A New Framework for Single Family Offices in Singapore
On 31st July 2023, Singapore’s Monetary Authority of Singapore (“MAS”) issued a Consultation Paper proposing a new regulatory framework for Single Family Offices (“SFOs”) in response to the growing trend of SFOs as investment vehicles.
The framework aims to streamline licensing exemptions and enhance notification and reporting requirements for SFOs operating in Singapore. SFOs will be granted a class exemption if they meet specific criteria and existing SFOs will have a transitional period of 6 months to comply with the new framework.
This publication discusses the proposed SFO framework and its objectives to streamline licensing exemptions and introduce new notification and reporting requirements for SFOs operating in Singapore Additionally, we conclude with a comparison with what is obtainable for SFOs in Hong Kong.
PDF version: A New Framework for Single Family Offices in Singapore
Introduction
As Singapore continues to maintain its position as a prominent international financial centre in Asia, it remains an attractive investment destination for various investors, including high-net-worth individuals and institutional investors utilizing family offices. This growth has led to an increase in the establishment of Single-Family Offices (“SFOs”), which are entities managing assets for a single family and may be involved in non-investment activities like philanthropy or legal administration.
In response to the growing trend of SFOs as investment vehicles, MAS issued a Consultation Paper introducing a new regulatory framework for SFOs. If implemented, this framework will elevate the regulatory oversight of the previously loosely regulated SFO scope, introducing new obligations and subjecting SFOs to heightened surveillance by MAS. The proposed framework also aims to address potential money laundering risks associated with SFOs.
Overview of the Proposed Framework
SFOs are entities wholly owned or controlled by members of a family and are responsible for managing the family’s wealth.
Under the framework, individuals will be considered members of a family if they are connected through a common ancestor as:
- Spouses or ex-spouses;
- Lineal descendants;
- Spouses or ex-spouses of lineal descendants, or
- Stepchildren or adopted children of lineal descendants.
These family offices may also engage in non-investment activities, such as philanthropy and handling legal affairs on behalf of the family. Given their exclusivity, SFOs do not serve third-party customers or manage third-party funds, which distinguishes them from traditional financial institutions.
MAS is keen on mitigating potential money laundering (“ML”) risks associated with such fund inflows and movement into the country. Notably, the ML risks posed by SFOs are similar to risks applicable in private banking and as such, MAS aims to ensure that such risks are effectively addressed.
The proposed framework therefore is a two-fold approach to:
Harmonize Licensing Exemptions
- Under the current practice, certain SFO structures are exempt from licensing and while other structures are reviewed by MAS on a case-by-case basis.
- Under the proposed framework, MAS intends to introduce a class exemption for SFOs regardless of the organizational structure.
- This class exemption will apply to SFOs solely managing funds for family members and potentially for key employees, promoting economic alignment and risk-sharing. To qualify, SFOs must meet specific criteria as will be discussed below.
Enhance Notification and Reporting Requirements
- SFOs operating in Singapore must notify the MAS and confirm their compliance with the qualifying criteria for the class exemption within 7 days of starting operations.
- Additionally, the SFOs will be obligated to submit annual returns within which they will provide details on their assets under management and other relevant factors to facilitate monitoring by MAS.
Qualifying Criteria
To be exempt from licensing, the proposed framework stipulates that the SFO must not be servicing any third-party clients or managing third-party funds. It is important to highlight that MAS’s policy objective is to ensure that entities not involved in managing third-party assets are not burdened with the requirements to meet licensing requirements. As such, the framework will be neutral towards the specific structure of the SFO – whether it takes the form of a holding company or any other non-corporate ownership structure.
To fall into the class of exemption, SFOs must meet the following criteria:
- Be wholly owned (directly or indirectly) by members for the same family;
- Incorporated in Singapore;
- Maintains business relationships with at least one specified MAS-regulated financial institution;
- Fund management activities may only be conducted for and on behalf of:
- Family members and trusts / corporations wholly owned by the family;
- Charitable organisations funded exclusively by the family; and
- Key employees of the SFO (e.g., chief executive officer, executive director, etc)
To ensure accurate verification of ownership and fund management activities, SFOs will be obliged to obtain a legal opinion, which will be duly notified of to MAS. Maintaining business relationships with specified financial institutions subjects SFOs to beneficial ownership requirements, proactively mitigating risks of money laundering and terrorist financing.
It is important to note that SFOs who fail to meet the aforementioned criteria but continue their business operations will be deemed in violation of the Securities and Futures Act, and regulatory action may be potentially taken against them.
Notification and Annual Reporting Requirements
Under the proposed framework, SFOs must notify MAS within 7 days of starting operations in Singapore and confirm their compliance with class exemption criteria.
The notification should include key particulars of the SFO, signed declarations from ultimate owners, CEO, and directors stating they meet certain specified conditions.
Additionally, SFOs must submit an annual return, within 14 days after each calendar year, reporting their total assets under management and specified financial institutions they work with.
Implementation Timeline
Existing SFOs will be granted a transitional period of 6 months to ensure compliance with the new framework.
Within this period, these SFOs must notify the MAS of their compliance with the information required as per the Qualifying Criteria.
SFOs that have previously applied for tax incentives under the Income Tax Act will be required to obtain a new legal opinion, substantiating their eligibility for qualification under the proposed exemption criteria.
New SFOs starting their operations after the effective date of the framework, they must promptly file the necessary notifications within 7 days of commencing their operations.
Conclusion
The proposed SFO framework by MAS demonstrates the regulator’s intention to create a balanced environment that supports the growth of SFOs in Singapore while addressing potential ML risks. However, it’s important to note that the effective date for the new framework has yet to be communicated by MAS.
