Specified variable income:
In a calendar quarter, where a financial adviser remunerates a representative for his provision of financial advisory services by way of:
1. Variable income only, the financial adviser shall measure only 60% of the variable income provided or to be provided to the representative in the calendar quarter against the non-sales KPIs.
2. A fixed salary and a variable income component, the financial adviser shall measure all of the variable income provided or to be provided to the representative in the calendar quarter against the non-sales KPIs.

A financial adviser shall apply the actual transaction count method in determining the population for sampling for any:
1. The new representative who has provided financial advisory service for less than 3 months.
2. The existing representative who has not effected any transactions in the past 12 months or less, immediately preceding the measurement quarter.

A financial adviser shall ensure that the ISA Unit applies the same method in determining the population for sampling across all representatives and from quarter to quarter. If the financial adviser intends to vary the method used in determining the population for sampling, it shall notify the Authority, in writing, of the reason for the change, at least seven days prior to effecting the change.

In any measurement quarter the first round of post-transaction checks:
1. In relation to a selected representative, the ISA Unit has to sample a minimum of 10% of the population for sampling.
2. In relation to a representative who only provides financial advisory services in relation to the rollovers of any dual currency investment or structured note relating to equities or commodities, or such other product as the Authority may approve on an exceptional basis, the ISA Unit has to sample a minimum of 2% of the population for sampling.
3. In relation to any other representative, the ISA Unit has to sample a minimum of 5% of the population for sampling.

Category 1 infraction
The Authority considers the following circumstances as having a material impact on the interests of a client or impinging on the fitness and propriety of the representative in relation to the quality of the financial advisory services provided (as the case may be):
1. Where the representative recommends an investment product or class of investment products that are clearly unsuitable for a client, based on the information provided by the client to the representative during the fact-find process.
2. Where the representative recommends that a client switches from one designated investment product to another designated investment product and then switch to the other designated investment product is unnecessary and wholly or partly for the representative’s benefit.
3. Where the representative fails to provide or explain information, or both, as the case may be, on an investment product to a client which, if it had been disclosed to the client, would have resulted in the client not purchasing the investment product.
4. In relation to the quality of the financial advisory services provided, where the representative fails to execute the client’s instructions without valid cause, and the representative’s failure to do so results in the client incurring material losses.
5. In relation to the quality of the financial advisory services provided, where the representative has carried out an act of misrepresentation, gross negligence, or serious misconduct.

Disregarded as infraction
Where the ISA Unit uncovers minor lapses or administrative oversights in relation to:
1. A sampled transaction.
2. A finding from a mystery shopping exercise.
3. A substantiated complaint.
which does not affect the client’s interest or impinge on the fitness and propriety of the representative, the financial adviser may allow the ISA Unit to not consider such minor lapses, or administrative oversights, as infractions.

A financial adviser shall put in place a process for addressing any appeal made by any representative or supervisor in relation to the balanced scorecard framework, including any appeal in relation to:
1. The review and assessment of the performance of the representative in relation to his provision of financial advisory services, against the non-sales KPIs and the determination of any infraction.
2. The classification of any infraction committed by the representative.
3. The percentage or number of cases of Category 1 or Category 2 infractions committed by the representative.
4. The percentage or amount of specified variable income that the representative or supervisor is entitled to under the balanced scorecard framework.
5. The percentage of the total specified variable income of the supervisor.
6. The balanced scorecard grade assigned to the representative or supervisor.

Maintenance of register:
A financial adviser shall maintain a register of all representatives who only provide financial advisory services in relation to the rollovers of any dual currency investment or structured note relating to equities or commodities, or such other product as the Authority may approve on an exceptional basis, for a period of not less than five years.

The balanced scorecard performance record shall minimally include details such as gross variable income, gross specified variable income, balanced scorecard grade, percentage entitlement to specified variable income, and amount of specified variable income that the representative or supervisor is entitled to.

A financial adviser shall establish a management information framework for the purpose of allowing the board and senior management to monitor the operations of the balanced scorecard framework and measure the achievement of the fair dealing outcomes.

Submission of reports to the Authority:
A financial adviser shall submit the following reports to the Authority, by the end of two calendar quarters subsequent to the measurement quarter or such longer period as the Authority may approve:
1. A report on the number of representatives who have been assigned balanced scorecard grades.
2. A report on the number of selected representatives and the number of representatives who have been placed under close supervision.
3. A report on the details of representatives who have been recruited by the financial adviser with balanced scorecard grades of B or worse in any of the last four balanced scorecard grades within the past 10 years (including balanced scorecard grades assigned by previous principals of the representatives and the names of the previous principals).
4. A report on the balanced scorecard grades assigned to representatives of the financial adviser for any measurement quarter.
5. A report on the amount of specified variable income that representatives are not entitled to.
6. a report on the number of appeals made by representatives to the financial adviser in relation to the balanced scorecard framework, including the number of rejected, outstanding and successful appeals, and the outcomes of successful appeals.
7. A report on the number of successful appeals by representatives that involve reassignment of balanced scorecard grades.
8. A report on the details of successful appeals involving a reassignment from a balanced scorecard grade E to a better grade.
9. A report on the details of the infractions committed by representatives who have been assigned a balanced scorecard grade E (including the classification of the infractions and names of the representatives who committed the infractions) and the percentages or amounts of specified variable income which the representatives are not entitled to for any measurement quarter.

Non-sales KPI 1: Understanding a client’s needs
1. A representative must take reasonable steps8 to conduct sufficient fact-find to understand the circumstances and needs of his clients.
2. In determining if a representative has taken reasonable steps to conduct sufficient fact-find to understand the circumstances and needs of a client, a financial adviser shall take into account the following list of factors (which are non-exhaustive):
(a) Whether the representative has taken reasonable steps to collect all pertinent information from the client and correctly documented all the information collected from the fact-find process.
(b) Whether the representative conducted the fact-find with the client before or after giving advice or making a recommendation, or both (as the case may be).
(c) Whether the representative influenced the client’s inputs or responses during the fact-find stage.

Non-sales KPI 2 – Suitability of product recommendations:
A representative must have a reasonable basis for any recommendation made to a client and take into account the client’s financial objectives, investment horizon, risk profile, financial situation, and particular circumstances and needs.

Connected party:
1. In relation to a legal person (other than a partnership), means any director or any natural person having executive authority in the legal person.
2. In relation to a legal person that is a partnership, means any partner or manager.
3. In relation to a legal arrangement, means any natural person having executive authority in the legal arrangement.

Risk Assessment:
A financial adviser shall take appropriate steps to identify, assess, and understand, its money laundering and terrorism financing risks in relation to:
1. Its customers.
2. The countries or jurisdictions its customers are from or in.
3. The countries or jurisdictions the financial adviser has operations in.
4. The products, services, transactions and delivery channels of the financial adviser.

The appropriate steps was taken by a financial adviser to identify, assess, and understand, its money laundering and terrorism financing risks shall include:
1. Documenting the financial adviser’s risk assessments.
2. Considering all the relevant risk factors before determining the level of overall risk and the appropriate type and extent of mitigation to be applied.
3. Keeping the financial adviser’s risk assessments up-to-date.
4. Having appropriate mechanisms to provide its risk assessment information to the Authority.

Risk Mitigation:
A financial adviser shall:
1. Develop and implement policies, procedures, and controls, which are approved by senior management, to enable the financial adviser to effectively manage and mitigate the risks that have been identified by the financial adviser or notified to it by the Authority or other relevant authorities in Singapore.
2. Monitor the implementation of those policies, procedures, and controls, and enhance them if necessary.
3. Perform enhanced measures where higher risks are identified, to effectively manage and mitigate those higher risks.
4. Ensure that the performance of measures or enhanced measures to effectively manage and mitigate the identified risks address the risk assessment and guidance from the Authority or other relevant authorities in Singapore.

Identification and Verification of Identity of Beneficial Owner:
Where there is one or more beneficial owners in relation to a customer, the financial adviser shall identify the beneficial owners and take reasonable measures to verify the identities of the beneficial owners using the relevant information or data obtained from reliable, independent sources. The financial adviser shall for customers that are legal persons:
1. Identify the natural persons (whether acting alone or together) who ultimately own the legal person.
2. To the extent that there is doubt as to whether the natural persons who ultimately own the legal person are the beneficial owners or where no natural persons ultimately own the legal person, identify the natural persons (if any) who ultimately control the legal person or have ultimate effective control of the legal person.
3. Where no natural persons are identified, identify the natural persons having executive authority in the legal person, or an equivalent or similar positions.

Screening:
A financial adviser shall screen the persons:
1. When, or as soon as reasonably practicable after, the financial adviser establishes business relations with a customer.
2. On a periodic basis after the financial adviser establishes business relations with the customer.
3. When there are any changes or updates to the lists and information provided by the Authority or other relevant authorities in Singapore to the financial adviser.
4. When there are any changes or updates to the natural persons appointed to act on behalf of a customer,connected parties of a customer or beneficial owners of a customer.

Screening:
A financial adviser shall screen a customer, natural persons appointed to act on behalf of the customer, connected parties of the customer, and beneficial owners of the customer against relevant money laundering and terrorism financing information sources, as well as lists and information provided by the Authority or other relevant authorities in Singapore for the purposes of determining if there are any money laundering or terrorism financing risks in relation to the customer.

A financial adviser shall not perform simplified CDD measures:
1. Where a customer or any beneficial owner of the customer is from or in a country or jurisdiction in relation to which the FATF has called for countermeasures.
2. Where a customer or any beneficial owner of the customer is from or in a country or jurisdiction known to have inadequate AML/CFT measures, as determined by the financial adviser for itself or notified to financial advisers generally by the Authority, or other foreign regulatory authorities.
3. Where the financial adviser suspects that money laundering or terrorism financing is involved.

A financial adviser may adopt a risk-based approach in determining whether to perform enhanced CDD measures or the extent of enhanced CDD measures to be performed for:
1. Domestic politically exposed persons, their family members, and close associates.
2. International organizations politically exposed persons, their family members, and close associates.
3. Politically exposed persons who have stepped down from their prominent public functions, taking into consideration the level of influence such persons may continue to exercise after stepping down from their prominent public functions, their family members, and close associates.
Except in cases where their business relations or transactions with the financial adviser present a higher risk for money laundering or terrorism financing.

Third-party means:
1. A financial institution.
2. A financial institution which is subject to and supervised by a foreign authority for compliance with AML/CFT requirements consistent with standards set by the FATF (other than a holder of a money-changer’s licence or a holder of a remittance licence, or equivalent licences).
3. In relation to a financial adviser incorporated in Singapore, its branches, subsidiaries, the branches and subsidiaries of the parent entity, and other related corporations.
4. In relation to a financial adviser incorporated outside Singapore, it’s head office, its parent entity, the branches and subsidiaries of the head office, the branches and subsidiaries of the parent entity, and other related corporations.

A financial adviser may rely on a third party to perform the measures, if the following requirements are met:
1. The financial adviser is satisfied that the third party it intends to rely upon is subject to and supervised for compliance with AML/CFT requirements consistent with standards set by the FATF, and has adequate AML/CFT measures in place to comply with those requirements.
2. The financial adviser takes appropriate steps to identify, assess and understand the money laundering and terrorism financing risks particular to the countries or jurisdictions that the third party operates in.
3. The third party is not one which financial advisers have been specifically precluded by the Authority from relying upon.
4. The third party is able and willing to provide, without delay, upon the financial adviser’s request, any data, documents, or information obtained by the third party with respect to the measures applied on the financial adviser’s customer, which the financial adviser would be required or would want to obtain.

RECORD KEEPING:
A financial adviser shall, in relation to all data, documents, and information that the financial adviser is required to obtain or produce to meet the requirements prepare, maintain and retain records of such data, documents and information. A financial adviser shall perform the measures such that:
1. All requirements imposed by law are met.
2. Any individual transaction undertaken by the financial adviser can be reconstructed (including the amount and type of currency involved) so as to provide, if necessary, evidence for the prosecution of criminal activity.
3. The Authority or other relevant authorities in Singapore and the internal and external auditors of the financial adviser are able to review the financial adviser’s business relations, transactions, records and CDD information and assess the level of compliance with this Notice.
4. The financial adviser can satisfy, within a reasonable time or any more specific time period imposed by law or by the requesting authority, any enquiry or order from the relevant authorities in Singapore for information.

A financial adviser shall, for the purposes of record retention, and when setting its record retention policies, comply with the following record retention periods:
1. For CDD information relating to the business relations, as well as account files, business correspondence and results of any analysis undertaken, a period of at least 5 years following the termination of such business relations.
2. For data, documents and information relating to a transaction, including any information needed to explain and reconstruct the transaction, a period of at least 5 years following the completion of the transaction.

Training:
A financial adviser shall take all appropriate steps to ensure that its employees, officers and representatives (whether in Singapore or elsewhere) are regularly and appropriately trained on:
1. AML/CFT laws and regulations, and in particular, CDD measures, detecting, and reporting of suspicious transactions.
2. Prevailing techniques, methods, and trends in money laundering and terrorism financing.
3. The financial adviser’s internal policies, procedures, and controls on AML/CFT and the roles and responsibilities of employees, officers, and representatives in combating money laundering and terrorism financing.

Money Laundering:
Money laundering (“ML”) is a process intended to mask the benefits derived from criminal conduct so that they appear to have originated from a legitimate source. Singapore’s primary legislation to combat ML is the Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A). Generally, the process of ML comprises three stages, namely:
1. Placement – The physical or financial disposal of the benefits derived from criminal conduct.
2. Layering – The separation of these benefits from their original source by creating layers of financial transactions designed to disguise the ultimate source and transfer of these benefits.
3. Integration – The provision of apparent legitimacy to the benefits derived from criminal conduct. If the layering process succeeds, the integration schemes place the laundered funds back into the economy so that they re-enter the financial system appearing to be legitimate funds.

The Three Lines of Defence:
Business units (e.g. front office, customer-facing functions) constitute the first line of defence in charge of identifying, assessing and controlling the ML/TF risks of their business. The second line of defence includes the AML/CFT compliance function, as well as other support functions such as operations, human resource or technology, which work together with the AML/CFT compliance function to identify ML/TF risks when they process transactions or applications or deploy systems or technology. The third line of defence is the financial adviser’s internal audit function.

The second line of defence:
As the core of the second line of defence, the AML/CFT compliance function is responsible for ongoing monitoring of the fulfilment of all AML/CFT duties by the financial adviser. This implies sample testing and the review of exception reports. The AML/CFT compliance function should alert the financial adviser’s senior management or the board of directors if it believes that the employees or officers in the line departments are failing or have failed to adequately address ML/TF risks and concerns. Other support functions such as operations, human resource or technology also play a role to help mitigate the ML/TF risks that the financial adviser faces. The AML/CFT compliance function is typically the contact point regarding all AML/CFT issues for domestic and foreign authorities, including supervisory authorities, law enforcement authorities and financial intelligence units.