Licensing of financial institutions in Singapore
4 minute read
The financial services industry in Singapore is regulated by the Monetary Authority of Singapore (MAS). MAS regulates financial institutions in the banking, capital markets, insurance and payments sectors.
A company must be licensed to provide financial services in Singapore. To explain further, we have partnered with Ingenia – a leading consultancy to financial services businesses in Singapore, to explain about the regulations and licensing requirements depending on each financial sector.
Which types of financial activities will require a license from MAS?
The provision of financial services in Singapore or targeting of customers in Singapore requires a licence from the Monetary Authority of Singapore (“MAS”). The licence required depends on the specific activity the financial institution is carrying out. Here is a list of activities in banking and investment services that require a license from MAS:
Storing of money
Accepting deposits in Singapore requires the financial institution to hold a banking licence or become licenced as a finance company. Alternatively, a corporation holding a licence for account issuance services under the Payment Services Act can create and hold accounts. These accounts are however restricted to holding SGD 5,000 at any time and a total transaction amount of SGD 30,000 over a one-year period.
Lending of money
The lending of money to individuals is subject to licencing under the Moneylenders Act.
Please note that payment service providers are prohibited from lending to any individual, to a customer or out of customer money.
Domestic payments as well as cross-border payments from or to Singapore require a licence for the respective payment service under the Payment Services Act. It must be noted that the payment institution providing these services may in addition require a licence for account issuance service and/or e-money issuance service, if it maintains a balance dedicated to customers on its books.
Finally, it is also to be noted that licencing is required for merchant acquisition service where the payment institution accepts and processes payments for a merchant.
Dealing in cryptocurrencies and tokens
The buying and selling of digital payment tokens for trading purposes requires a licence for the respective payment service under the Payment Services Act. Special attention must be paid to the qualification of the token: Is it a digital payment token, a digital representation of value, but not an official currency, that is intended to be a medium of exchange? Tokens not qualifying as digital payment token, but for example representing a security or an entitlement to a service or product may qualify differently and result in the requirement for a different licence or none at all.
Trading of securities
Making an offer or inducing an offer to purchase or dispose of securities requires a capital markets (“CMS”) for dealing in capital markets products. Aside for trading in securities, this licence is also required for other capital markets products such as units in collective investment schemes or derivatives contracts and spot foreign exchange contracts for the purposes of leveraged foreign exchange trading. This licence also applies for crowdfunding platforms.
Fund management and discretionary asset management
The management of a collective investment scheme – commonly referred to as investment fund or mutual fund – as well as the management of a portfolio of capital markets products or the undertaking of spot foreign exchange contracts on behalf of a customer requires a capital markets services (“CMS”) licence for fund management.
Advising others on investment products and arranging of life insurance policies requires a financial adviser’s licence.
Please note that the above list of activities requiring a licence is not comprehensive. It only lists common types of financial services requiring a licence.
What are the requirements to apply for a license?
All financial institutions must be corporations maintaining a physical office in Singapore. The corporation applying for the licence as well as its substantial shareholders and key officers must be fit and proper.
The financial institution must put in place arrangements for its operations that are commensurate with the nature, scale and complexity of its business. However, most tasks can be outsourced as long as the financial institution carries out the core activities itself.
The specific requirements to obtain (and maintain) a licence depend on the specific licence you require to carry out the activity.
Different types of licences are available for banks: Full banks, qualifying full banks that are subject to certain restrictions, wholesale banks that must not carry out Singapore dollar retail banking activities, and merchant banks that can only provide lending, asset management, private banking, securities dealing and investment banking services and are restricted to servicing qualified investors.
A banking licence requires extensive operations and paid-up capital of SGD 1.5 billion.
Payment services licences
Licences as standard payment institution or major payment institution are issued for a specific payment service or specific payment services, if the applicant or payment institution applied for multiple services: account issuance service, domestic money transfer service, cross-border money transfer service, merchant acquisition service, e-money issuance service, digital payment token service.
The executive director of the payment institution must be a citizen or permanent resident of Singapore, or the executive director may hold an employment pass, if another director of the payment institution is a citizen or permanent resident of Singapore.
The base capital requirement for a standard payment institution is SGD 100,000 and for a major payment institution SGD 250,000. In addition, a major payment institution is required to maintain a security deposit of up to SGD 200,000 with MAS.
Please note that a money-changing licence is different from and subject to different requirements from payment institutions.
Capital markets services licences
Capital markets services (“CMS”) licences are issued to carry out a specific regulated activity such as fund management or dealing in capital markets products. It is possible for a company to hold a CMS licence for multiple activities, but MAS may apply higher requirements, namely, to prevent or mitigate conflicts of interest.
A CMS licence generally requires a financial institution to have at least two directors, one of whom must be executive, one CEO, two relevant professionals and two representatives, i.e. persons carrying out the regulated activity. The directors, the CEO and relevant professionals must have at least five years of relevant experience, and the executive director, the CEO, the relevant professionals and the representatives must be resident in Singapore. One individual can however qualify for multiple of these positions. As a result, if both individuals are appointed as directors, work full time for the financial institution, have more than five years of relevant experience, are resident in Singapore and carry out the regulated activity, and one of these individuals acts as the CEO, these two individuals will be sufficient.
The base capital for the CMS licence holder varies depending on the type of regulated activity it is carrying out and the types of customers it is servicing. A CMS licence for fund management servicing only accredited and institutional investors requires a base capital of SGD 250,000. A CMS licence for dealing in capital markets products may require as little as SGD 50,000 for an introducing broker or as much as SGD 5 million for members of an approved clearing house.
It is important to note that an exemption from licencing is available for fund management companies servicing less than 30 investors and with assets under management of less than SGD 250 million, the so-called registered fund management company. However, requirements for two directors, relevant professionals and representatives as well as a base capital of SGD 250,000 also apply.
Financial adviser’s licence
A financial advisor, i.e. the company holding the financial licence, also requires at least two directors, one of whom must be resident in Singapore, and two representatives, but may be required to have three full-time professionals with at least five years of relevant experience. The CEO and executive directors also must have at least five years of relevant experience.
The financial adviser must have a base capital of SGD 150,000, but MAS may require SGD 300,00 to SGD 500,000 depending on additional professional indemnity insurance.
An exemption also exists for financial advisors servicing less than 30 accredited and institutional investors.
Some general advice
An application for licensing as a financial institution requires the filing of specified information in the required forms. All information must be provided in the application, also with respect to the individuals involved. The individuals for the required positions must be specified. MAS expects this core group to remain with the financial institution even for extended time after the licence is granted. The business plan not only needs to outline the planned activity and the respective operational processes, but also the risk framework safeguarding the financial institution and its customers. The focus points of the risk framework will depend on the specific activity / activities, the applicant’s structure, and licence(s) applied.
Where a financial institution is carrying out more than one regulated activity, it must obtain a licence for every regulated activity it carries out or ensure that it is exempt from the requirement of respective licencing.
Generally, a financial institution is exempt from holding a licence for a regulated activity that is incidental to its core regulated activity; for example, a fund management company can deal in securities for investments under the funds it manages without holding a CMS licence for dealing in capital markets products.
In addition, financial institutions licensed for a more stringently regulated financial activity are generally exempt from less stringent financial activities; for example, a company holding a CMS licence for fund management under which provides discretionary asset management for high net worth individuals (“HNWI”) is exempt from the requirement of holding a financial.
Who can I contact for support?
Law firms as well as specialised compliance companies, such as Ingenia, will provide you in depth advice on your licensing requirements, assist you in the licensing process and may even provide valuable services after you have obtained your licence. In many cases, this support will not only include assistance for your licensing, but you can also get policies and procedures crafted that you will need as a framework for your operations.
Typically how much does a licence application cost?
The extent of support will depend on the service provider you select and with it the cost. Fees for assistance for your licensing vary from SGD 8,000 to SGD 40,000 (and much more in case of banks), policies and procedures may be included or come on top of it.
If you need to find out more information or need any assistance regarding MAS licensing, feel free to contact us. We are happy to help!