November Overview Of Changes

Transcription

1 Act Passed By Parliament Overview Of Changes... 1 Single Licensing Regime... 1 The bills of the Securities and Futures Act 2001 and the Act 2001 were presented to Parliament for the first reading on 25 September The bills were passed by Parliament on 5 October 2001, but have not come into force as yet. Drafts of both acts had been issued by the Monetary Authority of Singapore on 21 March 2001 for public consultation and feedback. The bills presented to Parliament and passed represent the culmination of this process. Amendments have been made to the consultation drafts, but the core purpose and intent of the changes proposed in them have been retained. This Update reviews the Act 2001, highlighting (where appropriate) significant differences between the Act and the draft. A concurrent Update reviews the bill of the Futures and Securities Act Representatives Standard Of Representatives To Be Raised Duration Of Licence Obligation To Disclose Product Information On Investment Products Transfer Of Provision From Insurance Intermediaries Act To The Insurance Act Extension Of Jurisdiction Conclusion On 21 March 2001, the Monetary Authority of Singapore ( MAS ) issued consultation documents with drafts of a proposed new Securities and Futures Act 2001 ( Draft SFA ) and a proposed new Financial Advisers Act 2001 ( Draft FAA ). After a comprehensive consultation process, the bills of the Securities and Futures Act 2001 ( SFA ) and Act 2001 ( FAA ) were finally presented to Parliament for their first reading on 25 September Both bills were passed by Parliament on 5 October This Update examines the FAA, highlighting (where appropriate) the changes made, and reviews as well, the primary changes to be introduced by the FAA to the present regime. A concurrent Update examines the amendments to be introduced by the SFA. Overview Of Changes The major changes to the current regime proposed by the FAA are as follows: A new single licensing regime for all persons engaging in providing a financial advisory service, instead of the current regime which requires separate licences depending on the product dealt with, and the nature of the business concerned. This will cover not only advisers in respect of securities and futures contracts, but also insurance as well. Raising the standards of representatives by various means which will be discussed in detail below. The use of the appellation financial adviser will be restricted to persons who have a financial advisory services licence or who fall under the rubric of being exempt financial advisers. The duration of licences granted to financial advisers and their representatives will be harmonised. Financial advisers will come under an obligation to disclose product information on investment products. Single Licensing Regime The FAA is essentially a consolidating act bringing together under one umbrella licensing regime all financial advisers. Financial Advisory Service Under the FAA, no person is to act as a financial adviser in Singapore Rajah & Tann, Knowledge & Risk Management Page 1

2 in respect of any financial advisory service unless he is authorised to do so in respect of that financial advisory service by a financial adviser s licence or is an exempt financial adviser. A financial advisory service covers: advising others, either directly or through publications or writings, whether in electronic, print or other form, concerning any investment product, other than advising on corporate finance within the meaning of the SFA; issuing or promulgating analyses or reports, whether in electronic, print or other form, concerning any investment product; marketing of collective investment schemes; and arranging of contracts in respect of life policies. As to what constitutes an investment product, the FAA provides that an investment product refers to any capital markets product, any life policy or any other product as may be prescribed. The scope of what constitutes financial advisory services (reading that definition together with the definition of an investment product ) is evidently very wide, and both dovetails with the SFA, as well as extends beyond the scope of the SFA. What constitutes financial advisory services dovetails with the SFA as an investment product includes a capital markets product. This term is defined in the SFA and includes securities, futures contracts, contracts or arrangements for the purposes of foreign exchange trading, contracts or arrangements for the purposes of leveraged foreign exchange trading and such other capital markets as the MAS may from time to time prescribe. In addition, financial advisory service also includes the marketing of collective investment schemes, which is a new concept introduced under the SFA to replace interests. The scope of financial advisory services under the FAA extends beyond the SFA as it also includes advising on insurance life policies. The consultation paper had noted that the MAS did not seek to regulate all forms of financial planning, which were much broader in scope than financial advisory services as defined under the FAA. Financial planning might include advising on deposit products, debt, or on retirement or estate planning. For a variety of reasons, these are seen as outside the scope of regulation under the FAA, which is intended to focus on products where there is investment risk. Also excluded is advising on corporate finance, and this is defined in the SFA as: giving advice: to any entity concerning compliance with or in respect of laws or regulatory requirements (including the listing rules of a securities exchange) relating to the raising of funds by any entity; to the person making an offer or invitation to subscribe for or purchase securities; or to sell or otherwise dispose of securities, concerning that offer or invitation; concerning the arrangement, reconstruction and / or takeover of any corporation or any of its assets or liabilities. Rationale For The Single Licensing Regime In its consultation paper, the MAS noted that recent years have seen the convergence of financial products. While plain-vanilla products are still available, financial products on offer now include many products which have characteristics that span across the traditional categories. For example, investment-link life insurance products (mentioned by the MAS) have characteristics of both unit trusts as well as insurance. In addition, market players have also sought to cross-market and leverage on each others client bases, in addition to trying to expand the scope of services and products that they offer so as to provide a one-stop service for clients. Under the single licensing regime, not only will financial advisers be able to advise on a panoply of products without having to obtain various licenses to do so, they will also be regulated in accordance with the same standards. The FAA draws a distinction between financial advisers and their representatives. There is no significant change from the current regime, but is useful to outline the regulatory regime prescribed by the FAA. A financial advisers licence will only be granted to corporations, while a financial adviser s representative licence will only be granted to individuals (although the FAA provides that this consideration is only a factor, the MAS s consultation paper had stipulated that this was a requirement). An applicant for a financial advisers licence must show, among other things: that it has adequate financial resources to perform the proposed activities; Rajah & Tann, Knowledge & Risk Management Page 2

3 David Yeow Executive Partner Direct: (65) david.yeow Lam Chee Kin Partner Direct: (65) chee.kin.lam Regina Liew Partner Direct: (65) regina.liew that it has the relevant competence and expertise to carry out the proposed activities; and that the applicant must satisfy the MAS that it would discharge its duties efficiently, honestly and fairly. The FAA provides a list of factors that the MAS will examine in order to make a determination on these requirements. For example, in assessing whether the applicant has adequate financial resources in respect of its proposed activities, the MAS will require the applicant to show: that it is able to meet the minimum financial requirements or such other requirements as the MAS may prescribe; and that it has in force a professional indemnity insurance policy, the cover of which is consistent with any limit and deductible requirements as may be prescribed, or any other measure as the MAS may approve (instead of a professional indemnity insurance policy). Exempt Certain persons will be exempt from holding a financial adviser s licence, and these are: banks; merchant banks approved as a financial institution and approved to carry on a business of financial advisory services; insurance companies or societies; a holder of a capital markets services licence; and a finance company which has been granted an exemption under the Finance Companies Act to carry on a business of financial advisory services. Persons Excluded From The Definition Of Financial Advisers The following persons, among others, are excluded from the definition of financial adviser under the FAA: accountants and solicitors; a person who is a proprietor of a newspaper and holder of a permit under the Newspaper and Printing Presses Act; a person who owns, operates or provides an information service though an electronic, broadcasting or telecommunications medium; a person who provides credit rating services; a company registered under the Trust Companies Act whose carrying on of the business of providing any financial advisory service is solely incidental to its carrying on of the business for which it is registered under that Act; any public statutory corporation established under any Act in Singapore;. any approved trustee under the SFA; any person acting in relation to a company as its liquidator, provisional liquidator, receiver, receiver and manager, or judicial manager; and any foreign company whose provision of any financial advisory service is effected through its related corporation which is licensed under the FAA or exempt. Where such persons provide financial advisory services which are incidental to their professions or their main business, they will not be required to hold a financial advisory services licence. Rajah & Tann, Knowledge & Risk Management Page 3

4 Restrictions Relating To Terminology The FAA provides that the term financial adviser may only be used by persons who have been granted a financial advisory services licence or who are an exempt financial adviser. The reason for this as stated by the MAS in its consultation paper is to create provide investors with a means to identify which persons on the market have been licensed by the MAS, and to thereby make a more informed choice as to whom to go to for financial advice. Conversely, the use of similar terms such as financial consultant or financial analyst will not be so regulated, and the public may use this distinction to direct their choices. A similar restriction applies to the use of the term life insurance broker which cannot be used except by a licensed financial adviser which is authorised by its licence to provide any financial advisory service in respect of life policies; or by an exempt financial adviser which provides any financial advisory service in respect of life policies. Representatives Each of the following individuals will be required to obtain a financial advisers representatives licence if they perform any of the functions of a financial adviser: an individual in the direct employment of a financial adviser ; an individual who acts for a financial adviser; and an individual who acts by arrangement with a financial adviser. An applicant for a financial advisers representative licence will be required to show that he is a fit and proper person. In making this determination, the MAS will take into account the following factors: the applicant s financial status and solvency; his educational or other qualifications or experience, having regard to the nature of the functions that the applicant will perform; his ability to carry out his duties efficiently, honestly and fairly; and his reputation, character and integrity. Standard Of Representatives To Be Raised A concern of the MAS is to ensure that financial advisers representative are able to discharge their duties competently. In order to ensure this, a number of proposals have been proposed by the consultation paper. Some of these proposals are enshrined in the FAA, while others are not. However, the FAA gives the MAS the power to publish and issue codes, guidelines and no-action letters, and these proposals are likely to be effected by these means. The proposals suggested by the MAS are: To ensure that a financial advisers representative are properly monitored and supervised, and that there is a proper chain of authority through which an investing client can seek redress, a financial advisers representative can only act for one financial adviser. This requirement is spelt out in the FAA. An applicant for a financial advisers representative s licence will be required to pass relevant proficiency examinations approved by the MAS. This requirement is not spelt out in the FAA, and it is likely that this will be promulgated under subsidiary legislation or MAS directives. A code of professional conduct will be introduced by the MAS for financial advisers and their representatives. The grant of a licence and renewal of the same will be subject to compliance with this code. Duration Of Licence Under the current regulatory regime, licences granted to life insurance brokers, investment advisers under the SIA and futures trading advisers under the FTA are of different duration. The FAA will harmonise this regime, and section 15 of the FAA provides that a licence shall be in force for a period of three years. Obligation To Disclose Product Information On Investment Products An obligation introduced by the FAA is the obligation of a financial adviser to disclose to its existing and prospective clients all information relating to a designated investment product that is recommended by the financial adviser to the client or prospective client. The Draft FAA had provided that this obligation was to subsist in respect of any investment product, but the FAA has confined it to only a designated investment product. A designated investment product is a unit in a collective investment scheme, a life policy or such other investment product as the MAS may prescribe. The information to be disclosed include: the terms or conditions of the designated investment product; the benefits to be, or likely to be, derived from the investment product and the risks that may arise from the investment product (disclosure of risk was previously not required under the Draft FAA); the premium, costs, fees or Rajah & Tann, Knowledge & Risk Management Page 4

5 expenses that may be charged or imposed in respect of the designated investment product; where the designated investment product is a unit in a collective investment scheme, the name of the manager of the scheme and the relationship between the licensee and the manager; where the designated investment product is a life policy, the name of the registered insurer under the life policy and the relationship between the licensee and the insurer; such other information as the MAS may prescribe. Transfer Of Provision From Insurance Intermediaries Act To The Insurance Act Pursuant to and as part of this consolidation, the Insurance Intermediaries Act will be repealed, and the regulation of direct life insurance brokers will be transferred to the FAA. The regulation of insurance agents, direct general insurance brokers and all reinsurance brokers will be transferred from the Insurance Intermediaries Act to the Insurance Act. Extension Of Jurisdiction Unlike the SFA, the FAA does not contain a clause providing that the FAA will apply to acts or omissions by outside Singapore only if the act or omission is capable of having effect in Singapore. The MAS had on 6 September 2000 announced the principles that it would adopt in determining whether Internet-based securities activities had to be licensed. In this announcement, the MAS stated that web-sites that provided financial advice and which targeted Singaporeans would require licensing, even if the provider was located outside of Singapore. It is unclear why the FAA has omitted language similar to the SFA, however, it is unlikely that this represents a change in the MAS s policy in this regard. Conclusion Once passed, the FAA will provide much needed rationalisation and integration of the present regulatory regime of investment advisers. The advent of a single licensing regime has been long in the offering, and market players will be glad to see its eventual arrival. Clients and prospective clients will welcome the increased attention on the competency of financial advisers. We will keep you up-to-date on developments when the FAA is finally passed. Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a prac tical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge & Risk Management Group at eoasis. Rajah & Tann, Knowledge & Risk Management Page 5