RES 5 – Rules, Ethics and Skills for Financial Advisory Services

According to the Revised Code on Collective Investment Schemes in Singapore, specifically concerning capital guaranteed funds, an eligible guarantor should not be the issuer of transferable securities and money market instruments that constitute more than 10% of the scheme’s Net Asset Value (NAV). This regulation aims to prevent undue concentration of risk and potential conflicts of interest. The rule ensures that the guarantee provided is not compromised by the financial health or stability of the scheme’s underlying investments. For the purpose of this rule, the issuer, its subsidiaries, fellow subsidiaries, and holding company are regarded as one entity. This is to prevent the guarantor from indirectly guaranteeing its own securities, which would defeat the purpose of having an independent guarantee. This requirement is crucial for maintaining the integrity and reliability of capital guaranteed funds, protecting the interests of the participants by ensuring the guarantor’s independence from the fund’s investments. The Monetary Authority of Singapore (MAS) closely monitors compliance with these regulations to safeguard investors and maintain the stability of the financial system.

The Financial Advisers Act (FAA) and Financial Advisers Regulations (FAR) in Singapore establish a framework for regulating financial advisory services. A key aspect of this framework is the licensing and registration of financial advisers and their representatives. The FAA mandates that individuals or entities providing financial advice must hold a financial adviser’s license, unless specifically exempted. The FAR outlines the detailed requirements and procedures for obtaining and maintaining this license. The Representative Notification Framework (RNF) is crucial for monitoring individuals acting on behalf of licensed financial advisers. MAS has the authority to refuse entry or revoke/suspend the status of appointed or provisional representatives if they do not meet the fit and proper criteria or if they violate the regulations. This power ensures that only qualified and ethical individuals provide financial advice to the public. The FAA also addresses the use of specific terms like ‘financial adviser’ and ‘independent’ to prevent misleading marketing practices. The regulations also outline penalties for false statements made during the notification process, reinforcing the importance of accurate and truthful disclosures. Appeals can be made against MAS decisions, providing a mechanism for redress. Therefore, understanding the FAA and FAR is essential for anyone involved in financial advisory services in Singapore, ensuring compliance and promoting ethical conduct.

According to the MAS Guidelines (FAA-G08) issued under Section 64 of the FAA, dealers providing execution-related advice must adhere to certain standards. Section 27 of the FAA mandates that financial advisers have a reasonable basis for any recommendation, considering the client’s investment objectives, financial situation, and needs. Dealers should implement systems to ensure compliance with Section 27, gathering relevant client information when the relationship is established and updating the client profile at least annually. If a client declines to provide information, the dealer can proceed but must document the decision and warn the client that the advice will not consider their specific circumstances, placing the responsibility for suitability on the client. Dealers must also disclose any conflicts of interest before or at the time advice is given and maintain records demonstrating the basis of recommendations and warnings. These records, whether file notes or tape recordings, should be kept for at least six years as a best practice to protect the dealer and maintain good customer relations. The guidelines aim to safeguard clients’ interests while acknowledging the business model of dealers providing execution-related advice, adopting a principle-based approach rather than a detailed prescriptive one.

The Banking Act (Cap. 19) imposes restrictions on deposit-taking activities and the solicitation of deposits. Financial advisors and their representatives must be aware of these restrictions when providing financial advisory services related to structured deposits, as these services could potentially lead to the acceptance of a deposit on behalf of a deposit-taking institution. Furthermore, the establishment of a booth or roadshow location for receiving applications for structured deposits is considered a new place of business or a bank branch, necessitating prior approval from the MAS under Section 12 of the Banking Act (Cap. 19). This ensures that the expansion of banking activities is properly regulated and that consumer interests are protected. The FAA-G10 guideline, issued under Section 64 of the FAA, focuses on controls, processes, and procedures for monitoring switching between designated investment products to prevent detrimental advice to clients. This guideline is part of the broader regulatory framework aimed at ensuring that financial advisors act in the best interests of their clients and provide suitable advice. All representatives of a financial adviser advising on structured deposits should pass Module 5 (Rules and Regulations for Financial Advisory Services) of the Capital Markets and Financial Advisory Services Examination (CMFAS Examination ). In addition, financial advisers should either ensure that all representatives advising on structured deposits pass Module 8 (Collective Investment Schemes) of the CMFAS Examination , or develop their own specific training programmes on structured deposits, to equip their representatives with the necessary expertise.

The Central Provident Fund (CPF) Act in Singapore mandates specific notifications to the CPF Board regarding property transactions involving CPF savings. When a CPF member uses their CPF savings to purchase a flat, both the member and their financier (if applicable) must inform the CPF Board one month before the completion of any intended sale, transfer, assignment, or disposal of the flat. This notification is crucial for the CPF Board to ensure compliance with regulations regarding the refund of CPF savings used for the property. The CPF member must refund the withdrawn CPF savings plus accrued interest back into their CPF account upon the sale, especially if they have not yet met the criteria for CPF withdrawal under Section 15 of the CPF Act. For members aged 55 or older, the refund involves addressing any CPF Minimum Sum deficiency. Furthermore, providing the redemption statement of the housing loan four weeks before the transaction is essential for the CPF Board to accurately calculate the refund amount and manage the CPF member’s account accordingly. This process ensures the proper management and return of CPF funds used for housing, aligning with the CPF’s primary goal of providing for retirement, healthcare, and housing needs of Singaporeans. Failing to notify the CPF Board or providing false information can result in penalties under the CPF Act.

Under MAS Notice FAA-N06, financial advisers in Singapore are required to conduct thorough Customer Due Diligence (CDD) to prevent money laundering and terrorism financing. This includes identifying and verifying the identities of customers, including legal persons and arrangements. When dealing with legal arrangements like trusts, financial advisers must identify settlors, trustees, protectors (if any), beneficiaries, and any natural person exercising ultimate control. Verification of identity involves obtaining reliable documentation, such as certificates of incorporation, partnership agreements, or trust deeds. A risk-based approach can be used to verify the identities of connected parties, utilizing publicly available sources or substantiated information. If original documents cannot be retained, detailed records must be kept, including the information verified, document descriptions, reasons for not copying, and verification details by the financial adviser’s employee. Documents in foreign languages must be translated to ensure understanding. Failing to adhere to these CDD measures can result in regulatory penalties and reputational damage for the financial adviser and the financial institution. The guidelines ensure that financial advisers contribute effectively to Singapore’s efforts in combating financial crimes and maintaining the integrity of its financial system, as mandated by the Monetary Authority of Singapore (MAS).

Financial advisors in Singapore are obligated to conduct thorough Customer Due Diligence (CDD) as part of MAS Notice No: FAA-N06 to prevent money laundering and terrorism financing. This includes verifying the identity of customers, understanding the nature and purpose of their business relationships, and scrutinizing the source of funds. For sole proprietorships, CDD involves collecting information such as the full registered business name, business address, details about the intended nature of the business relationship, and the names of individuals acting on behalf of the proprietor. Crucially, it also includes verifying the source of funds to ensure legitimacy and compliance with regulatory requirements. A visit to the customer’s place of business may be necessary to validate the business operations. For partnerships and unincorporated bodies, CDD extends to identifying all connected parties and beneficial owners, examining the ownership and control structure, and assessing any associations with other countries or jurisdictions. This comprehensive approach ensures that financial advisors can effectively mitigate risks associated with illicit financial activities, adhering to the stringent regulatory framework set forth by the Monetary Authority of Singapore (MAS) and international standards such as those promoted by the Financial Action Task Force (FATF).

The Monetary Authority of Singapore (MAS) Notice FAA-N13 focuses on the Balanced Scorecard Framework, which aims to ensure fair remuneration practices for financial advisors. This framework is designed to mitigate the risks associated with over-emphasis on sales volume, which can lead to mis-selling or unsuitable product recommendations. A crucial aspect of this framework is the incorporation of non-sales KPIs (Key Performance Indicators) into the variable income calculation. These KPIs typically include compliance, customer satisfaction, and professional development. The balanced scorecard framework is designed to align the interests of the representatives with those of the customers and the financial advisory firm, promoting ethical conduct and quality advice. The framework also mandates that a portion of the variable income be subject to adjustments based on the representative’s performance against these non-sales KPIs. This ensures that representatives are not solely focused on sales targets but also on providing sound financial advice and maintaining high standards of professionalism. The example provided illustrates how variable income is calculated, factoring in both sales performance and non-sales KPIs, and how adjustments are made based on the balanced scorecard grade. This is in line with the regulatory objectives of promoting a customer-centric approach and reducing the risk of mis-selling in the financial advisory industry in Singapore.

According to MAS Notice FAA-N03, financial advisers must ensure that all marketing materials adhere to paragraphs 25 and 26 of the notice, comply with the General Disclosure Principles outlined in paragraph 11, and follow relevant guidelines issued by the Authority and/or industry associations. Representatives are restricted to using only marketing materials approved by the financial adviser they represent. When marketing designated investment products through direct response advertising (e.g., mail, print, TV, radio, electronic media) designed to solicit and close a sale, the marketing materials must include a prominent warning. This warning should advise clients to seek financial advice before committing to purchase the product and, if they choose not to seek advice, to consider whether the product is suitable for them. This ensures clients are aware of the risks and have the opportunity to make informed decisions, aligning with the regulatory objectives of promoting fair dealing and transparency in financial advisory services in Singapore. The FAA-N03 notice is crucial for maintaining ethical standards and protecting consumers in the financial advisory industry, as non-compliance can lead to penalties under the Financial Advisers Act.

FAA-N16, issued under Section 58 of the Financial Advisers Act (FAA), mandates specific procedures for assessing a retail customer’s investment knowledge and experience before selling Specified Investment Products (SIPs). This regulation is crucial for safeguarding customers, especially those with limited investment expertise. The Customer Knowledge Assessment is a key component when dealing with unlisted SIPs, ensuring the intermediary evaluates whether the customer comprehends the risks involved. For listed SIPs, a Customer Account Review is necessary to determine if the customer possesses sufficient knowledge to trade derivatives. If a customer is deemed lacking in the requisite knowledge, the intermediary must offer advice and cannot proceed with an ‘execution only’ service. Furthermore, safeguards like lower trading limits are implemented. The Monetary Authority of Singapore (MAS) introduced these measures to ensure intermediaries recommend suitable investment products, aligning with the broader goal of protecting investors’ interests and maintaining market integrity. Compliance with FAA-N16 is mandatory for licensed financial advisers, exempt financial advisers, their representatives, and individuals exempt under Regulation 29 of the Financial Advisers Regulations (FAR). This framework ensures a consistent standard of investor protection across various financial advisory services in Singapore, as overseen by the MAS.

The Financial Advisers Act (FAA) in Singapore mandates specific requirements for licensed financial advisors to ensure they operate with integrity and competence. Section 9(1)(c) of the FAA explicitly requires financial advisors to maintain a Professional Indemnity Insurance (PII) policy. This policy serves as a crucial safeguard, protecting both the advisor and their clients from potential financial losses arising from professional negligence or errors. The PII must adhere to prescribed limits and deductible requirements set by the Monetary Authority of Singapore (MAS). While the MAS may approve alternative measures in lieu of a PII policy under Section 9(1)(c) of the FAA, the fundamental principle remains that financial advisors must have adequate protection against liabilities arising from their advisory services. Failing to maintain a compliant PII policy is grounds for the MAS to refuse or revoke a financial advisor’s license, underscoring the importance of this requirement in maintaining the integrity and stability of the financial advisory industry in Singapore. The FAA-G01 guidelines provide further details on the criteria for granting a financial advisor’s license, including the PII requirements.

The FAA-G04 guideline outlines the standards of conduct expected of financial advisers and their representatives in Singapore. A key aspect is the requirement to act in the best interests of their clients. This encompasses several duties, including understanding the client’s financial situation, needs, and objectives; providing suitable advice based on that understanding; and disclosing any conflicts of interest. The guideline emphasizes the importance of providing clear, accurate, and unbiased information to clients, enabling them to make informed decisions. It also covers areas such as confidentiality, record-keeping, and handling client complaints. Failing to adhere to these standards can result in disciplinary action by the Monetary Authority of Singapore (MAS). The FAA-G05 guideline specifically addresses the use of the term ‘independent’ by financial advisers, setting out criteria that must be met to ensure that advisers using this term are genuinely free from conflicts of interest that could compromise their advice. This is to ensure that clients seeking independent advice receive truly unbiased recommendations. The CMFAS exam assesses candidates’ understanding of these guidelines and their application in various scenarios, ensuring that financial professionals are equipped to uphold high standards of conduct and protect the interests of their clients.

This question tests the understanding of CPD requirements for appointed representatives under FAA-N13. Specifically, it addresses the scenario where an appointed representative cannot fulfill CPD requirements due to unforeseen circumstances. According to paragraph 31F of FAA-N13, if an appointed representative is unable to meet the CPD requirements due to circumstances beyond their control that could not reasonably have been foreseen, they will not be considered to have breached the requirements if they immediately inform their principal and complete the unfulfilled CPD hours within 12 months of becoming aware of their inability. The principal also has a responsibility to ensure the representative completes the required hours within that 12-month period. This provision aims to provide flexibility while maintaining the integrity of the CPD framework, ensuring representatives remain competent despite facing unexpected challenges. Failing to inform the principal immediately or not completing the hours within the stipulated timeframe would constitute a breach. The question highlights the importance of timely communication and adherence to the extended deadline to remain compliant with MAS regulations. The scenario is designed to assess the candidate’s understanding of the practical application of these rules in a real-world context, emphasizing the balance between regulatory compliance and accommodating unforeseen circumstances.

This question assesses the understanding of exemptions from CMFAS examination requirements as stipulated in MAS Notice FAA-N13, particularly concerning representatives dealing with specific types of investors and products. The key here is to identify the scenario where a representative is NOT required to fulfill the CMFAS exam requirements. According to the notice, representatives who exclusively provide financial advisory services related to capital markets products to expert investors, or investment products to accredited investors, institutional investors, related corporations, connected persons, or certain non-resident individuals are exempt. Therefore, providing advice to retail investors on investment products would necessitate the relevant CMFAS certifications. Option (a) correctly identifies the scenario where the representative is advising retail investors, thus requiring CMFAS certification. The other options describe scenarios where exemptions apply, such as advising accredited investors or related corporations. Understanding the nuances of these exemptions is crucial for compliance within the financial advisory landscape in Singapore, as governed by the Financial Advisers Act and its subsidiary regulations. The question tests the practical application of these regulatory exemptions.

MAS Notice 307, issued under Section 64(2) of the Insurance Act (Cap. 142), establishes the regulatory framework for Investment-Linked Policies (ILPs) in Singapore. This notice, crucial for CMFAS exam preparation, aims to protect consumers and ensure the integrity of the financial advisory process. It mandates specific disclosures, investment guidelines, and operational practices for insurers offering ILPs. The notice distinguishes between mandatory requirements (Part I) and non-mandatory standards (Part II). A key aspect of MAS Notice 307 is its emphasis on transparency and informed decision-making by policyholders. It requires insurers to provide clear and comprehensive information about the risks, costs, and potential returns associated with ILPs. Furthermore, the notice sets limits on borrowing and outlines investment guidelines to safeguard policyholders’ funds. Understanding the definitions provided within the notice, such as ‘collective investment scheme,’ ‘discretionary fund,’ ‘Excluded Investment Product,’ and ‘financial derivative,’ is essential for CMFAS candidates. These definitions clarify the scope and application of the regulations governing ILPs. The notice is regularly updated to reflect changes in the financial landscape and to address emerging risks. For instance, amendments have been made to incorporate new types of investment products and to enhance disclosure requirements. Therefore, staying abreast of the latest revisions to MAS Notice 307 is crucial for financial advisors and insurance professionals operating in Singapore.

MAS places significant emphasis on the competence and capability of financial institutions and their representatives to ensure the integrity and stability of Singapore’s financial sector. This emphasis is reflected in guidelines such as FAA-G01, FSG-G01, FAA-G04, FAA-G05, FAA-G06, and FAA-G07, as well as Circular No: CMI 01/2011. These guidelines highlight the importance of satisfactory educational qualifications, relevant skills, and knowledge for individuals acting as representatives of financial institutions regulated under the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Specifically, representatives must meet the minimum entry and examination requirements stipulated in Notices SFA 04-N09 and FAA-N13. Furthermore, MAS also considers past performance, expertise, and potential conflicts of interest when assessing competence and capability. For insurance brokers, MAS Notice 502 outlines the minimum standards and continuing professional development requirements for broking staff. These measures collectively aim to uphold professional standards, protect consumers, and maintain confidence in Singapore’s financial advisory services.

The Monetary Authority of Singapore (MAS) sets forth specific guidelines for Fund-of-Hedge Funds (FOHFs) to ensure investor protection and maintain market integrity. One critical aspect is diversification, which aims to mitigate risk by spreading investments across multiple hedge funds. According to the guidelines, a FOHF must invest in at least 15 hedge funds to achieve sufficient diversification. Furthermore, the allocation to any single hedge fund should not exceed 8% of the FOHF’s net asset value (NAV). These measures are designed to prevent over-exposure to any single investment, thereby reducing the potential impact of poor performance by any one hedge fund on the overall portfolio. The manager of the FOHF is also required to set out the method of diversification, objective criteria for ensuring diversification, and past data demonstrating diversification in the application to the Authority for authorization of a FOHF. These requirements are part of the broader regulatory framework under the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA), which govern the activities of financial institutions and advisors in Singapore. The MAS actively monitors compliance with these regulations to safeguard the interests of investors and maintain the stability of the financial system.

According to MAS Notice No: FAA-N06, financial advisors must be vigilant in identifying and reporting suspicious transactions to prevent money laundering and terrorism financing. Several red flags can indicate such activities. Transactions lacking economic sense, such as switching from blue-chip stocks to penny stocks without a clear rationale, should raise suspicion. Similarly, frequent large transactions beyond a customer’s apparent financial means, like requesting a large single premium contract, are concerning. Transactions with unclear fund sources or inconsistencies with the customer’s financial standing also warrant scrutiny. Large cash payments exceeding S$20,000, especially if inconsistent with transaction history, are red flags. Transactions involving financial havens or foreign currencies without a clear reason should be investigated. Overpayment of premiums with requests to refund the excess to a third party or foreign account is also suspicious. Accounts operated in the name of offshore companies with structured fund movements require attention. Transfers of funds from various third parties inconsistent with the customer’s business nature are also concerning. These guidelines, while not exhaustive, help financial advisors identify and report potential money laundering or terrorism financing activities, contributing to the integrity of Singapore’s financial system. Financial advisors should refer to the STRO’s website for the latest list of red flags.

Section 23L(4) of the Financial Advisers Act (FAA) provides a defense against liability for misleading statements or omissions in documents. This defense is available if the person making the statement or omission proves that they made all reasonable inquiries in the circumstances and, after doing so, believed on reasonable grounds that the statement was not false or misleading. This provision acknowledges that despite due diligence, unintentional errors or omissions can occur. The key is demonstrating that reasonable steps were taken to ensure the accuracy and completeness of the information provided. The FAA aims to protect investors and maintain the integrity of the financial advisory industry in Singapore. This section balances the need for accurate information with the practical limitations of information gathering and assessment. Failing to meet these conditions can result in a fine not exceeding S$50,000, emphasizing the importance of thoroughness and good faith in financial advisory practices. The provision encourages financial advisors to exercise due care and diligence in their work, while also providing a safeguard against unintentional errors that may occur despite their best efforts. This is crucial for maintaining trust and confidence in the financial advisory sector in Singapore.

MAS Notice FAA-N06 mandates that financial advisors conduct thorough Customer Due Diligence (CDD) to prevent money laundering and terrorism financing. For companies, this includes verifying the entity’s full name, business address, and the purpose of the business relationship. Identifying all natural persons acting on behalf of the entity, connected parties, and beneficial owners is crucial. Information about the source of funds and the ownership/control structure must also be obtained. A visit to the customer’s place of business may be necessary to assess the legitimacy of the business. Relevant documents such as certificates of incumbency, share registers, and the Memorandum and Articles of Association should be reviewed. Finally, any association the entity may have with other countries or jurisdictions should be noted to identify potential risks. This comprehensive approach ensures that financial advisors comply with regulatory requirements and mitigate the risk of financial crime. Failing to conduct adequate CDD can result in regulatory penalties and reputational damage. The Monetary Authority of Singapore (MAS) places a strong emphasis on CDD as a cornerstone of financial crime prevention.

Under the regulatory framework governing financial advisory services in Singapore, particularly as it relates to collective investment schemes and investment-linked policies, financial advisers have specific obligations concerning the pricing of units. The adviser must disclose and explain whether the units are priced on a historical or forward basis. In the context of dual pricing schemes, the adviser must clarify that the bid price represents the selling price, while the offer price represents the buying price. Conversely, for single pricing schemes, the adviser must emphasize that the stated price does not incorporate subscription or realization fees, which may be charged separately upon purchase or redemption. This disclosure ensures clients are fully aware of all potential costs and pricing mechanisms associated with their investments, promoting transparency and informed decision-making. These regulations are crucial for maintaining investor confidence and preventing misunderstandings regarding the true cost of investment products. This is in line with the Monetary Authority of Singapore (MAS)’s focus on fair dealing and transparency in the financial industry.

The Balanced Scorecard Framework, as outlined in MAS Notice FAA-N20, mandates that financial advisers assess representatives based on both sales and non-sales KPIs. Non-sales KPI 4 specifically addresses the standards of professionalism and ethical conduct. This includes avoiding acts involving fraud, dishonesty, misrepresentation, non-compliance with regulatory requirements, or serious breaches of internal policy or code of conduct. Furthermore, it encompasses acts that impinge on the fitness and propriety criteria as detailed in FSG-G01. Failing to report a representative’s serious breach of the financial adviser’s internal policy, which would render the representative liable to suspension, directly contravenes the requirement to uphold professional and ethical standards. While providing additional training or implementing stricter supervision might be remedial actions, they do not absolve the responsibility of reporting the breach. Ignoring the breach could lead to further misconduct and regulatory repercussions for both the representative and the financial adviser. The Monetary Authority of Singapore (MAS) emphasizes the importance of maintaining integrity and ethical behavior within the financial advisory industry to protect consumers and maintain market confidence.

Under Singapore’s regulatory framework for financial advisory services, particularly concerning collective investment schemes, the imposition and calculation of performance fees are subject to stringent guidelines to protect investors. The fulcrum fee arrangement, as detailed in the Revised Code on Collective Investment Schemes, mandates symmetry in its application. This means that any increase or decrease in the fee should be directly proportional to the investment performance relative to a specified benchmark. The fee must remain within a defined range, typically between zero and 200% of the base fee. Furthermore, the high water mark principle dictates that the NAV of the scheme is reset only when a new historical high is achieved at the end of each performance period. This ensures that performance fees are only charged on genuine new gains, preventing investors from being charged fees for merely recovering previous losses. The prospectus must also contain comprehensive disclosures regarding performance fees, including the fact that they are payable, the maximum percentage of the scheme’s NAV they might represent, illustrations of how they are calculated, and whether the scheme achieves equalisation of performance fees. These regulations, overseen by the Monetary Authority of Singapore (MAS), aim to ensure transparency and fairness in the charging of performance fees, aligning the interests of the fund manager with those of the investors. Failure to comply with these regulations can result in regulatory action and reputational damage.

The Monetary Authority of Singapore (MAS) emphasizes the importance of responsible marketing and distribution practices by financial institutions, particularly concerning potential harassment of customers. According to MAS guidelines FSG-G02, financial institutions must ensure that their marketing activities do not lead to undue pressure on individuals who are not actively seeking financial products. This includes avoiding aggressive prospecting and ensuring that customers have adequate time and information to make informed decisions. The guidelines aim to protect consumers from impulse purchases and unsuitable financial products. The scenario directly relates to these concerns, as the persistent calls from the insurance agent could be perceived as harassment, especially if the individual has already expressed a lack of interest. Thus, the financial institution has a responsibility to ensure its representatives adhere to ethical marketing standards and respect customer preferences. This aligns with the broader objective of fostering a fair and transparent financial services environment in Singapore, as outlined in the Financial Advisers Act and related regulations. The FAA aims to ensure that financial advisory services are provided with due care and diligence, and that the interests of clients are prioritized.

Under MAS Notice FAA-N06, financial advisors must conduct thorough due diligence to prevent money laundering and terrorism financing (ML/TF). This includes identifying and assessing risks associated with Politically Exposed Persons (PEPs). Enhanced Customer Due Diligence (ECDD) is crucial when dealing with PEPs who may exert undue influence or pose higher ML/TF risks. While commercially available databases can aid in PEP identification, advisors must also gather information directly from the customer, including occupation and employer details, and consider any non-public information. Senior management approval and input from the AML/CFT compliance function are required before establishing or continuing business relations with PEPs. Furthermore, understanding the source of wealth and funds is essential. Source of wealth refers to the origin of the customer’s total assets, while source of funds pertains to the specific funds involved in the business relationship. Corroborating this information may be necessary based on the risk assessment. The financial advisor should also consider using public sources to understand the reputation of the customer or beneficial owner, and commission external intelligence reports where necessary. Even when ECDD measures are not initially applied to domestic or international organization PEPs, ongoing monitoring is required, and ECDD should be implemented if circumstances change and higher ML/TF risks emerge. This is aligned with the Monetary Authority of Singapore’s (MAS) regulatory framework, ensuring robust AML/CFT practices within financial institutions.

The Balanced Scorecard Framework, as outlined in MAS Notice FAA-N15, is designed to ensure that financial advisory firms maintain a high standard of service and ethical conduct. This framework directly impacts the variable income of representatives, linking their remuneration to compliance and customer satisfaction metrics. The Independent Sales Audit (ISA) unit plays a crucial role in this process by conducting post-transaction checks and mystery shopping exercises to identify potential infractions. Substantiated complaints from clients also contribute to the overall assessment. The framework mandates that firms assign a balanced scorecard grade to each representative based on their performance, which then determines the percentage of variable income they are entitled to. When infractions are identified, especially those related to past transactions, a specific calculation is required to adjust the representative’s variable income, taking into account the income earned during the period when the infraction occurred. This ensures that representatives are held accountable for past misconduct, even if it comes to light later. The Monetary Authority of Singapore (MAS) closely monitors the implementation of this framework to safeguard the interests of consumers and maintain the integrity of the financial advisory industry. This is aligned with the broader regulatory objectives of promoting fair dealing and preventing mis-selling, as emphasized in various CMFAS exam modules.

The Monetary Authority of Singapore (MAS) emphasizes the importance of fair dealing in the financial industry to foster customer confidence and ensure that financial institutions prioritize customer interests. The Board and Senior Management play a crucial role in establishing a corporate culture where fair dealing is central. This involves demonstrating commitment to fair dealing outcomes, implementing a management information framework to monitor these outcomes, providing adequate training to staff, and establishing a performance evaluation and remuneration system that incentivizes fair dealing conduct. Reviewing the overall business model to ensure consistency with fair dealing, especially concerning commission-based structures and potential conflicts of interest, is also essential. MAS assesses financial institutions’ adherence to these guidelines through inspections, interviews, surveys, and mystery shopping exercises. Industry and consumer associations contribute by developing best practices, conducting studies, aligning codes of practice, and educating consumers. Consumers are also encouraged to equip themselves with the knowledge to make informed financial decisions. Therefore, a financial institution’s commitment to fair dealing is primarily evidenced by its corporate culture and the actions of its Board and Senior Management, which set the tone for the entire organization.

A financial advisor’s responsibilities extend to ensuring that all information provided to clients regarding Direct Purchase Insurance (DPI) is clear, adequate, and not false or misleading, aligning with MAS Notice FAA-N17, FAA-N18, FAA-N19 and FAA-N21. ‘Clear’ means using plain language and explaining any jargon. ‘Adequate’ means meeting regulatory requirements and providing sufficient information for informed decisions, prominently displaying warnings and important details. ‘Not False or Misleading’ means avoiding ambiguity, presenting information objectively, and ensuring opinions have a reasonable basis. Documents must be kept up-to-date and reviewed annually. In the context of Singapore’s regulatory environment, these standards are crucial for maintaining transparency and protecting consumers in financial transactions. Failing to adhere to these standards can result in penalties under the Financial Advisers Act, underscoring the importance of compliance. The transitional arrangements mentioned in paragraph 18, FAA-N19 (Amendment) 2019, provide a temporary allowance for financial advisors who distributed DPI on an online direct channel before 30 August 2019, giving them until 31 December 2019 to fully comply with the revised safeguards.

According to MAS Notice FAA-N06, financial advisers must implement Enhanced Customer Due Diligence (ECDD) measures commensurate with the assessed risks, especially for customers presenting higher Money Laundering/Terrorist Financing (ML/TF) risks. This includes individuals formerly holding prominent public functions (PEPs). While stepping down from a public role is a factor, it’s not the sole determinant of a PEP’s ongoing influence. The seniority of the former position and any links between the previous PEP role and the current function are crucial considerations. FATF’s Public Statement on High-Risk and Non-Cooperative Jurisdictions should be consulted regularly. For higher-risk businesses, regardless of internal risk classification, practices outlined in the MAS Information Paper, “Guidance on Private Banking Controls,” should be followed. These practices include independently corroborating the source of wealth, screening all parties contributing to the customer’s wealth, conducting periodic reviews, and scrutinizing transactions holistically for customers with common beneficial owners or multiple accounts. Financial advisers should reject prospective customers if there are reasonable grounds to suspect assets are proceeds of serious crimes, including tax evasion, even for foreign tax offenses without equivalent obligations in Singapore. Existing customer relationships with similar suspicions require enhanced monitoring, senior management approval for retention, and close monitoring with commensurate risk mitigation measures. This aligns with Singapore’s commitment to international AML/CFT standards and regulations under the Financial Advisers Act (FAA).

The Monetary Authority of Singapore (MAS) revised the Code on Collective Investment Schemes (CIS) to provide greater clarity, increase flexibility for fund managers, and enhance safeguards for retail investors. Key changes include strengthening core investment requirements by introducing a list of permissible investments, enhancing safeguards on the use of financial derivatives and counterparty requirements, strengthening guidelines on securities lending activities, and enhancing requirements for funds investing in structured instruments. The revised code also introduces new guidelines for specialized fund categories such as index funds and money market funds. Other safeguards to enhance investor protection include standardizing the methods used to calculate any performance fees imposed, introducing principles on the naming of funds (schemes), and prohibiting the use of simulated past performance data for disclosure of performance figures. These revisions are crucial for maintaining the integrity and transparency of collective investment schemes in Singapore, aligning with the objectives of the Securities and Futures Act (SFA). The MAS can take breaches of this code into account when determining whether to revoke or suspend the authorization or recognition of a scheme under Sections 286 and 287 of the SFA, or to refuse to authorize or recognize new schemes proposed by the same responsible person, or to revoke approval granted under Section 289 of the SFA.