All in the family - Singapore consults on new AML controls as activity surges

The consultation paper published by the Monetary Authority of Singapore (MAS) at the end of July notes the increasing number of single family offices (SFOs) that have been set up in Singapore in recent years, with the aim of accessing investment and philanthropic opportunities in Singapore and across the region. The number of family offices in Singapore is believed to have doubled from around 700 at the end of 2021 to 1,500 by the end of 2022.

Class exemption

The paper proposes a class exemption which will remove the need for case-by-case licensing exemptions under the SFA. The paper notes this is in line with the policy not to subject entities that do not manage third-party assets to licensing requirements. The paper points out that this does not mean that MAS is either regulating or endorsing the exempted SFOs.

In order to operate in Singapore under the proposed class exemption, the SFO must meet the following criteria:

• Be wholly owned (whether directly or indirectly) by members of the same family.
• Fund management must be conducted for or on behalf of (i) family members, including family trusts and corporations wholly owned by and for the sole benefit of the family; (ii) charitable organisations funded exclusively by the family (save that it may also conduct fund management for or on behalf of key employees).
• Incorporated in Singapore.
• Establishes and maintains business relations with at least one of the MAS-regulated financial institutions (FIs) listed in the annex to the paper.

All SFOs operating in Singapore will therefore by subject to beneficial ownership requirements for Singapore-incorporated companies under the Accounting and Corporate Regulatory Authority (ACRA) and AML and counter-terrorism financing (CFT) checks by MAS-regulated FIs.

Notification and annual reporting requirements

According to the proposed framework, SFOs will be required to notify MAS and confirm their ability to comply with the qualifying criteria under the proposed class exemption, within 7 days of commencement of their operations in Singapore. They have to obtain a legal opinion supporting their qualification under the first two criteria set out above.

Amongst the information to be provided, is a signed declaration by the CEO, director(s) and all the family members who own the SFO that its ultimate owners are not the subject of any investigation by authorities, or the subject of civil or criminal proceedings whether in Singapore or elsewhere; that its ultimate owners, CEO and directors have never been convicted of a serious crime or been involved in money laundering, terrorism financing or proliferation financing ; and that it does not and will not engage in any activity with designated persons or entities. There also needs to be a signed declaration by the ultimate owners, CEO and directors to MAS that the SFO fulfils all the conditions to be exempted under the class licensing exemption criteria.

MAS is also proposing that SFOs submit an annual return within 14 days after the end of each calendar year to report their total assets under management together with the names of MAS-regulated FIs with whom the SFO has established and maintained business relations with as at the end of the calendar year.

Implementation timeline

MAS proposes a six month transitional period for existing SFOs operating in Singapore to comply with the proposed framework. Any existing licensing exemption that a SFO has been relying on will be withdrawn when the SFO files the notification to MAS, or at the end of the six-month period, whichever is earlier.

The moves come as the city-state is facing new crime threats that are exacerbating the challenges for compliance teams that were already having to navigate a more complex geopolitical landscape and a rise in targeted financial sanctions.

Companies have strengthened their money laundering and know-your-customer (KYC) checks, because of concerns they may be caught up in transactions that may go across multiple different jurisdictions before they reach Singapore.

As regulators seek to trace links to money laundering, banks and financial institutions are seeing more and more requests for information, with much focus being put on Russia in particular. Measures announced in March prohibit financial institutions from dealing with some Russian banks or engaging in activities deemed to be of benefit to the Russian state (see Hogan Lovells alert Singapore unveils sanctions against Russia).

The consultation comes during an eventful year for financial regulation in Singapore, with the Ministry of Home Affairs having proposed two new bills, intended to strengthen the country's legal framework against scams, and the receipt and transmission of their proceeds (see Hogan Lovells alert The sun also rises – anti-money laundering legal developments in Singapore).

Whether the new regulations will prompt some of the smaller SFOs to consider leaving Singapore, remains to be seen. The new regulations will undoubtedly impose additional costs on SFOs, once the requirement goes beyond merely maintaining a bank account towards having to establish a custodian relationship with a financial institution.

On the other hand, the new measures may be seen as a reassurance to SFOs that there is a greater possibility of their operating in a "clean" environment, particularly as the broader anti-corruption measures announced this year come to fruition.

_{1. Defined by the Financial Action Task Force (FATF) as "providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual use goods used for non-legitimate purposes), in contravention of national laws or, where applicable, international obligations."}

Authored by Nick Williams, Khushaal Ved, and Nigel Sharman.