are used to segregate illiquid or distressed assets. This ensures that existing investors retain their proportional interest in the illiquid assets (the side pocket), while new investors only participate in the liquid portion of the portfolio. This prevents new investors from inheriting ‘toxic’ or frozen assets and ensures that the liquid portion of the fund can continue to operate, accept subscriptions, and process redemptions based on a reliable Net Asset Value (NAV).

Incorrect: Requiring new investors to pay a liquidity premium is not a standard regulatory requirement and would be difficult to value fairly. A guaranteed buy-back by the manager is not a requirement under the Code on Collective Investment Schemes and would impose an inappropriate capital risk on the fund management company. Suspending all redemptions is a separate liquidity management tool (suspension of dealings) which is generally a last resort; side pockets are specifically designed to avoid such total suspensions by allowing the liquid part of the fund to remain tradable.

Takeaway: Side pockets protect investor equity by segregating illiquid assets so that only the investors present at the time of the liquidity event are exposed to those specific risks and rewards.

Correct: Under the Securities and Futures Act (SFA) and the relevant MAS guidelines for recognized foreign collective investment schemes, the Singapore representative is legally mandated to perform specific functions. One of these core functions is handling queries and complaints from participants in Singapore. This ensures that local investors have a domestic point of contact to resolve issues without needing to navigate foreign legal or administrative systems independently.

Incorrect: Redirecting all queries to a foreign jurisdiction (Option B) is incorrect because the representative is specifically appointed to handle these matters locally. Providing legal opinions (Option C) is not a regulatory requirement for a representative and could lead to legal liability or the unauthorized practice of law. Acting as a financial guarantor (Option D) is not a function of a representative; their role is administrative and facilitative, and they do not bear the investment or operational risks of the foreign manager.

Takeaway: The Singapore representative of a recognized foreign scheme serves as the essential local interface responsible for managing and resolving investor queries and complaints.

Correct: Under the Securities and Futures Act (SFA) and the Code on Collective Investment Schemes, an authorized retail CIS must appoint a trustee that is independent of the manager. The trustee must be a company approved by MAS to act as a trustee for such schemes, serving as a critical safeguard to protect the interests of unitholders by overseeing the manager’s compliance and holding the scheme’s assets in trust.

Incorrect: The suggestion that a related corporation can serve as a trustee based on capital requirements is incorrect because independence is a fundamental regulatory pillar for retail schemes to prevent conflicts of interest. The requirement for a trustee is mandatory for all authorized retail CIS, not just those investing in alternative assets. Furthermore, while a custodian may hold assets, it does not replace the legal requirement for an MAS-approved trustee to provide fiduciary oversight of the manager and the scheme.

Takeaway: For authorized retail collective investment schemes in Singapore, the appointment of an MAS-approved trustee that is independent of the manager is a mandatory requirement to ensure proper oversight and asset protection.

Correct: According to the MAS Guidelines on the Product Highlights Sheet, the PHS is designed to be a concise summary of the key features and risks of a Collective Investment Scheme (CIS). For a standard CIS, the PHS should generally not exceed four pages. It must follow a standardized format and be written in plain English to ensure that retail investors can easily understand the essential information without being overwhelmed by technical jargon or excessive length.

Incorrect: The suggestion to allow extra pages for statutory warnings is incorrect because the PHS is intended to be a summary, and the four-page limit is a strict guideline to maintain readability. Adding an executive summary to a six-page document does not resolve the non-compliance with the length constraint. Moving information to an appendix to bypass page limits is not permitted, as the PHS must be a self-contained, standardized document where all included information is subject to the length restrictions.

Takeaway: The Product Highlights Sheet for a standard Singapore CIS must follow a standardized MAS template and generally should not exceed four pages in length.

Correct: In the Singapore retail market, the distinction is based on the source of the security. A capital guaranteed scheme requires a formal, legally binding guarantee from a substantial third party (the guarantor), such as a bank or insurance company, ensuring the return of the principal. In contrast, a capital protected scheme uses its internal investment structure (such as a combination of zero-coupon bonds and derivatives) to aim for capital preservation, meaning the investor is exposed to the credit risk of the issuer and the effectiveness of the investment strategy without an external safety net.

Incorrect: The suggestion that capital protected schemes must maintain a specific 10% cash reserve is incorrect as liquidity requirements are governed by the CIS Code generally, not by the naming convention of the protection. The idea that a manager’s internal sinking fund qualifies as a guarantee is false; a guarantee must be a third-party obligation. Finally, there is no regulatory requirement that guaranteed schemes must only invest in Singapore Government Securities; they can use various assets as long as a third-party guarantor provides the legal undertaking for the principal.

Takeaway: The fundamental difference in Singapore is that a capital guaranteed scheme requires a third-party legal undertaking, whereas a capital protected scheme relies on its own internal portfolio structure and issuer creditworthiness.

Correct: Under Section 287 of the Securities and Futures Act (SFA), the MAS may recognize a foreign collective investment scheme (CIS) for offer to the retail public only if it is satisfied that the laws and practices of the jurisdiction under which the scheme is constituted and managed provide a level of protection to investors that is at least equivalent to that provided under the SFA for authorized (local) schemes. This ensures that Singapore retail investors are not exposed to significantly higher regulatory risks when investing in foreign-domiciled funds.

Incorrect: Approach 2 is incorrect because while a Singapore representative is a requirement for recognition, a five-year track record is not a substitute for the statutory requirement of regulatory equivalence in the home jurisdiction. Option C is incorrect because recognition does not mean a total waiver of all local requirements; for example, the scheme must still comply with certain disclosure and reporting standards. Option D is incorrect because the SFA and the MAS focus on investor protection and regulatory oversight rather than the commercial performance or historical returns of the fund.

Takeaway: A foreign collective investment scheme can only be recognized for the Singapore retail market if its home jurisdiction offers investor protections equivalent to those provided under the Securities and Futures Act.

Correct: Under the regulatory framework in Singapore, the Investment Committee is responsible for overseeing the investment management of the CIS. This includes ensuring that the fund manager adheres to the investment objective, strategy, and restrictions set out in the fund’s prospectus and the MAS Code on Collective Investment Schemes. When a breach occurs, even due to market movements (passive breach), the IC must ensure the manager takes steps to rectify the situation within a reasonable timeframe, prioritizing the interests of the unitholders.

Incorrect: Suspending limits indefinitely violates the core risk management principles and the duty to protect unitholders. While the trustee has a fiduciary role, the Investment Committee cannot abdicate its specific responsibility for investment oversight and strategy to the trustee. Reclassifying a fund to bypass regulations is a breach of regulatory intent and does not address the immediate compliance failure of the existing retail scheme.

Takeaway: The Investment Committee must actively monitor and enforce compliance with investment restrictions to ensure the fund operates within the risk parameters disclosed to investors in Singapore.

Correct: Under the principles of fair treatment and transparency set out in the MAS Code on Collective Investment Schemes, fund managers must ensure that all investors are treated fairly. If a side letter or any arrangement provides preferential treatment (such as better liquidity terms) that could materially disadvantage other investors, the manager is required to disclose the existence and nature of such treatment to all investors to ensure they can make an informed investment decision.

Incorrect: The requirement for disclosure is based on the potential for material disadvantage rather than a specific ownership threshold like 10% of NAV. While the Securities and Futures Act governs CIS, it does not mandate a 75% investor consent vote for side letters; rather, it focuses on disclosure and fair treatment. Reporting to MAS alone is insufficient, as the regulatory framework emphasizes transparency toward the investors who may be affected by the preferential terms.

Takeaway: Fund managers must disclose any preferential treatment granted to specific investors if such terms could result in a material disadvantage to other participants in the scheme.

Correct: Exchange Traded Funds (ETFs) listed on the SGX rely on an arbitrage mechanism to ensure the market price stays close to the Net Asset Value (NAV). When a premium occurs, Authorized Participants (APs) are expected to create new units (the creation process) and sell them on the secondary market to bring the price down. Market Makers are also designated to provide liquidity and maintain tight bid-ask spreads. Assessing these participants is the correct step to understand why the market price is deviating from the underlying value.

Incorrect: Direct redemption with the trustee is typically restricted to Authorized Participants dealing in large creation/redemption units, not retail investors. The SGX and the Monetary Authority of Singapore (MAS) do not mandate that market prices must be identical to NAV at all times, as market forces and liquidity conditions naturally cause minor fluctuations. Unlisted unit trusts are priced based on their NAV (forward or historical pricing), not market prices, which is the opposite of how ETFs function on the exchange.

Takeaway: The arbitrage mechanism involving Authorized Participants and Market Makers is the key feature that aligns an SGX-listed ETF’s market price with its Net Asset Value (NAV).

Correct: Under the Securities and Futures Act (SFA) and the Code on Collective Investment Schemes (CIS Code), for a retail collective investment scheme to be authorized by the Monetary Authority of Singapore (MAS), the manager must be a fit and proper person and must hold a Capital Markets Services (CMS) license for fund management. The regulatory framework requires the manager to be properly licensed at the time of the scheme’s authorization to ensure investor protection and professional management of public funds.

Incorrect: The suggestion that licensing can be finalized just before prospectus registration is incorrect because the manager’s status is a core requirement for the authorization of the scheme itself. Appointing a sub-manager does not exempt the primary manager of an authorized retail scheme from the requirement to hold the appropriate CMS license for fund management. Furthermore, MAS does not grant authorization based solely on the trustee or investment objectives; the manager’s licensing and ‘fit and proper’ status are mandatory pillars of the authorization process for retail schemes.

Takeaway: To obtain MAS authorization for a retail CIS in Singapore, the manager must already hold a valid Capital Markets Services license for fund management and comply with the CIS Code.

Correct: Under the Variable Capital Companies Act in Singapore, the board of directors is legally responsible for ensuring the segregation of assets and liabilities between sub-funds. This ring-fencing is a core feature of the VCC structure. Furthermore, while the board may delegate day-to-day operations to a fund manager, it retains ultimate responsibility for the VCC’s compliance with regulatory standards, including Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements as mandated by the Monetary Authority of Singapore (MAS).

Incorrect: Delegating all responsibility to a fund manager is incorrect because directors cannot contract out of their statutory and fiduciary duties; they remain accountable for oversight. The requirement for board composition is that at least one director must be a resident of Singapore and at least one director must be a director or qualified representative of the VCC’s fund manager, not all directors. Finally, sub-funds are not separate legal entities from the VCC itself, and they are registered with the Accounting and Corporate Regulatory Authority (ACRA), not the SGX, for the purpose of asset ring-fencing.

Takeaway: The VCC board of directors holds the ultimate statutory responsibility for ensuring sub-fund asset segregation and maintaining overall regulatory compliance, regardless of delegation to a fund manager.