RES 1A – Rules, Ethics and Skills for Securities Exchange Dealers

Correct: In Singapore, the Singapore College of Insurance (SCI) is the designated body for conducting examinations that form the basis of the minimum competency requirements for insurance intermediaries. Under the Monetary Authority of Singapore (MAS) regulations and the Financial Advisers Act (FAA), any individual performing regulated activities, even through an outsourced provider, must possess the requisite qualifications (such as BCP, PGI, or ComGI) to ensure they have the necessary technical knowledge and conduct standards.

Incorrect: Corporate membership in the SCI provides access to resources but does not grant exemptions for individual staff from mandatory regulatory examinations. The SCI is an examination and training provider; it does not have the statutory authority to waive competency requirements mandated by the MAS. Furthermore, while the Fellowship (FSCI) is a high-level professional designation offered by the SCI, it is not the minimum legal requirement for insurance referrals; the baseline requirements are typically the Certificate in General Insurance (CGI) modules or specific modular passes.

Takeaway: Financial institutions must ensure that outsourced staff meet the specific SCI certification standards required by MAS to mitigate regulatory and operational risks.

Correct: According to the General Insurance Association (GIA) of Singapore Code of Practice, insurers are required to acknowledge a claim within 7 working days of receipt. Furthermore, if a claim is not settled within a reasonable timeframe, the insurer must provide updates to the claimant at least every 30 days. If a claim is repudiated, the insurer must provide clear reasons for the decision and inform the claimant of the available dispute resolution channels, such as the Financial Industry Disputes Resolution Centre (FIDReC).

Incorrect: Withholding acknowledgement until liability is determined violates the mandatory 7-working-day acknowledgement rule set by the GIA. A 14-day acknowledgement period is incorrect as it exceeds the 7-day limit prescribed in the Code of Practice. Withholding specific reasons for a claim rejection is a breach of the transparency requirements under the Code, which requires insurers to provide reasons for repudiation to ensure fair treatment of consumers.

Takeaway: The GIA Code of Practice in Singapore mandates a 7-working-day acknowledgement period and 30-day status updates to ensure transparency and timely communication in the claims process.

Correct: Under the MAS Guidelines on Environmental Risk Management, financial institutions are expected to perform forward-looking scenario analysis and stress testing. Because environmental risks, particularly transition risks like policy changes or technological shifts, may not be fully captured in historical data, models must incorporate various plausible future scenarios. Referencing local frameworks like the Singapore Green Plan 2030 ensures the scenarios are relevant to the specific regulatory and economic environment in which the firm operates.

Incorrect: Relying solely on historical data is insufficient for ESG risks because climate change and transition impacts are non-linear and unprecedented. While third-party models can be useful, MAS expects firms to have a deep internal understanding of their risk models and to perform their own due diligence rather than blindly replacing internal systems. Adjusting risk appetite thresholds to simply reduce alerts is a failure of risk governance, as it masks underlying vulnerabilities rather than addressing the model’s predictive inaccuracies.

Takeaway: MAS guidelines require insurers and asset managers to use forward-looking scenario analysis to manage the inherent uncertainty and non-linear nature of environmental risks within their model risk frameworks.

Correct: In the Singapore insurance market, a Cross Liability clause is essential when multiple parties (such as a principal/listed company and a contractor/SME) are covered under the same Public Liability policy. It stipulates that the insurance shall apply to each party as if a separate policy had been issued to each. This is crucial because, without it, an insurer might argue that one ‘insured’ cannot claim against another ‘insured’ under the same policy, leaving the listed company unprotected if the SME’s actions cause them damage.

Incorrect: The suggestion regarding MAS is incorrect as the Monetary Authority of Singapore is a regulator and does not require subrogation waivers in private commercial contracts. The suggestion regarding WICA is incorrect because Work Injury Compensation is a separate statutory requirement in Singapore with its own distinct policy framework and cannot be ‘converted’ via a clause in a Public Liability policy. The suggestion regarding negligence is incorrect because Public Liability insurance is generally a ‘legal liability’ cover, meaning the insured must be found legally liable (usually through negligence) for a claim to be paid; the Cross Liability clause does not change this fundamental principle to a ‘no-fault’ basis.

Takeaway: A Cross Liability clause allows multiple parties named on a single Public Liability policy to be treated as separate entities, ensuring coverage remains intact if one party claims against another.

Correct: Under MAS AML/CFT guidelines (such as Notice 160 for the insurance sector), Politically Exposed Persons (PEPs) include domestic PEPs, and the definition extends to ‘close associates’ which includes immediate family members like siblings. When a client is identified as a close associate of a PEP, the firm must perform a risk assessment. If the relationship is deemed high risk, or as a matter of prudent compliance for PEP-linked accounts, the firm must obtain senior management approval to continue the business relationship and apply enhanced due diligence (EDD) and monitoring.

Incorrect: Option B is incorrect because the risk-based approach in Singapore requires identifying family members of PEPs, not just the office holders themselves. Option C is incorrect because being a PEP or a relative of one is not a crime and does not automatically warrant an STR unless there are actual suspicious grounds or transactions. Option D is incorrect because PEP status, even domestic, generally disqualifies a client from simplified due diligence due to the increased risk of corruption or influence, requiring more stringent rather than simplified oversight.

Takeaway: In Singapore, family members of domestic PEPs are treated as close associates requiring enhanced due diligence and senior management oversight to mitigate potential corruption risks.

Correct: Under the Singapore Policy Owners’ Protection Scheme (PPF Scheme), which is governed by the Insurance Act and administered by the Singapore Deposit Insurance Corporation (SDIC), 100% protection is afforded to compulsory insurance policies. These include third-party motor insurance and work injury compensation insurance. For other general insurance policies, such as fire or personal accident, the protection is subject to specific limits (e.g., S$50,000 for individual policies).

Incorrect: The suggestion that there is unlimited coverage for all general insurance policies is incorrect because the PPF Scheme applies specific caps to non-compulsory lines to ensure the fund’s sustainability. The claim that the Monetary Authority of Singapore (MAS) pays out claims directly from the Financial Sector Development Fund is inaccurate, as the SDIC is the designated administrator of the PPF Scheme. Finally, the assertion that policyholders are merely unsecured creditors ignores the statutory protection provided by the PPF Scheme, which was specifically established to protect policyholders from the full impact of an insurer’s insolvency.

Takeaway: The Insurance Act, through the PPF Scheme administered by SDIC, ensures full protection for compulsory general insurance while applying specific caps to other general insurance lines to maintain financial stability.

Correct: In Singapore, mediation is a voluntary and consensual process. When parties in a commercial insurance dispute reach an agreement at the Singapore Mediation Centre (SMC), that agreement is documented in writing. Once signed by all parties, it constitutes a valid and legally binding contract under Singapore law, and can be enforced through the courts if one party fails to uphold its terms.

Incorrect: The suggestion that the Monetary Authority of Singapore (MAS) must ratify private settlements is incorrect, as MAS is a regulatory and supervisory body, not a judicial or contract-ratifying entity. The claim that agreements are non-binding due to the without prejudice nature of mediation is a misunderstanding; while the discussions are confidential and cannot be used as evidence, the final signed agreement is a binding contract. Finally, a mediator is a facilitator and does not have the power to issue awards or judgments; that role is reserved for arbitrators or judges.

Takeaway: A signed settlement agreement resulting from mediation at the Singapore Mediation Centre is a legally binding contract enforceable in the Singapore legal system.

Correct: In accordance with the MAS Guidelines on Business Continuity Management, licensed insurers must identify and prioritize critical business functions. The best next step after identifying an omission is to conduct a Business Impact Analysis (BIA). This process allows the insurer to understand the operational and financial impact of a disruption to the new unit, which is necessary to set appropriate Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO) before updating the Business Continuity Plan.

Incorrect: Applying standard recovery timelines from another department without analysis is incorrect because different functions have different levels of criticality and recovery needs. While MAS requires reporting of major changes or incidents, identifying an internal gap in the planning phase typically requires internal remediation through BIA first rather than immediate regulatory notification for non-compliance. Assigning the task solely to IT Disaster Recovery is insufficient because BCM is a holistic business process that involves operational workflows beyond just IT infrastructure and data backups.

Takeaway: The Business Impact Analysis (BIA) is the essential first step in the Singapore BCM framework to ensure that recovery strategies are tailored to the specific criticality of each business function.

Correct: In the Singapore insurance market, standard travel insurance policies typically exclude ‘Pre-existing Medical Conditions.’ These are defined as any condition for which the insured received medical treatment, symptoms existed, or a reasonable person would have sought medical advice within a specified timeframe (commonly 12 months) before the policy started. Even if a condition like diabetes is ‘controlled’ or ‘stable,’ it still meets the definition of a pre-existing condition and is excluded unless the policyholder specifically purchased a plan or rider that covers pre-existing conditions.

Incorrect: The suggestion that a 90-day stability period mandates coverage is incorrect as there is no such statutory requirement in the MAS Fair Dealing Guidelines or the Insurance Act; coverage is determined by the specific policy contract. The idea that emergency benefits must override exclusions is false; exclusions for pre-existing conditions generally apply to all sections of a travel policy, including emergency medical expenses. Finally, there is no regulatory ‘shared-risk’ or mandatory 50% coverage requirement in Singapore for declared chronic conditions; insurers have the right to exclude them entirely or offer full coverage via a specific premium loading.

Takeaway: Standard travel insurance in Singapore excludes pre-existing conditions based on a look-back period, regardless of whether the condition was stable at the time of travel.

Correct: In the context of Singapore, MAS expects financial institutions to maintain robust risk management frameworks that include stress testing and scenario analysis. Since commercial catastrophe models may not always capture hyper-local nuances like Singapore’s specific drainage capacities or flash flood patterns (secondary perils), the correct approach is to perform sensitivity analysis and incorporate local data. This ensures the bank understands the ‘model risk’ and maintains adequate capital buffers for its property-collateralized portfolio.

Incorrect: Relying solely on historical data is insufficient for catastrophe modeling because low-frequency, high-severity events may not be captured in a short 30-year window. Outsourcing validation entirely is a failure of governance; MAS guidelines require institutions to have an internal understanding and oversight of the models they use. Restricting modeling to the Central Business District ignores significant property risks in other parts of Singapore, such as industrial zones or residential hubs, leading to an incomplete risk profile.

Takeaway: Effective catastrophe risk management in Singapore requires financial institutions to supplement commercial models with local context and sensitivity testing to meet MAS stress-testing standards.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations in Singapore, a Capital Markets Services (CMS) licensee is required to pay client money into a trust account maintained with a specified financial institution not later than the business day immediately following the day on which the money is received. This strict timeline ensures that client assets are legally protected and segregated from the firm’s own assets at the earliest possible opportunity, minimizing the risk of misappropriation or loss in the event of the firm’s insolvency.

Incorrect: The suggestion to hold funds in a corporate account for more than one business day (option_b) violates the T+1 deposit requirement. Regulatory requirements for the segregation of client money are statutory obligations that cannot be waived by client consent (option_c) for the firm’s administrative convenience. Internal board approvals or risk thresholds (option_d) do not grant the firm the authority to bypass the mandatory segregation rules established by the Monetary Authority of Singapore (MAS).

Takeaway: In Singapore, client money must be deposited into a segregated trust account by the next business day to ensure immediate protection and regulatory compliance.

Correct: Under the MAS Guidelines on Individual Accountability and Conduct and general corporate governance standards for financial institutions in Singapore, firms are expected to maintain a robust whistleblowing framework. This framework must ensure that whistleblowers are protected from any form of retaliation or detrimental action, such as unfair disciplinary measures or performance reviews. Confidentiality is a cornerstone of these mechanisms to encourage the reporting of misconduct without fear of reprisal.

Incorrect: Revealing the whistleblower’s identity or the specific details of the report to the accused party violates the fundamental principle of confidentiality and exposes the whistleblower to further risk. Placing the burden of proof solely on the whistleblower to demonstrate a causal link before offering protection undermines the safety of the reporting channel. Furthermore, while MAS oversees regulatory compliance, the primary responsibility for managing internal whistleblowing policies and protecting employees remains with the firm’s own senior management and Board.

Takeaway: Singapore financial institutions must maintain a whistleblowing framework that guarantees confidentiality and protects employees from any form of retaliation or detrimental action.

Correct: Under Section 4A of the Securities and Futures Act (SFA), institutional investors are specifically defined categories of entities, such as banks, insurance companies, and statutory boards. Because these investors are deemed to have high levels of financial expertise, dealers are exempted from certain business conduct requirements, such as the need to ensure suitability of recommendations. The most effective control is a formal verification process that ensures the client strictly meets the statutory definition before these exemptions are applied.

Incorrect: The approach of using a Sophisticated Investor template is incorrect because that terminology is not the current legal standard under the SFA, which distinguishes between Institutional and Accredited Investors. The approach involving a SGD 5 million threshold and written undertaking describes the criteria for certain Accredited Investors, not Institutional Investors. Relying on verbal confirmation is an insufficient control as it fails to meet the evidentiary standards required by the Monetary Authority of Singapore (MAS) to justify the waiver of regulatory protections.

Takeaway: Institutional investor status in Singapore is strictly defined by entity type under the SFA, and firms must verify this status to legally rely on conduct-of-business exemptions.

Correct: Under MAS Notice SFA04-N02 (Prevention of Money Laundering and Countering the Financing of Terrorism), a beneficial owner is defined as a natural person who ultimately owns or controls a customer. This includes individuals who exercise ultimate effective control over a legal person through means other than ownership, such as the power to appoint board members. Even if the 25% shareholding threshold is not met, the ‘control’ test must be applied to identify such individuals.

Incorrect: The approach of excluding the individual based solely on the 25% threshold is incorrect because MAS requirements mandate looking for control through other means if ownership thresholds are not met. Identifying only senior managing officials is a ‘last resort’ step taken only when no natural person is identified under the ownership or control tests. Relying exclusively on ACRA filings without independent verification or understanding the underlying control structure fails to meet the due diligence standards required for complex corporate arrangements.

Takeaway: In Singapore, beneficial ownership identification requires assessing both ultimate ownership thresholds and ultimate effective control through other means to ensure all relevant natural persons are identified and verified.

Correct: Under the Securities and Futures (Licensing and Conduct of Business) Regulations, a Capital Markets Services (CMS) licensee is required to notify the Monetary Authority of Singapore (MAS) of any change in the particulars of its representatives, including residential address and educational or professional qualifications, within 14 days after the date of the change.

Incorrect: The timeframe of 7 days is too short and does not reflect the standard regulatory requirement for representative particulars. The 30-day period is incorrect as it exceeds the 14-day limit mandated by MAS. Reporting by the end of the calendar month is also incorrect because the deadline is strictly tied to the number of days following the specific date of the change, not the month-end cycle.

Takeaway: CMS licensees must notify MAS of any changes to a representative’s particulars within 14 days to ensure compliance with Singapore’s regulatory reporting standards.

Correct: Under Section 204 of the Securities and Futures Act (SFA), any person who contravenes the market conduct provisions, such as Section 199 (False or misleading statements), is guilty of an offence and shall be liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years, or both. This reflects the severity with which Singapore law treats market manipulation and the dissemination of false information intended to induce trading.

Incorrect: The other options provide incorrect thresholds for fines or imprisonment. A fine of $150,000 or 5 years imprisonment does not meet the maximum statutory limit set by the SFA for criminal market misconduct. Civil penalties under Section 232 are an alternative to criminal prosecution and are calculated differently (often based on profit gained or loss avoided), rather than being a ‘fixed’ $500,000 criminal fine. While compensation and industry bans are possible regulatory outcomes, they do not represent the specific maximum criminal penalties defined in the SFA for this offence.

Takeaway: Under the SFA, individuals convicted of disseminating misleading information to induce trades face a maximum criminal penalty of a $250,000 fine and 7 years of imprisonment.

Correct: Under the Financial Advisers Act (FAA), the definition of an unsolicited call includes not only telephone calls but also personal visits to a place other than the adviser’s place of business (such as a residence). Section 30 of the FAA prohibits making such unsolicited calls to a person in Singapore for the purpose of inducing them to enter into an agreement for financial advisory services. Sarah’s visit to a residential complex without a prior appointment to offer consultations on derivatives-linked plans constitutes a violation of these cold calling prohibitions.

Incorrect: Option b is incorrect because compliance with the Personal Data Protection Act (PDPA) and the DNC Registry does not exempt a representative from the specific prohibitions on unsolicited contact found in the FAA. Option c is incorrect because while transparency is required in permitted communications, it does not legalize an inherently prohibited unsolicited visit. Option d is incorrect because the FAA prohibition covers the act of inducing or offering services; the intent to provide financial advice through an unsolicited visit is sufficient for a violation, regardless of whether a contract was signed.

Takeaway: The Financial Advisers Act prohibits unsolicited visits or calls to individuals for the purpose of providing financial advisory services to protect consumers from aggressive and uninvited sales tactics.

Correct: Under MAS AML/CFT requirements (such as MAS Notice SFA04-N02 for the securities industry), financial institutions must provide regular training to all relevant staff. This training is not a one-off event; it must be ongoing to ensure employees are aware of their obligations under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) and the Terrorism (Suppression of Financing) Act (TSOFA), as well as evolving trends in financial crime.

Incorrect: The requirement for training applies to all relevant staff, not just compliance officers or supervisors, making the suggestion that only AMLCOs need training incorrect. While experience is valuable, it does not exempt staff from the regulatory requirement for ongoing, regular training. Furthermore, while MAS and CAD provide guidance, they are not the exclusive providers of training; financial institutions are responsible for implementing their own effective training programs or sourcing them from qualified providers.

Takeaway: In Singapore, AML/CFT training must be provided at regular intervals to all relevant staff to ensure they remain competent in identifying and mitigating evolving financial crime risks.

Correct: According to the MAS Guidelines on Liquidity Risk Management, CMS license holders are expected to have a robust stress testing framework. This framework must include a variety of scenarios, including institution-specific (idiosyncratic) and market-wide stress scenarios, to identify potential liquidity shortfalls. This ensures that the firm’s liquidity cushions are sufficient and that its Contingency Funding Plan (CFP) is prepared for different types of crises.

Incorrect: Prioritizing market-wide scenarios over idiosyncratic ones is incorrect because MAS requires a comprehensive approach that covers both to ensure firm-level resilience. Increasing statutory deposits is not a standard regulatory requirement for managing specific idiosyncratic liquidity risks for CMS licensees. While external audits provide assurance, the responsibility for developing and maintaining appropriate stress testing scenarios lies with the firm’s Board and Senior Management, not an outsourced party.

Takeaway: A comprehensive Liquidity Risk Management framework in Singapore requires stress testing that incorporates both firm-specific and market-wide scenarios to ensure operational resilience.

Correct: Under Section 197 of the Securities and Futures Act (SFA), it is prohibited to engage in conduct that creates, or is likely to create, a false or misleading appearance of active trading or with respect to the market for, or the price of, capital markets products. The scenario describes ‘spoofing’ or ‘marking the close,’ where orders are placed without the intent of execution to manipulate the settlement price, which directly violates the prohibition against market rigging and false trading.

Incorrect: Insider trading involves trading based on price-sensitive information that is not generally available, which is not the primary issue in this price manipulation scenario. Front-running involves a dealer trading for their own account ahead of a client’s order to benefit from the price movement caused by the client’s trade. Disseminating misleading statements refers to the communication of false information (Section 199 of the SFA), whereas this scenario focuses on manipulative trading actions and order placement rather than verbal or written communication.

Takeaway: The Securities and Futures Act strictly prohibits any trading activity, including the placement and cancellation of orders, that is intended to create a false or misleading appearance of market price or liquidity.

Correct: Under the MAS Guidelines on Fit and Proper Criteria, an individual must satisfy the criteria of honesty, integrity, and reputation, as well as financial soundness. An unsatisfied judgment debt is a specific factor that calls into question an individual’s financial soundness. Furthermore, the failure to disclose such a material fact during the annual declaration process directly impacts the assessment of the individual’s honesty and integrity, as it suggests a lack of transparency and candor.

Incorrect: Focusing only on financial soundness is incorrect because the act of non-disclosure itself is a breach of the honesty and integrity pillar. Waiting for a formal bankruptcy declaration is not required; the criteria specify that being subject to a judgment debt which is unsatisfied, either in whole or in part, is already a relevant factor. Providing a grace period to ‘validate’ a false declaration is inappropriate as the breach of integrity occurred at the time the false declaration was submitted.

Takeaway: Fit and Proper assessments in Singapore require continuous monitoring of financial soundness and honesty, where even personal civil liabilities and non-disclosure of material facts must be scrutinized.

Correct: According to MAS regulations, unlisted derivatives like CFDs are classified as unlisted Specified Investment Products (SIPs). For retail clients, a Customer Knowledge Assessment (CKA) is mandatory to assess if the client has the requisite knowledge or experience. Experience in listed equities (which are often Excluded Investment Products or listed SIPs) does not automatically qualify a client for unlisted SIPs. The assessment must specifically look for educational qualifications in finance-related fields, relevant work experience, or a minimum of 6 transactions in unlisted SIPs within the preceding 3 years.

Incorrect: Experience in listed equities does not satisfy the CKA criteria for unlisted SIPs, as the risk profiles and product features differ significantly. There is no provision in the MAS guidelines to waive the CKA based on a written indemnity or a general postgraduate degree that is not specifically finance-related as defined by the regulator. Furthermore, a Customer Suitability Assessment (CSA) is used for listed SIPs (Customer Account Review) and is not a substitute for the CKA required for unlisted products.

Takeaway: Financial institutions must conduct a formal CKA for retail clients to trade unlisted SIPs, focusing on specific criteria related to unlisted products rather than general investment experience.

Correct: In Singapore, the Monetary Authority of Singapore (MAS) emphasizes the importance of functional segregation between the front-office (trading) and back-office (settlement and reconciliation) functions. This segregation is a critical internal control designed to prevent and detect errors or fraudulent activities, such as unauthorized trading. Allowing a trader to perform back-office duties, even temporarily and for trades they did not execute, creates a fundamental conflict of interest and compromises the integrity of the control environment. The appropriate action is to maintain strict segregation by using non-front-office personnel.

Incorrect: Allowing a trader to reconcile trades, even if they did not execute them personally, fails to maintain the necessary independence between the risk-taking and risk-control functions. Retrospective reviews by compliance do not prevent the initial breakdown of the control framework during the period of the exception. Providing ‘view-only’ access or using manual spreadsheets does not mitigate the risk, as the trader is still performing a back-office function that should be entirely independent of the front-office staff to ensure objective verification of trades.

Takeaway: Strict functional segregation between front-office and back-office duties is a non-negotiable regulatory requirement in Singapore to ensure the integrity of financial operations and prevent fraud or concealment of errors.

Correct: In Singapore, the AML/CFT Compliance Officer is designated to manage the firm’s AML/CFT program on a day-to-day basis. This includes serving as the primary liaison with the STRO (part of the Singapore Police Force) for filing STRs and with MAS for regulatory matters. They are responsible for ensuring that the firm’s internal controls, including the identification and reporting of suspicious transactions under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA), are effectively executed.

Incorrect: The Board and Senior Management, not the Compliance Officer, retain ultimate responsibility and accountability for the firm’s AML/CFT governance and risk appetite. While the Compliance Officer oversees the reporting process, they cannot delegate the final interpretation of suspicious activity solely to the front office, as this would compromise independent oversight. Furthermore, MAS guidelines typically require senior management approval for onboarding high-risk customers, such as Politically Exposed Persons (PEPs), rather than allowing the Compliance Officer to act unilaterally.

Takeaway: The AML/CFT Compliance Officer in Singapore serves as the essential link between the firm and regulatory authorities like MAS and STRO, ensuring operational adherence to AML/CFT laws.

Correct: Under Section 197 of the Securities and Futures Act (SFA), it is an offense to create a false or misleading appearance of active trading or with respect to the market for, or the price of, capital markets products. Since OTC derivatives are classified as capital markets products, and their pricing often relies on underlying exchange-traded securities, any action intended to artificially distort those prices constitutes market rigging. The SFA’s market conduct provisions are designed to protect the integrity of the financial system as a whole, regardless of whether the final transaction is exchange-traded or OTC.

Incorrect: The approach suggesting OTC derivatives are exempt is incorrect because the SFA’s market conduct rules apply to all capital markets products, including OTC derivatives. The approach focusing only on counterparty loss is incorrect because the law prohibits the act of creating a false appearance regardless of the financial outcome for a specific party. The approach regarding Institutional Investors is incorrect because market manipulation rules are universal and are not waived based on the sophistication of the counterparty; maintaining market integrity is a statutory requirement under MAS oversight.

Takeaway: Market manipulation and price rigging prohibitions under the Singapore Securities and Futures Act apply to all capital markets products, including OTC derivatives, and focus on preventing the creation of a false or misleading market appearance.

Correct: According to Section 82 of the Securities and Futures Act (SFA), any person who carries on a business in any regulated activity without a Capital Markets Services (CMS) license (and who is not an exempt person) is guilty of an offense. The statutory penalty for this contravention is a fine not exceeding $250,000 or imprisonment for a term not exceeding 7 years, or both. This reflects the severity with which the Monetary Authority of Singapore (MAS) views unlicensed activities, as they undermine the integrity of the financial system.

Incorrect: The suggestion that the entity is only subject to a civil penalty of $50,000 is incorrect because carrying on a regulated activity without a license is a criminal offense under the SFA, not merely a civil matter. The idea of a 6-month grace period for retrospective licensing is false; there is no provision in the SFA that validates unlicensed activity after the fact. The claim that liability is limited to a small monthly fine without imprisonment for activities involving accredited investors is incorrect, as the SFA’s licensing requirements and associated penalties apply regardless of the client’s sophistication level unless a specific exemption is met.

Takeaway: Operating a regulated activity without a valid CMS license in Singapore is a serious criminal offense under the SFA, carrying heavy fines and potential imprisonment for responsible officers.

Correct: According to the MAS Guidelines on Outsourcing and the regulatory framework for capital markets intermediaries in Singapore, the board and senior management of a financial institution remain fully responsible for any outsourced functions. A key requirement is that the outsourcing agreement must not hinder MAS’s ability to supervise the firm; therefore, the firm must ensure that MAS has the right to access information and conduct audits or inspections of the service provider to maintain the integrity of the Singapore financial system.

Incorrect: The suggestion that MAS assumes direct supervisory control or indemnifies the firm is incorrect as the firm always retains regulatory accountability. The idea that a firm is exempt from oversight based on the provider’s location or other licenses is false, as MAS maintains its jurisdiction over the Singapore-licensed entity’s functions. The requirement for SGX approval is incorrect in this context because the question specifies a non-exchange member, and MAS, not SGX, is the primary regulator for such outsourcing compliance under the SFA.

Takeaway: Under Singapore’s regulatory framework, outsourcing does not transfer the firm’s legal or regulatory responsibilities, and MAS must retain its right to audit and supervise outsourced functions.

Correct: In accordance with MAS Guidelines on Risk Management Practices, financial institutions must maintain robust controls over trade processing. For non-exchange products like OTC derivatives, timely confirmation and independent verification are critical. An escalation policy ensures that delays are visible to risk management, while independent validation by the middle-office (segregated from the front-office) ensures that the trade terms are accurate and authorized, mitigating the risk of operational errors or fraud.

Incorrect: Allowing the front-office to waive confirmation requirements violates the principle of segregation of duties and increases the risk of unauthorized trading. Relying solely on a counterparty’s system status without independent internal reconciliation fails to provide a necessary secondary control layer. Simply extending the confirmation cycle or adjusting risk appetite does not mitigate the underlying operational risk and increases the bank’s exposure to potential disputes or market movements during the unconfirmed period.

Takeaway: Effective operational risk management for non-exchange products requires independent trade validation and a formal escalation process for confirmation delays to ensure transaction integrity.

Correct: Under the Securities and Futures Act (SFA), dealing in capital markets products is a regulated activity that includes OTC derivatives. Even if a firm is not a member of an exchange like SGX, it must hold a Capital Markets Services (CMS) license issued by the Monetary Authority of Singapore (MAS) unless it falls under specific exemptions. Determining the regulatory perimeter is the essential first step to ensure compliance with Singapore law.

Incorrect: Assuming that dealing with accredited investors or being a non-exchange member provides a blanket exemption is incorrect, as the SFA’s licensing regime is based on the activity performed. Registering with the SGX is inappropriate for non-members as exchange rules primarily govern members, whereas the SFA governs the broader market. The Financial Advisers Act (FAA) regulates the provision of financial advice, but the SFA is the primary legislation for the dealing and manufacturing of capital markets products, including OTC derivatives.

Takeaway: Non-exchange members must evaluate their activities against the SFA’s definition of regulated activities to determine licensing requirements, as the Act covers both exchange-traded and OTC capital markets products.