MAY 5, 2015 INVESTMENT FUNDS UPDATE MAS Issues Revised Anti-Mney Laundering Ntice and Guidelines and Respnse t Feedback n Cnsultatin n Measures t Strengthen Regulatins Against Mney Laundering and Financing f Terrrism What Fund Managers Shuld Nte On April 24, 2015, the Mnetary Authrity f Singapre (MAS) issued the revised Ntice t Capital Markets Intermediaries (CMIs) Preventin f Mney Laundering and Cuntering the Financing f Terrrism (AML/CFT) (MAS Ntice SFA04-N02) (Ntice), as well as the Guidelines t MAS Ntice SFA04-N02 (Guidelines), which apply t licensed and registered fund management cmpanies in Singapre. These accmpany MAS respnse statement t the public feedback received n its cnsultatin paper entitled Prpsed Amendments t the Mnetary Authrity f Singapre Ntices t Financial Institutins n Preventin f Mney Laundering and Cuntering the Financing f Terrrism (Cnsultatin Paper) that was issued earlier n July 15, 2014. Our last briefing n the Cnsultatin Paper can be fund here. In this briefing, we set ut a summary f MAS respnses t the feedback received n key amendments prpsed in the Cnsultatin Paper which wuld be relevant t the fund management industry. These respnses are nw reflected in the revised Ntice and Guidelines. SUMMARY OF MAS RESPONSES TO FEEDBACK RECEIVED Definitin f custmer T address the challenges faced by CMIs 1 that use distributrs t market their funds t the distributrs custmers, r wh are nly sub-advisers with n cntact with underlying investrs, the definitin f custmer in the Ntice has been further amended t exclude investrs in an investment vehicle where such investment vehicle: has its interests distributed by a qualifying financial institutin (FI); r has a primary manager that is a FI (ther than the CMI that is subject t and supervised fr cmpliance with AML/CFT requirements cnsistent with standards set by the Financial 1 CMI means a persn hlding a capital markets services license, a fund management cmpany registered under paragraph 5(1)(i) f the Secnd Schedule t the Securities and Futures (Licensing and Cnduct f Business) Regulatins r a persn exempted frm having t hld such a license under paragraph 7(1)(b) f the Secnd Schedule t the Securities and Futures (Licensing and Cnduct f Business) Regulatins. Sidley Austin prvides this infrmatin as a service t clients and ther friends fr educatinal purpses nly. It shuld nt be cnstrued r relied n as legal advice r t create a lawyer-client relatinship. Attrney Advertising - Fr purpses f cmpliance with New Yrk State Bar rules, ur headquarters are Sidley Austin LLP, 787 Seventh Avenue, New Yrk, NY 10019, 212.839.5300; One Suth Dearbrn, Chicag, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washingtn, D.C. 20005, 202.736.8000.
Page 2 Actin Task Frce (FATF)). Relatinship management CMIs shuld assess if certain custmer relatinships are, in substance, mstly cnducted and managed frm Singapre. If s, the CMI shuld perfrm custmer due diligence (CDD) n the accunts managed, regardless f where they were bked. CMIs may rely n the verseas bking entity t perfrm CDD n custmers if such bking entity is a regulated FI that is supervised accrding t FATF standards. Pwers f legal persn/arrangement T prvide further clarity n the CDD measures t be taken t identify the pwers f a custmer that is a legal persn r legal arrangement, the Ntice has been amended t clarify that such pwers are pwers that regulate and bind the legal persn r legal arrangement. CMIs can use declaratins f trust, memrandum and articles f assciatin and bard reslutins t verify the legal frm, cnstitutin and pwers that regulate and bind a legal persn r legal arrangement. Examples f acceptable dcuments have als been prvided in the Guidelines. Cnnected parties and persns having executive authrity Further clarity has been prvided n the term natural persns having executive authrity used in the definitin f cnnected party in the Ntice. Examples have been prvided in the Guidelines and they include, the chairman and chief executive fficer f a cmpany. As part f CDD and enhanced CDD, CMIs are required t identify all the cnnected parties f a custmer and screen them against relevant mney laundering and terrrist financing (ML/TF) infrmatin surces prvided in the Ntice. Hwever, CMIs may verify their identities using a risk-based apprach. Ultimate beneficial wnership and percentage threshld Identificatin f beneficial wners where custmer is a gvernment-wned entity The Guidelines have been revised t include a 25 percent threshld as an example f a benchmark that CMIs can use t identify the natural persn(s) wh ultimately wn a custmer that is a legal persn r legal arrangement. CMIs are nt required t establish the existence f the beneficial wner f a custmer that is a gvernment-wned entity, whether lcal r freign, unless the CMI has dubts abut the veracity f the CDD infrmatin r suspect that the custmer is cnnected with ML/TF activities.
Page 3 Frequency f updates t CDD infrmatin The Guidelines clarify that, fr higher risk custmers, a CMI shuld btain updated CDD infrmatin (including updated cpies f the passprt r identity dcuments if these are expired) as part f its peridic CDD review, r upn the ccurrence f a trigger event, whichever is earlier. Fr all ther custmers, a CMI shuld btain updated CDD infrmatin upn the ccurrence f a trigger event. Custmer screening and parties t screen CMIs are required t screen custmers, natural persns appinted t act n behalf f custmers and the custmers cnnected parties and beneficial wners. Mre guidance has been prvided n the ML/TF infrmatin surces that the CMIs shuld use fr screening in the Guidelines. Peridic screening and frequency f screening The Guidelines clarify that CMIs must put in place plicies, prcedures and cntrls that clearly set ut the frequency f peridic screening. The necessary CDD infrmatin n custmers and relevant parties must be captured in the custmer database used fr peridic screening against varius ML/TF infrmatin surces and databases. CMIs may adpt a risk-based apprach t determine the frequency f screening, save that screening must at minimum take place when sanctin lists are updated. Definitin f plitically expsed persns Additinal guidance n the definitin f plitically expsed persns (PEPs) has been set ut in the Guidelines. The definitin is nt intended t cver middle-ranking r mre junir individuals. In the cntext f Singapre, dmestic PEPs wuld minimally include all gvernment ministers, members f parliament, nminated members f parliament and nn-cnstituency members f parliament. A new PEP categry, the internatinal rganizatin PEP, has been intrduced t capture a persn wh is r has been entrusted with prminent public functins in an internatinal rganizatin. Family member and clse assciates f PEPs The definitin f family member f a PEP in the Ntice has been revised t specifically refer t a parent, step-parent, child, step-child, adpted child, spuse, sibling, step-sibling and adpted sibling f a PEP. CMIs may cnsider the level f influence the PEP has n a persn r the extent f such persn s expsure t the PEP. Plitically expsed crpratins The Ntice has been amended t state that CMIs are required t perfrm enhanced CDD measures where a custmer r any beneficial wner f the custmer is a PEP r a family member r clse assciate f a PEP.
Page 4 Other high risk categries Fr custmers r their beneficial wners frm r in jurisdictins against which FATF has called fr cuntermeasures, the CMIs are required t treat any business relatins r transactins with them as presenting higher ML/TF risks and perfrm the apprpriate enhanced CDD measures. With respect t custmers r their beneficial wners frm jurisdictins knwn t have inadequate AML/CFT measures, CMIs are required t assess whether each f them presents higher risks, thus warranting enhanced CDD measures. Clarificatin n FATF list f high risk cuntries r jurisdictins It has been clarified that the FATF list f higher risk cuntries referred t in the Ntice refers specifically t the list f cuntries r jurisdictins in the FATF Public Statement n High Risk and Nn-Cperative Jurisdictins n which FATF has called fr cunter-measures. FATF updates this n a peridic basis and CMIs shuld regularly refer t its website fr the latest updates. Reliance n third parties and utsurcing Sharing f infrmatin within the financial grup It has been clarified that the Ntice des nt prhibit CMIs frm utsurcing the perfrmance f CDD. Further clarificatin n the distinctin between reliance n third parties and utsurcing the perfrmance f CDD has nw been prvided in the Guidelines. Guidance has been prvided n the types f infrmatin that shuld be shared within a CMI s financial grup, which shuld include: psitive name matches arising frm screening perfrmed against ML/TF infrmatin surces; r a list f custmers wh have been exited by the CMI and its financial grup, based n suspicin f ML/TF and names f parties n whm suspicius transactin reprts have been filed.
Page 5 Implementatin The revised Ntice takes effect frm May 24, 2015 and gives fund managers ne mnth frm the issuance date t cmmence cmpliance, save that the MAS has given three mnths (i.e. frm July 24, 2015) fr fund managers t cmply with the fllwing specific requirements in the Ntice: Paragraph 4: Assessing Risks and Applying a Risk-based Apprach; Paragraph 5: New Prducts, Practices and Technlgies; and Paragraphs 14.6 and 14.7: Grup Infrmatin Sharing Requirements. Remediatin in Relatin t Existing Custmers The Ntice requires fund managers t priritize the identificatin f higher risk custmers within their existing custmer base fr remediatin. This shuld be dne within six mnths frm the issuance date, by Octber 24, 2015. Fund managers must ensure that enhanced CDD measures are perfrmed n the higher risk custmers identified within their existing custmer base. If yu have any questins regarding this Sidley Update, please cntact the Sidley lawyer with whm yu usually wrk, r Han Ming H Partner hanming.h@sidley.cm +65.6230.3966 Jsephine Law Cunsel jlaw@sidley.cm +65.6230.3916 The Investment Funds, Advisers and Derivatives practice f Sidley Austin LLP Sidley has a premier, glbal practice in structuring and advising investment funds and advisers. We advise clients in the frmatin and peratin f all types f alternative investment vehicles, including hedge funds, fund-f-funds, cmmdity pls, venture capital and private equity funds, private real estate funds and ther public and private pled investment vehicles. We als represent clients with respect t mre traditinal investment funds, such as clsed-end and pen-end registered investment cmpanies (i.e., mutual funds) and exchange-traded funds (ETFs). Our advice cvers the brad scpe f legal and cmpliance issues that are faced by funds and their bards, as well as investment advisers t funds and ther investment prducts and accunts, under the laws and regulatins f the varius jurisdictins in which they may perate. Our practice grup cnsists f apprximately 120 lawyers in New Yrk, Chicag, Lndn, Hng Kng, Singapre, Shanghai, Tky, Ls Angeles and San Francisc. In Asia, ur practice includes Singapre, U.S., English, Hng Kng and Japanese-qualified lawyers. Fr further infrmatin n ur Investment Funds, Advisers and Derivatives practice, please cntact the c-heads f Sidley s Asia Investment Funds practice: Han Ming H, Singapre (+65.6230.3966, hanming.h@sidley.cm), r Effie Vasilpuls, Hng Kng (+852.2509.7860, evasilpuls@sidley.cm). T receive Sidley Updates, please subscribe at www.sidley.cm/subscribe. BEIJING BOSTON BRUSSELS CHICAGO DALLAS GENEVA HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C. Sidley Austin refers t Sidley Austin LLP and affiliated partnerships as explained at www.sidley.cm/disclaimer. www.sidley.cm r www.sidley.cm.cn