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

Correct: Under the regulatory framework for CMS license holders in Singapore, firms are required to have an internal audit function that is independent of the day-to-day operations and business units it audits. The MAS allows for flexibility in the execution of this function, meaning it can be handled by an in-house team, a regional or group-level internal audit department, or outsourced to a competent third-party service provider, provided the Board of Directors maintains oversight.

Incorrect: The suggestion that internal audit is only for SGX members is incorrect because all CMS license holders must have adequate internal audit arrangements regardless of exchange membership. Reporting to the Head of Trading or CEO for approval of findings compromises the independence of the audit; the function should ideally report to the Board or an Audit Committee. While MAS requires a robust audit, it does not strictly mandate that the team be full-time or physically located in Singapore, allowing for group-level or outsourced arrangements.

Takeaway: CMS license holders must maintain an independent internal audit function, which may be staffed in-house, at a group level, or outsourced to professional service providers.

Correct: Under the Securities and Futures Act (SFA), the civil penalty regime is designed as an alternative to criminal prosecution. To avoid double jeopardy, Section 232 of the SFA provides that if criminal proceedings have been commenced against a person, no civil penalty action can be initiated against them for the same conduct. This ensures a clear choice between the two enforcement routes.

Incorrect: The civil penalty regime operates on the civil standard of proof, which is the balance of probabilities, rather than the higher criminal standard of beyond a reasonable doubt. The SFA explicitly prohibits dual-track enforcement for the same act; once a civil penalty is imposed or a criminal conviction is secured, the other cannot be pursued. Jurisdiction for these matters is not split by court level in the manner described, and MAS has the power to enter into agreements for civil penalties without court intervention.

Takeaway: The Singapore SFA enforcement framework is a dual-track system where market misconduct is addressed through either civil or criminal proceedings, but never both for the same contravention.

Correct: Under MAS Notice SFA 04-N16 (Execution of Customers’ Orders), Capital Markets Services (CMS) licensees are required to take all reasonable steps to obtain the best possible result for their customers. This obligation applies to all capital markets products, including OTC derivatives. The firm must have a written policy that specifies the relative importance of execution factors (such as price, costs, speed, and likelihood of execution) and must monitor the effectiveness of these arrangements regularly.

Incorrect: The suggestion that OTC derivatives are exempt is incorrect because MAS Notice SFA 04-N16 applies to all capital markets products regardless of whether they are exchange-traded or OTC. Relying solely on disclosure of affiliate trading or internal pricing is insufficient, as disclosure does not discharge the licensee’s duty to seek the best possible outcome for the customer. Furthermore, best execution is a mandatory regulatory requirement for all customer orders and cannot be treated as an optional service level that a client must opt into.

Takeaway: In Singapore, CMS licensees must maintain and monitor a robust best execution policy for all capital markets products, including OTC derivatives, to ensure the best possible results for customers.

Correct: According to MAS Notice SFA04-N02, capital markets intermediaries must adopt a risk-based approach to AML/CFT. When a customer is assessed as presenting higher risks—such as being from a jurisdiction with inadequate AML measures—the intermediary is required to perform Enhanced Due Diligence (EDD). This includes taking reasonable measures to establish the source of wealth and source of funds of the customer and beneficial owners, as well as increasing the degree and nature of monitoring of the business relationship.

Incorrect: The approach of applying only standard CDD is incorrect because the presence of a high-risk jurisdiction factor necessitates EDD regardless of the business sector. Relying exclusively on a third party for due diligence is incorrect because, under MAS Notice SFA04-N02, the financial institution remains ultimately responsible for its AML/CFT obligations and must ensure the third party meets specific criteria. The approach of exempting an account from further scrutiny after an initial period is incorrect because the Notice mandates ongoing monitoring of all business relationships to ensure transactions are consistent with the institution’s knowledge of the customer.

Takeaway: MAS Notice SFA04-N02 mandates a risk-based approach where higher-risk factors, such as high-risk jurisdictions, require Enhanced Due Diligence and continuous, intensified monitoring of the business relationship.

Correct: Under MAS regulations, for unlisted Specified Investment Products (SIPs), financial advisers must conduct a Customer Knowledge Assessment (CKA) to determine if a retail client has the requisite knowledge or experience. Furthermore, under the Financial Advisers Act (FAA), any recommendation made to a client must have a reasonable basis, considering the client’s investment objectives, financial situation, and particular needs. If the client fails the CKA, the firm must provide additional advice and safeguards before proceeding.

Incorrect: A Customer Account Review (CAR) is specifically required for listed SIPs, not unlisted ones. Retail investors cannot simply waive suitability assessments for unlisted SIPs through a general opt-out declaration. The ‘Expert Investor’ classification is a specific legal category under the Securities and Futures Act (SFA) with high thresholds; a standard retail client cannot be ‘automatically’ reclassified to bypass suitability without meeting strict criteria and following the opt-in/opt-out process for Accredited Investors where applicable.

Takeaway: For unlisted complex products (SIPs) sold to retail investors in Singapore, firms must conduct a Customer Knowledge Assessment and ensure every recommendation is backed by a documented reasonable basis.

Correct: Under Section 4A of the Securities and Futures Act (SFA), statutory boards in Singapore are explicitly defined as institutional investors. Institutional investors are considered the most sophisticated category of investors and are therefore subject to the least amount of regulatory protection. Dealers are exempted from many conduct of business obligations when dealing with them, such as the requirement to provide a Product Highlights Sheet or the need to ensure the suitability of recommendations under the Financial Advisers Act.

Incorrect: The option regarding an ‘opt-out’ notice is incorrect because the opt-in/opt-out regime applies to Accredited Investors (AIs), not Institutional Investors (IIs). The option regarding a S$10 million net asset threshold is incorrect because statutory boards are classified as institutional investors based on their legal status under the SFA, not based on a quantitative financial test. The option regarding a mandatory Suitability Assessment is incorrect because the FAA provides specific exemptions for dealings with institutional investors, acknowledging their professional capacity to evaluate investment risks.

Takeaway: Institutional investors, including Singapore statutory boards, are legally presumed to be sophisticated and are thus excluded from most retail-level conduct of business protections under the SFA and FAA.

Correct: Under the Securities and Futures Act (SFA), specifically within the provisions related to investigative powers, if a Magistrate is satisfied that there are reasonable grounds to believe that books or records required by MAS have not been produced, or that they might be hidden or destroyed if a production order were issued, a warrant can be granted. This warrant allows MAS officers to enter premises, search for, and seize the relevant books or electronic records to ensure the integrity of the investigation.

Incorrect: The suggestion that a seven-day notice period is required is incorrect as search warrants are often executed without prior notice to prevent the destruction of evidence. The claim that personal devices used for business are exempt is false; any device containing information relevant to the investigation of an SFA offense can be subject to seizure. Furthermore, a warrant issued under the SFA typically authorizes the use of such force as is reasonable and necessary to enter the premises, meaning investigators do not have to wait for voluntary consent.

Takeaway: MAS has the statutory authority under the SFA to obtain and execute search warrants to seize evidence when there is a risk that records may be tampered with or withheld.

Correct: Under Section 82 of the Securities and Futures Act (SFA), it is a criminal offense to carry on a business in any regulated activity or hold oneself out as carrying on such business without a Capital Markets Services (CMS) license or being an exempt person. The penalties for a person found guilty of this offense are severe, including a fine not exceeding $250,000 or imprisonment for a term not exceeding 7 years, or both. This reflects the high priority the Monetary Authority of Singapore (MAS) places on market integrity and investor protection.

Incorrect: The suggestion that MAS would only issue a private warning or provide a 90-day grace period is incorrect, as unlicensed activity is a statutory criminal offense. Continuing operations while a license is pending is illegal, as the SFA requires the license to be granted before the activity commences. Classifying unlicensed activity as a minor administrative breach with a small civil penalty is inaccurate, as the SFA treats this as a serious criminal matter with significant potential for imprisonment.

Takeaway: Carrying on a regulated activity without a valid CMS license in Singapore is a serious criminal offense under the SFA, punishable by substantial fines and imprisonment.

Correct: In Singapore, under the MAS Regulations issued pursuant to the Monetary Authority of Singapore Act, financial institutions are required to freeze without delay any funds or assets belonging to designated persons or entities found on sanctions lists. The institution must also refrain from dealing with such persons and must file a Suspicious Transaction Report (STR) with the Suspicious Transaction Reporting Office (STRO) and notify the MAS of the frozen assets.

Incorrect: Processing the withdrawal would violate the legal requirement to freeze assets of designated persons immediately. Notifying the client or requesting documents in a way that reveals the investigation could constitute ‘tipping off’ under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA). Delaying the report or the freeze for internal investigation is not permitted when a match is identified against designated lists, as the requirement is to act ‘without delay’.

Takeaway: Financial institutions in Singapore must immediately freeze assets of designated persons on MAS and UN Security Council lists and report the matter to both the STRO and MAS without tipping off the client.

Correct: In Singapore, the Monetary Authority of Singapore (MAS) emphasizes the strict segregation of front-office (trading/sales) and back-office (settlement/accounting) functions. Allowing a dealer or representative to have access to settlement systems creates a fundamental conflict of interest and operational risk. It enables an individual to execute a trade and then potentially alter or delete the record of that trade in the settlement system to hide losses, errors, or fraudulent activity. Therefore, the firm must ensure that the person executing the trade is never the same person responsible for recording or settling it.

Incorrect: Conducting monthly audits is a detective control rather than a preventive one and does not satisfy the requirement for structural segregation of duties. Dual-authorization involving a junior staff member approving a senior’s work is often ineffective due to the power imbalance and does not constitute proper functional independence. Written undertakings and increased regulatory reporting do not address the underlying systemic weakness of allowing a single individual to control the entire trade lifecycle from execution to settlement.

Takeaway: Strict functional segregation between trading and settlement is a mandatory internal control in Singapore to prevent the concealment of unauthorized activities and ensure the integrity of financial records.

Correct: Under the Securities and Futures Act (SFA) and the associated MAS guidelines, the Public Register of Representatives is a critical tool for transparency. Both the representative and the principal firm have an obligation to ensure that the information displayed is accurate and complete. If an error or omission is found, the representative must work through their current principal firm’s compliance officer to notify MAS, as the principal is responsible for the conduct and regulatory filings of its representatives.

Incorrect: Waiting for an annual declaration is incorrect because the integrity of the Public Register relies on timely and accurate information to protect the investing public. Contacting a previous employer is not the primary solution, as the current principal firm is responsible for the representative’s current regulatory standing and must facilitate corrections with MAS. Requesting redaction from SGX is incorrect because the Public Register is maintained by MAS, not SGX, and disciplinary history is a matter of public record that cannot be redacted simply because it did not lead to a suspension.

Takeaway: Representatives and their principal firms must proactively ensure the MAS Public Register remains accurate to uphold market transparency and public trust in Singapore’s financial sector.

Correct: The Monetary Authority of Singapore (MAS) has established five specific Fair Dealing Outcomes: (1) Fair dealing is central to the corporate culture; (2) Products and services are suitable for target customer segments; (3) Representatives provide quality advice and appropriate recommendations; (4) Customers receive clear, relevant, and timely information; and (5) Customer complaints are handled independently, effectively, and promptly. Option A accurately captures these core pillars.

Incorrect: Focusing solely on SGX approval or standard disclaimers is insufficient as it ignores the broader requirements of corporate culture and suitability. Prioritizing high returns is not a Fair Dealing Outcome and could lead to aggressive risk-taking that is unsuitable for the client. The Fair Dealing Outcomes apply to all customers, and there is no exemption that allows for withholding information from retail customers; in fact, retail customers often require more protection and clearer disclosures.

Takeaway: Fair dealing in Singapore is a holistic regulatory expectation that requires financial institutions to integrate customer interests into their culture, product design, advisory process, and grievance mechanisms.

Correct: The Securities and Futures Act (SFA) is designed to promote a fair, efficient, and transparent market. Timely reporting of trades is a cornerstone of this objective because it ensures that price-sensitive information is available to the entire market simultaneously. This transparency prevents information asymmetry, where certain parties might trade on information not yet available to the public, and ensures that market prices accurately reflect the true demand and supply, thereby maintaining market integrity.

Incorrect: The suggestion that reporting is for monitoring firm profitability for revenue targets is incorrect as the MAS focuses on prudential requirements and conduct, not guaranteeing profit levels. The idea that reporting allows a cooling-off period for institutional investors to hedge before public disclosure contradicts the SFA’s principle of fairness and equal access to information. Lastly, while fees are collected by the SGX, the primary regulatory objective of the SFA regarding trade reporting is market transparency and integrity, not the funding of corporate social responsibility programs.

Takeaway: The core objective of the SFA in maintaining transparent markets is to ensure a level playing field where all participants have timely access to trade data to facilitate fair price discovery.

Correct: The Securities Industry Council (SIC) is the body responsible for administering and enforcing the Singapore Code on Take-overs and Mergers. Its primary functions include issuing rulings on the interpretation of the Code’s rules and principles, and it has the authority to grant exemptions or waivers (such as a whitewash waiver) from the requirement to make a mandatory offer under Rule 14, provided certain conditions are met.

Incorrect: The SIC does not act as a private legal arbitrator for price negotiations, as its role is regulatory oversight rather than individual representation. Criminal prosecutions for breaches of the Securities and Futures Act are handled by the relevant legal authorities, not directly by the SIC as a court. Furthermore, the valuation of shares is the responsibility of the Independent Financial Adviser (IFA) appointed by the target company’s board, not the SIC.

Takeaway: The Securities Industry Council (SIC) provides authoritative rulings and interpretations of the Singapore Code on Take-overs and Mergers to ensure all shareholders are treated fairly.

Correct: The SGX-ST Trade Surveillance Department is responsible for real-time monitoring of the market to ensure it is fair, orderly, and transparent. When suspicious activities that may constitute a breach of the Securities and Futures Act (SFA) are detected, the department performs a preliminary review. If the suspicion is substantiated, the established regulatory framework in Singapore requires SGX to refer the case to the Monetary Authority of Singapore (MAS), which has the statutory authority to investigate and take formal enforcement actions, including civil or criminal proceedings.

Incorrect: Issuing a public reprimand and freezing accounts immediately without a full investigation violates due process and exceeds the typical initial response of the surveillance department. Relying solely on a member firm’s internal audit is inappropriate because the exchange must maintain independent oversight of market integrity. Initiating a civil lawsuit in the High Court is not the function of the SGX Trade Surveillance Department; statutory enforcement is handled by MAS or the Commercial Affairs Department (CAD).

Takeaway: The SGX-ST Trade Surveillance Department acts as a frontline monitor that refers suspected breaches of the Securities and Futures Act to the Monetary Authority of Singapore (MAS).

Correct: Bucketing is a prohibited practice under the Securities and Futures Act (SFA) in Singapore. It occurs when a person, while purporting to act as an agent for a client, takes the opposite side of the client’s order for their own account (or the firm’s account) without executing the trade on a recognized exchange or in accordance with the exchange’s rules. This undermines the price discovery process of the SGX and constitutes market misconduct, which can lead to criminal prosecution, fines, and imprisonment.

Incorrect: Internal crossing is only permitted if it follows specific SGX-ST rules, including reporting requirements and ensuring the trade is executed through the exchange’s systems; failing to do so results in bucketing. Front-running is a different form of misconduct involving trading ahead of a client’s order based on non-public information. Off-market transactions for listed securities are subject to strict regulatory frameworks and cannot be used as a justification for failing to execute client orders on the exchange as required by the SFA.

Takeaway: Bucketing is a serious market misconduct offense in Singapore where a dealer fails to execute a client’s order on the exchange, instead taking the opposite position internally without proper authorization or reporting.

Correct: Under Section 48 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) of Singapore, it is a criminal offence to tip off a person that an investigation is underway or that an STR has been filed if such disclosure is likely to prejudice the investigation. Providing a neutral explanation that does not reveal the existence of the report or the investigation is the only way to handle the client’s query while remaining compliant with the law.

Incorrect: Disclosing that a regulatory inquiry by MAS is the cause, mentioning the filing of an STR, or directing the client to the CAD all serve to alert the client that they are under official suspicion. These actions constitute tipping-off because they provide the client with information that could lead them to destroy evidence, move funds, or otherwise prejudice an ongoing or future criminal investigation.

Takeaway: To avoid the offence of tipping-off under the CDSA, financial professionals must never disclose the existence of a Suspicious Transaction Report or an ongoing investigation to the subject of that report.

Correct: Under the Securities and Futures Act (SFA) and the MAS Guidelines on Short Selling Disclosure, any person who places a sell order for securities that they do not own at the time of the order must disclose the order as a short sell order. Furthermore, to avoid the prohibition on naked short selling, the seller must have a ‘reasonable ground’ to believe they can deliver the securities by the settlement date, which is satisfied by having a firm borrowing arrangement in place before the order is made.

Incorrect: Marking an order as a normal sell when the seller does not own the shares is a violation of Section 137B of the SFA, regardless of whether delivery is guaranteed. Naked short selling is prohibited in Singapore; the seller must have the arrangement to cover the delivery at the time the order is placed, not after. The requirement to mark short sell orders applies to all market participants, including retail and institutional clients, to ensure transparency in the SGX market.

Takeaway: In Singapore, all sell orders for securities not owned by the seller must be marked as short sell orders at the time of entry, and the seller must have a valid arrangement in place to cover the delivery to avoid illegal naked short selling.

Correct: Under the Representative Notification Framework (RNF) and the MAS Guidelines on Fit and Proper Criteria, the primary responsibility for ensuring a representative is suitable lies with the principal firm. The firm must conduct thorough due diligence, including checking employment history, financial status, and character references, to make a formal declaration to MAS that the individual is fit and proper before the representative can commence regulated activities.

Incorrect: The suggestion that MAS conducts independent investigations for every notification is incorrect because the RNF is a notification-based system where the principal takes legal responsibility for the fitness and propriety declaration. Passing CMFAS exams only addresses the competence requirement and does not satisfy the requirements for honesty, integrity, or financial soundness. Appointing a representative before completing due diligence or on a ‘probationary’ basis without full verification is a breach of regulatory requirements, as the fitness and propriety must be established prior to the commencement of any regulated activity.

Takeaway: The principal firm bears the ultimate responsibility for verifying that a representative meets all Fit and Proper Criteria before their appointment is notified to MAS.

Correct: Under Section 8 of the Terrorism (Suppression of Financing) Act (TSOFA), every person in Singapore who has possession, custody, or control of any property belonging to a terrorist or terrorist entity, or has information about a transaction or proposed transaction in respect of such property, must inform the Commissioner of Police (via the Suspicious Transaction Reporting Office) immediately. This is a mandatory statutory duty that overrides any contractual confidentiality obligations.

Incorrect: Waiting for a formal production order is incorrect because TSOFA imposes a proactive duty to disclose information without the need for a prior court or regulatory order. The S$15,000 threshold is relevant for Cash Transaction Reports (CTR) under the CDSA but does not apply to the reporting of terrorist property under TSOFA, which has no minimum value. Notifying the client of the match is incorrect as it could constitute ‘tipping off’, which is a criminal offense under Singapore law.

Takeaway: Under the TSOFA, any person in Singapore who identifies or possesses terrorist property must report it to the Commissioner of Police immediately regardless of the transaction amount.

Correct: Under the Financial Advisers Act (FAA) and MAS Guidelines on Recommendations on Investment Products, a representative must have a reasonable basis for any recommendation. This is achieved by performing thorough KYC to understand the client’s financial situation and objectives, and then matching those to the product’s characteristics. Documentation is a critical component of demonstrating that the representative has considered the client’s specific circumstances before making the recommendation.

Incorrect: Relying only on a client’s self-declaration is insufficient as the representative has an independent duty to assess suitability. While listing on the SGX ensures certain disclosure standards, it does not mean a product is suitable for every investor’s specific needs. Statutory duties under the FAA regarding suitability and the requirement to have a reasonable basis cannot be signed away or mitigated via general waivers or disclaimers.

Takeaway: A reasonable basis for recommendation requires a documented alignment between the client’s unique financial profile and the specific risks and features of the investment product as mandated by the FAA.

Correct: Under Section 330(1) of the Securities and Futures Act (SFA), any person who, with intent to deceive, makes or furnishes any statement or report to a securities exchange that is false or misleading in a material particular is liable on conviction to a fine not exceeding $50,000 or imprisonment for a term not exceeding 2 years, or both. This specific provision ensures the integrity of information provided to the SGX for regulatory and oversight purposes.

Incorrect: The penalty of a $250,000 fine and 7 years imprisonment is associated with market misconduct under Section 204 of the SFA, such as market manipulation or false trading. Civil penalties are alternative enforcement actions for market abuse under Section 232 but are distinct from the specific criminal penalties for misleading the Exchange under Section 330. Administrative actions like license suspensions or specific fines are disciplinary measures taken by the MAS or SGX but do not represent the statutory criminal limits defined in the SFA for this specific offence.

Takeaway: Providing false or misleading information to the SGX with intent to deceive is a criminal offence under Section 330 of the SFA, punishable by a fine of up to $50,000 and/or 2 years imprisonment.

Correct: Under the Singapore Code of Corporate Governance and SGX Listing Rules, listed companies are expected to disclose the remuneration of each individual director and the CEO on a named basis. This disclosure must include a breakdown of the remuneration into components such as base/fixed salary, variable or performance-related income/bonuses, benefits in kind, and stock options or share-based incentives. This level of transparency is a key control to ensure accountability to shareholders and alignment with the interests of the company.

Incorrect: Disclosing only aggregate figures or using unnamed bands fails to meet the specific transparency requirements for individual director disclosure mandated for listed entities in Singapore. While some companies previously used bands, the current regulatory environment and the Code of Corporate Governance emphasize named, specific disclosures. Furthermore, allowing the CEO to have sole approval over remuneration disclosures creates a significant conflict of interest and bypasses the necessary oversight of the Remuneration Committee and the Board of Directors.

Takeaway: Listed companies in Singapore must provide transparent, named disclosure of individual director and CEO remuneration to comply with the Code of Corporate Governance and SGX Listing Rules.

Correct: Under the Securities and Futures Act (SFA) and the Representative Notification Framework (RNF), the principal firm is legally responsible for notifying MAS when a representative ceases to perform regulated activities. This notification must be made within 14 days of the cessation. The RNF is designed to provide transparency to the public, and the onus is on the principal to ensure that the information on the Register of Representatives is current and accurate.

Incorrect: It is incorrect to suggest that the individual representative is responsible for updating the public register; the statutory duty lies with the principal firm. While SGX is a key stakeholder for listed companies, there is no requirement to obtain a ‘clearance certificate’ from them as a prerequisite for RNF updates, and the 30-day window is longer than the 14 days mandated by MAS. Finally, all cessations of regulated activities must be reported to MAS, not just those involving misconduct or disciplinary issues.

Takeaway: Under the Singapore RNF, the principal firm must notify MAS within 14 days of a representative ceasing their regulated activities to maintain the integrity of the public Register of Representatives.

Correct: In the Singapore regulatory context, particularly under MAS Guidelines on Individual Accountability and Conduct and the Prevention of Corruption Act, financial institutions must ensure that gifts and entertainment do not compromise the integrity of business decisions. Entertainment that is lavish or specifically timed around a significant business mandate (like a primary distribution) creates an unacceptable conflict of interest. Prohibiting attendance is the necessary step to prevent undue influence and maintain market confidence.

Incorrect: Paying for a portion of the costs does not eliminate the conflict of interest or the perception of undue influence created by the remaining luxury hospitality. A written undertaking is an insufficient control for a high-risk conflict involving significant inducements. Sending a Compliance officer is an impractical and ineffective mitigation strategy that does not address the underlying ethical issue of accepting lavish entertainment from a client during an active deal.

Takeaway: Gifts and entertainment must be assessed based on their intent, timing, and potential to influence professional judgment, regardless of whether they are classified as entertainment or exceed a specific dollar threshold.

Correct: According to MAS Notice SFA04-N02 (and similar AML/CFT notices for other sectors), capital markets intermediaries in Singapore are required to maintain all relevant records, including customer identification information, account files, and business correspondence, for a minimum period of five years. For records relating to a business relationship, this five-year period commences from the date the business relationship is terminated. For records relating to a specific transaction, the period commences from the completion of the transaction.

Incorrect: The suggestion that the period starts from the last transaction date for a closed account is incorrect because the five-year requirement for relationship-based records (like SOW and risk assessments) specifically triggers upon the termination of the relationship. Retaining records for only three years or calculating the period solely from the document creation date fails to meet the minimum statutory requirement of five years post-termination set by the Monetary Authority of Singapore.

Takeaway: In Singapore, AML/CFT records must be retained for at least five years starting from the termination of the business relationship or the completion of the transaction.

Correct: In accordance with MAS Notice SFA 04-N16 on Execution of Customers’ Orders, CMS licensees are required to establish and implement written policies and procedures to achieve the best possible outcome for their customers. This includes considering factors like price, costs, speed, and likelihood of execution. If a firm identifies that its current routing logic is not adequately weighing these factors, the best next step is to refine the policy and logic to align with the regulatory requirement of obtaining the best possible result for the customer.

Incorrect: Prioritizing operational stability over price without a balanced assessment (option b) fails to meet the best execution standard. Simply routing to a primary exchange to reduce monitoring complexity (option c) ignores the obligation to seek the best outcome across available venues. Relying on a blanket waiver (option d) is ineffective because the duty of best execution is a regulatory requirement that firms must actively fulfill through proper policies and monitoring, and cannot be signed away through general disclosures.

Takeaway: CMS licensees in Singapore must maintain and regularly update a robust best execution policy that prioritizes the best possible outcome for customers across multiple execution factors as per MAS requirements.

Correct: According to Section 23(1)(f) of the Financial Advisers Act (FAA), a person who holds a Capital Markets Services (CMS) license to deal in capital markets products is exempt from the requirement to hold a Financial Adviser’s license, provided that the financial advisory service is solely incidental to their business of dealing in capital markets products. This allows brokers to provide necessary market insights and recommendations as part of their execution services without needing dual licensing.

Incorrect: Restricting advice to SGX-listed products is not the legal threshold for the FAA exemption. While exemptions exist for serving Accredited or Institutional Investors, the primary ‘incidental’ exemption for CMS holders applies more broadly to their core dealing activities regardless of client classification. Years of experience, while relevant for representative notification, do not determine whether the firm itself requires a Financial Adviser’s license for its corporate activities.

Takeaway: CMS license holders are exempt from FAA licensing only if the investment advice they provide is strictly incidental to their primary business of dealing in capital markets products.

Correct: Under the MAS Representative Notification Framework, the Provisional Representative Scheme allows experienced individuals from overseas to conduct regulated activities for a maximum period of three months while they complete their CMFAS exams. A mandatory condition is that the principal firm must provide an undertaking to MAS to ensure the provisional representative is under the direct supervision of a fully authorized representative at all times. The three-month period is a strict limit and is not extendable.

Incorrect: The suggestion of a six-month grace period is incorrect as the statutory limit for provisional representatives is three months. The idea that a provisional representative can operate independently is false, as strict supervision is a core requirement of the scheme. There are no provisions for extensions based on exam attempts, nor are there exemptions from CMFAS exams for senior management under the provisional representative category; they must still pass the exams to become full representatives.

Takeaway: Provisional representatives in Singapore are granted a maximum, non-extendable three-month window to pass CMFAS exams while working under strict supervision by the principal firm.