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

Correct: Conducting a Customer Account Review for both individuals and obtaining senior management approval is the correct procedure. For listed Specified Investment Products (SIPs) like futures, a Customer Account Review (CAR) must be performed for every individual intending to open a joint account. Furthermore, the account cannot be opened until senior management, who is independent of the account opening process, is satisfied with the outcome and provides approval.

Incorrect: The option suggesting a Customer Knowledge Assessment (CKA) is incorrect because CKA is specifically for unlisted SIPs, whereas futures are listed on an exchange. The option suggesting that only one person in a joint account needs to be assessed is wrong because the requirement applies to each customer in the joint arrangement. The option allowing a Trading Representative to approve the account is incorrect because the regulations specifically require approval from senior management who are not connected to the customer or the opening process.

Takeaway: For joint SIP trading accounts, every participant must be individually assessed using the appropriate review type based on the product’s listing status, and independent senior management must approve the account opening.

Correct: Statement I is correct because intermediaries must provide a specific risk warning statement and obtain a formal acknowledgement from retail clients before they engage in their first transaction of an overseas-listed investment product. Statement II is correct because the regulatory requirement for maintaining records of these risk warning acknowledgements is a minimum period of five years. Statement IV is correct because firms have the option to implement a classification system to identify certain overseas products as excluded investment products; otherwise, they are treated as specified investment products by default.

Incorrect: Statement III is incorrect because the validity period for a Customer Knowledge Assessment (CKA) regarding unlisted products is only one year. The three-year validity period mentioned is applicable to the Customer Account Review (CAR) for listed products, subject to specific trading activity requirements, rather than the CKA for unlisted derivatives.

Takeaway: Firms must ensure that risk disclosures for overseas products are acknowledged and archived for five years, while also distinguishing between the one-year validity of unlisted product assessments and the three-year validity of listed product reviews. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because a CPF Investment Account must be opened with an approved agent bank specifically for Ordinary Account (OA) investments, whereas Special Account (SA) investments do not require this. Statement II is correct because the 35% investment limit applies to the investable savings in the Ordinary Account for specific asset classes like shares and corporate bonds. Statement III is correct because both the CPFIS-OA and CPFIS-SA allow for investments in unit trusts and investment-linked insurance products, though the SA is restricted to those with lower risk classifications.

Incorrect: Statement IV is incorrect because gold and gold-related products are only permissible under the CPFIS-OA framework. They are not included in the list of approved investments for the Special Account.

Takeaway: The CPFIS-OA and CPFIS-SA differ in their administrative requirements and asset eligibility, with the Ordinary Account allowing for a broader range of investments including gold and shares, subject to specific limits. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because the scheme requires a member to retain a base amount of $20,000 in their Ordinary Account, and only funds exceeding this threshold are available for investment. Statement III is correct because the regulations allow for the sale of SGX-listed securities as early as one trading day after the purchase, provided the agent bank has accepted the trade and sufficient funds were available.

Incorrect: Statement II is incorrect because a CPF member is strictly limited to maintaining only one CPF Investment Account at any given time, regardless of the number of agent banks available. Statement IV is incorrect because the minimum age requirement to participate in the CPF Investment Scheme is 18 years, not 21 years.

Takeaway: To participate in CPFIS, members must meet specific age and minimum balance requirements and are restricted to a single investment account for all transactions. Therefore, statements I and III are correct.

Correct: Statement I is correct because equity investments under the scheme are restricted to Singapore-incorporated companies listed on the MainBoard. Statement III is correct because unit trusts must adhere to specific cost constraints, including a maximum sales charge of 3%, and meet performance standards relative to their global peers.

Incorrect: Statement II is incorrect because the maximum age for the maturity of an endowment policy is the member’s 62nd birthday, not the 65th. Statement IV is incorrect because statutory board bonds must be available to retail investors and cannot be restricted to institutional or accredited investors only.

Takeaway: To protect member interests, CPFIS products must satisfy strict requirements regarding listing location, fee structures, and accessibility to the general public. Therefore, statements I and III are correct.

Correct: Statement I is correct because financial institutions are required to communicate directly with their clients regarding account statements and contract notes unless the client has provided specific written authorization to do otherwise. Statement II is correct because the regulations permit the disclosure of confidential client information to third parties when such disclosure is necessary for the firm’s outsourced operations or risk management functions. Statement IV is correct because when a firm discloses client information to an outsourced service provider, it remains responsible for ensuring that the recipient maintains the confidentiality of that information.

Incorrect: Statement III is incorrect because the requirement for written authorization is mandatory for the collection of assets or documents like cheques by a third party; simply verifying the identity of the person or having a verbal request from the client is insufficient to meet regulatory standards.

Takeaway: Maintaining client confidentiality and direct communication are core obligations, and any involvement of third parties in receiving data or collecting assets requires formal written consent or must be strictly for essential outsourced business operations. Therefore, statements I, II and IV are correct.

Correct: The account must be approved in writing by a senior management staff member who is independent of the sales or dealing function is the right answer because the rules require an objective authorization process that is documented and completed before any trading activity begins.

Incorrect: The requirement for approval by the head of sales is wrong because the approving officer must be independent of the sales function to ensure there is no conflict of interest. The suggestion that approval can happen after the first trade is wrong because the authorization must be in place prior to any execution. The claim that only physical documents are allowed is wrong because secured electronic records are legally recognized as a valid form of written approval.

Takeaway: Customer accounts must be formally approved by independent senior management before any trading occurs to ensure proper oversight and regulatory compliance.

Correct: The agent bank is mandated to automatically transfer the cash balance from a member’s CPF Investment Account to their CPF Ordinary Account at the end of the month if the account has been inactive for two consecutive months. Inactivity is specifically defined as the absence of any investment transactions during that timeframe.

Incorrect: The option regarding the retirement sum is wrong because those thresholds are relevant for withdrawing holdings at age 55, not for inactivity transfers. The suggestion that the bank transfers funds based on fee coverage is incorrect as charges are simply deducted from the account or CPF savings. The failure to update a suitability profile is a regulatory compliance issue but does not trigger an automatic transfer of cash between CPF accounts.

Takeaway: Cash balances in a CPFIS account are automatically returned to the Ordinary Account after two months of inactivity to ensure funds are not left uninvested.

Correct: Informing the customer of the delivery and retrieval methods and any potential costs involved is the right answer because the regulations define informed consent specifically as ensuring the client understands how they will receive and access their records and any associated expenses.

Incorrect: The option regarding an irrevocable agreement is wrong because the regulations explicitly require that consent for electronic delivery must be revocable by the customer at any time. The requirement to provide a physical sample of the electronic format to a residential address is not a regulatory condition for obtaining informed consent. The requirement to complete a mandatory online module on digital security is also incorrect as no such educational prerequisite is mandated for electronic contract note delivery.

Takeaway: To obtain informed consent for electronic contract notes, a firm must disclose the specific methods for delivery and retrieval and any costs the customer might incur.

Correct: The Catalist Board is the appropriate platform because it is specifically designed for smaller or fast-growing companies that may not meet the established financial history required for other platforms. Its defining feature is the Sponsor-led model, where an approved Sponsor assesses the applicant’s suitability for listing instead of the exchange applying fixed quantitative criteria like minimum profit or market capitalization.

Incorrect: The options suggesting the Mainboard are incorrect because the Mainboard is reserved for more established companies and maintains strict, higher entry requirements, including specific minimum profit and market capitalization levels. The suggestion that the Catalist Board has lower but specific quantitative thresholds set by the exchange is also incorrect, as the exchange does not set minimum quantitative criteria for Catalist; instead, it relies on the judgment of the Sponsor.

Takeaway: The primary distinction between Singapore’s listing platforms is that the Mainboard requires meeting specific quantitative financial thresholds, while the Catalist Board uses a Sponsor-led model without fixed quantitative entry requirements.

Correct: The statement regarding continued protection after death is NOT correct. While CPFIS assets and cash balances are protected from claims by creditors or the Official Assignee while the member is alive, this protection ceases upon the member’s death. Once the member passes away, these assets may be used to satisfy the deceased member’s creditor claims in accordance with relevant probate laws.

Incorrect: The statement about undischarged bankrupts liquidating holdings is true; they are allowed to sell existing investments, provided the proceeds are returned to their CPF accounts. The statement regarding insurance policies is true; revocable nominations allow proceeds to bypass the estate administrator and go directly to beneficiaries. The statement about new investments is true; undischarged bankrupts are strictly prohibited from using CPF monies for any new investment transactions.

Takeaway: CPFIS assets are protected from creditors during a member’s lifetime, but this protection ends upon death, at which point the assets typically form part of the estate and become liable for debts.

Correct: Statement I is correct because regulatory requirements allow an exemption from sending monthly statements to Accredited Investors if they have access to real-time electronic statements and have agreed to use them. Statement II is correct because a written request from an Accredited Investor specifically asking not to receive monthly statements is a valid ground for an exemption. Statement IV is correct because there is a general exemption for all customers, including Accredited Investors, if there has been no change, transaction, or movement in the account during that specific month.

Incorrect: Statement III is incorrect because obtaining informed consent is a requirement for the method of delivery (changing from physical to electronic form). While it allows the firm to provide the statement through a digital portal, it does not exempt the firm from the underlying obligation to ensure the statement information is provided to the customer.

Takeaway: Trading Members must provide monthly statements unless specific exemptions apply, such as account inactivity or, for Accredited Investors, the provision of real-time electronic access or a formal written opt-out. Therefore, statements I, II and IV are correct.

Correct: Transferring a trade from one customer’s suspense account to another customer’s account is permitted only if the firm has secured written consent from both the original customer and the recipient customer before the transfer. Additionally, the specific instructions to book the trade to the second customer must be received only after the trade has already been executed in the initial suspense account to ensure transparency.

Incorrect: The options suggesting consent from only one customer are wrong because both parties involved in the transfer must provide written authorization to protect their interests and prevent unauthorized use of accounts. The option mentioning verbal consent is incorrect as the regulations specifically mandate written documentation for such transfers to maintain a clear audit trail. The options focusing on booking within one Market Day are incorrect because the primary requirement is the timing of the instruction relative to execution, and the standard limit for suspense accounts is actually two Market Days.

Takeaway: To prevent unauthorized trade allocation, moving trades between customer accounts via a suspense account requires dual written consent and post-execution booking instructions.

Correct: Requesting the client to register the shares and identify the ultimate beneficial owners is the right answer because bearer shares pose a significant risk as the owner is simply whoever holds the physical certificate. Financial institutions should generally not accept bearer share companies as clients due to the inability to verify the identity of the ultimate beneficial owner with certainty.

Incorrect: Accepting the foreign broker’s certificate as the final due diligence is wrong because the acceptance of an intermediary certificate does not diminish the responsibility of the license holder to conduct its own proper due diligence. Approving the account while restricting third-party payments is wrong because it fails to address the fundamental requirement to identify the beneficial owner at the onboarding stage. Waiving the beneficial ownership check based on the broker’s status is wrong because the license holder must still satisfy itself that the client is not involved in financial crimes, regardless of the intermediary’s regulatory standing.

Takeaway: A CMS license holder remains fully responsible for client due diligence and should require the registration of bearer shares to ensure the ultimate beneficial owner is transparently identified.

Correct: Statement I is correct because the layering stage involves creating complex layers of financial transactions, such as using shell companies or high-frequency trading, to disguise the audit trail and distance the funds from their criminal source. Statement II is correct because the integration stage is the final phase where laundered funds are returned to the client in a way that provides them with apparent legitimacy, such as receiving a brokerage check from the sale of securities.

Incorrect: Statement III is incorrect because while capital markets are not predominantly cash-based, some retail intermediaries can still be affected by the placement stage through cash payments for account top-ups or margin calls. Statement IV is incorrect because the three stages of money laundering—placement, layering, and integration—do not need to take place in a sequential or chronological order to constitute a crime.

Takeaway: Money laundering involves masking illicit proceeds through placement, layering, and integration, and capital market intermediaries are particularly vulnerable to the layering and integration stages due to the liquidity of the assets they handle. Therefore, statements I and II are correct.

Correct: Statement I is correct because goods and services received under soft dollar arrangements are permissible if they can reasonably be expected to assist in the provision of services to the customer, such as research or market data services. Statement IV is correct because the regulations require that Trading Members maintain detailed records of all goods and services received and establish appropriate internal controls for such arrangements.

Incorrect: Statement II is incorrect because travel and accommodation expenses are explicitly listed as unacceptable soft dollar receipts, regardless of whether they are for business purposes. Statement III is incorrect because professional membership fees are considered general administrative or personal expenses and do not qualify as acceptable soft dollar payments.

Takeaway: Soft dollar commissions are only permitted for services that directly benefit the client, and they strictly exclude travel, accommodation, entertainment, and membership fees. Therefore, statements I and IV are correct.

Correct: Assisting another to retain benefits of drug trafficking by arrangement is the right answer because the scenario describes a professional entering into a specific agreement or arrangement, such as using a nominee account, to facilitate the control or investment of criminal proceeds on behalf of another person.

Incorrect: Money laundering by acquisition, possession, or use of property is wrong because this category specifically targets the individual who actually takes possession of or uses the illicit property for themselves, rather than the intermediary facilitating the arrangement. Tipping-off in connection with a suspicious transaction investigation is wrong because it involves the act of leaking information to a third party that could prejudice an ongoing or future investigation by authorities. Failure to disclose knowledge or suspicion of criminal conduct is wrong because it refers to the specific legal omission of not reporting a suspicious transaction to the appropriate authorities, whereas the scenario focuses on the active participation in the investment arrangement itself.

Takeaway: Financial professionals must distinguish between the act of facilitating an investment arrangement for criminal proceeds and the separate obligation to report suspicious transactions, as these constitute distinct regulatory offences.

Correct: Statement I is correct because performing a call-back to a client is a recommended control measure for verifying instructions and preventing fraudulent transfers. Statement II is correct because the law prohibits individuals from transferring property when they have reasonable grounds to believe it represents benefits from criminal conduct. Statement IV is correct because it is a criminal offence to be concerned in any arrangement that facilitates the retention or control of criminal benefits by another person.

Incorrect: Statement III is incorrect because the regulatory framework for financial crimes specifically includes benefits from both domestic and foreign serious offences. The fact that the underlying criminal conduct occurred outside of Singapore does not provide an exemption from liability for money laundering offences.

Takeaway: Financial professionals must implement robust verification procedures and are legally prohibited from facilitating the transfer or retention of funds derived from criminal activities, regardless of where the crime occurred. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because for trades and orders occurring within the six-month period immediately preceding a request, records must be provided to the exchange immediately. Statement III is correct because the regulations specifically require firms to maintain detailed particulars of proprietary transactions, which must include the realized or unrealized gain or loss for each transaction.

Incorrect: Statement II is incorrect because the standard deadline for lodging audited annual accounts and the balance sheet with the regulator is five months after the end of the financial year, not four months. Statement IV is incorrect because while an extension for lodging accounts can be requested for special reasons, the maximum extension period the regulator can grant is limited to four months, not six months.

Takeaway: CMS license holders must adhere to strict record-keeping requirements and specific statutory timelines for financial reporting and data production to ensure regulatory transparency. Therefore, statements I and III are correct.

Correct: Money received from a client that is intended to be used to reduce the amount currently owed by that client to the CMS license holder is the right answer because the regulations specifically exclude funds intended to offset a customer’s existing liabilities to the firm from the definition of money received on account of a customer.

Incorrect: The option about securities trading accounts is wrong because funds for purchasing or holding securities are legally defined as money received on account of a customer to ensure they are protected. The option about foreign exchange and futures is wrong because the regulations specifically include money received for these types of transactions in the definition. The option about fund management and securities financing is wrong because these are also explicitly listed as types of money that must be treated as customer money.

Takeaway: While most funds received from clients for trading or management are protected as customer money, funds intended to settle a client’s debt to the firm or to pay brokerage fees are specifically excluded from this classification.

Correct: Retaining a complete copy of the original documents and recording the release in a dedicated register is the mandatory procedure when original financial transaction documents are released for legal reasons before the statutory retention period ends. This ensures the firm remains compliant with record-keeping duties while the originals are in the possession of authorities.

Incorrect: Denying a legal request for documents is incorrect because financial institutions are permitted and often required to release originals for legal proceedings. Informing a client that their records are being investigated is inappropriate and could potentially constitute a tipping-off offence. Applying for an exemption to destroy backups is incorrect because the law requires the retention of these records for a minimum of five years after the account is closed, regardless of whether the originals are temporarily released.

Takeaway: When original financial records are released for legal purposes, firms must maintain a complete copy and a register of the release to satisfy their statutory record-keeping obligations.

Correct: The firm is entitled to retain the interest and returns specifically earned on the money it advanced from its own funds to the trust account. Furthermore, when a firm withdraws its advanced funds or the entitled interest, it must provide notification to the remisier by the next business day.

Incorrect: The suggestion that all interest must be credited to the remisier is incorrect because the law allows the firm to keep returns on its own advanced capital. The claim that the firm can keep all interest from the entire account balance is wrong because interest earned on the remisier’s own money must accrue to the remisier. The statement that no notification is required for withdrawals is incorrect because there is a mandatory requirement to notify the remisier of such transactions by the following business day.

Takeaway: While interest on trust accounts generally belongs to the customer or remisier, firms may retain interest on their own advanced funds but must notify the remisier of any withdrawals by the next business day.

Correct: Depositing the money into a trust account by the next business day is the right answer because regulations require all customer funds to be placed in a trust account with a specified financial institution within this timeframe. It is also mandatory to obtain a written acknowledgement from the institution that the funds are held on trust and are not subject to any right of set-off by the bank.

Incorrect: The suggestion to temporarily use the firm’s corporate account is wrong because customer money must never be mixed with the firm’s own capital, even for a short period. The idea that a separate individual account is required for each client is wrong because the law allows a firm to pool money from multiple customers in one trust account as long as they maintain separate records for each. The proposal to invest in corporate bonds is wrong because trust money can only be invested in specific low-risk instruments like government securities or those specifically approved by the regulator.

Takeaway: All customer money must be deposited into a properly acknowledged trust account by the next business day and must be kept strictly segregated from the firm’s own funds.

Correct: The statement that a license holder can release frozen assets if a client provides a valid commercial reason is the right answer because it is false. Under regulatory requirements, once assets are frozen due to sanctions, they cannot be released without the explicit approval of the regulator, regardless of any commercial justification provided by the client.

Incorrect: The statement regarding client screening is wrong because it is a true requirement; institutions must screen both new and existing clients against designated lists to prevent financial crime. The statement regarding the fine is wrong because it is a true statement; the maximum penalty for breaching these specific regulations is indeed a fine of $1 million. The statement regarding tax evasion is wrong because it is a true statement; serious fraudulent tax evasion has been designated as a predicate offence for money laundering to enhance financial system integrity.

Takeaway: Financial institutions must strictly freeze assets of designated entities and may only release them with regulatory approval, while also maintaining robust screening and recognizing tax crimes as money laundering risks.

Correct: Statement II is correct because the regulations allow a firm until the next business day to rectify an excess in pledged assets that occurs when a customer reduces their debt. Statement III is correct because lending customer securities is strictly permitted only after the firm has explained the risks and secured the customer’s written consent. Statement IV is correct because custodians are prohibited from claiming a lien or right of sale over customer assets except for agreed-upon custody fees or where specific customer consent has been obtained and communicated.

Incorrect: Statement I is incorrect because a firm cannot mortgage a customer’s assets for a sum exceeding the amount that specific customer owes. Even in aggregated pledging scenarios, the claim against an individual customer’s assets must not exceed their specific liability to the firm.

Takeaway: CMS license holders must maintain strict proportionality between a customer’s debt and the assets pledged as collateral, while ensuring all lending and lien arrangements are supported by explicit customer consent and risk disclosure. Therefore, statements II, III and IV are correct.

Correct: Using findings for further checks while avoiding full reliance is correct because information from the internet or newspapers is not inherently authenticated. These sources are useful for identifying areas that require deeper investigation but do not provide the indemnity or assurance of accuracy found in official subscribed databases.

Incorrect: Relying on well-known publications is wrong because even reputable media sources are not considered official regulatory records and may be inaccurate for compliance purposes. Disregarding the information entirely is wrong because public reports can highlight significant reputation risks that warrant further due diligence. Accepting verbal confirmation from the client is wrong because information must be verified through independent, reliable sources or original documentation rather than just the client’s own statements.

Takeaway: While public information sources are valuable for identifying potential risks, they must be authenticated through official records or databases before being used as a basis for final regulatory decisions.

Correct: Statement I is correct because firms are required to deposit received assets into a designated custody account by the next business day following receipt or notification. Statement III is correct because the firm must perform a suitability assessment on any custodian it uses and keep a record of the grounds for that decision. Statement IV is correct because the use of an overseas custodian for foreign currency assets is only permitted if the client has provided prior written consent.

Incorrect: Statement II is incorrect because the firm is strictly prohibited from commingling client assets with its own funds; client assets must be held in a separate trust or customer account to ensure they are protected from the firm’s creditors and maintained separately from the firm’s operational capital.

Takeaway: Firms must ensure the prompt segregation of client assets into trust accounts and perform rigorous due diligence on custodians to maintain regulatory compliance and asset safety. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because tax evasion under the GST Act involves willful actions such as omitting output tax or overstating input tax in returns to avoid payment. Statement III is correct because the second line of defence, which includes the compliance and AML/CFT unit, is responsible for acting as the central contact point for both domestic and foreign regulatory or law enforcement authorities.

Incorrect: Statement II is incorrect because the offense of improperly obtaining refunds applies not only to those who successfully receive excess funds but also to those who knowingly attempt to cause such a refund. Statement IV is incorrect because the board of directors and senior management, rather than the internal audit function, are responsible for setting the firm’s risk appetite and establishing a compliance culture.

Takeaway: Effective financial crime prevention requires understanding that tax offenses include both evasion and attempted refund fraud, while internal governance relies on the board setting the tone and compliance acting as the regulatory liaison. Therefore, statements I and III are correct.

Correct: Statement I is correct because failing to inform a remisier about asset withdrawals by the next business day is a specific regulatory offence that can be settled through a fine. Statement II is correct because the penalty amount is not fixed; it is determined by factors such as the individual’s role and whether they have committed similar violations in the past. Statement IV is correct because the market conduct framework is designed to protect the market’s integrity, meaning rules apply to actions taken outside Singapore if those actions affect the local market.

Incorrect: Statement III is incorrect because the scope of market conduct rules is broad. These regulations apply to any securities-related misconduct occurring within Singapore, regardless of whether the specific securities involved are listed on the local exchange or on an international exchange.

Takeaway: Regulatory compliance requires strict adherence to notification timelines for asset movements, and market conduct rules apply to both local and foreign-listed securities to ensure a fair and orderly market. Therefore, statements I, II and IV are correct.

Correct: The statement regarding commingling is false because Trading Members are strictly prohibited from mixing the assets of a remisier or a customer with the firm’s own proprietary assets. There is no provision in the rules that allows for this commingling, even if the remisier provides written authorization.

Incorrect: The statement about mortgage regulations is true because the rules explicitly exempt remisiers from the specific regulations governing the mortgaging or charging of customer assets. The statement about separate accounts is true because firms are mandated to deposit customer assets in a custody account distinct from those used for remisiers to prevent mixing different classes of assets. The statement about notification is true because the rules require the firm to inform the remisier of any withdrawal from their account by the next business day.

Takeaway: Trading Members must ensure the strict segregation of remisier assets from both the firm’s assets and other customers’ assets, while adhering to prompt notification requirements for withdrawals.