Licencing of Financial Institutions in Singapore

Overview of Financial Businesses Requiring a License in Singapore

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.

The below list of activities focuses on the most common types of financial services in Singapore requiring a licence. It is not comprehensive.

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 business holding a licence for account issuance services under the Payment Services Act can create 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[1] and the money may need to be in a segregated account[2] with a bank[3].

Lending of Money

The lending of money to individuals is subject to licencing under the Moneylenders Act[4].

Money Transfer Services

Processing domestic payments as well as cross-border payments or remittances from or to Singapore require a licence for the respective payment service under the Payment Services Act.[5] 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.[6]

Processing payments or arranging payments for a merchant also requires a license under the Payment Services Act.[7]

Dealing in Cryptocurrencies and Digital Tokens

The buying and selling as well as the exchange of digital payment tokens requires a licence under the Payment Services Act.[8] Special attention must be paid to the qualification of the token. 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, units in collective investment schemes or derivatives contracts requires a capital markets services (“CMS”) for dealing in capital markets products.[9] 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.[10] 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.[11]

Financial Advice

Advising others on investment products and arranging of life insurance policies requires a financial adviser’s licence.[12]

Licencing Requirements

All financial institutions must be corporations[13] maintaining a physical office in Singapore.[14] The corporation applying for the licence as well as its substantial shareholders and key officers must be fit and proper.[15]

While the financial institution must put in place arrangements for its operations that are commensurate with the nature, scale, and complexity of its business, many functions of the business can be outsourced as long as the financial institution carries out the core activities itself.

Along with these general licensing requirements, specific requirements must be met to obtain and maintain particular licences.

Banking Licence

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.[16]

The executive director of the payment institution must be a citizen or permanent resident of Singapore,[17] or the executive director may hold an employment pass, if another director of the payment institution is a citizen or permanent resident of Singapore.[18]

The base capital requirement for a standard payment institution is SGD 100,000 and for a major payment institution SGD 250,000.[19] A major payment institution is required to maintain a security deposit of up to SGD 200,000 with MAS.[20]

Please note that a money-changing licence is different from and subject to different requirements from payment institutions.[21]

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 to financial institution to have two directors, one of whom must be executive and resident in Singapore, one CEO resident in Singapore, two relevant professionals resident in Singapore and two representatives, i.e. persons carrying out the regulated activity. The directors, the CEO and the relevant professionals must have at least five years of relevant experience. One individual can 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 are enough.[22]

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 member of an approved clearing house.[23]

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 persons having at least five years of relevant experience as well as a base capital of SGD 250,000 also apply.[24]

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.[25]

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.[26]

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 it provides discretionary asset management for high net worth individuals (“HNWI”) is exempt from the requirement of holding a financial adviser’s licence. In most cases, the financial institution will however be required to apply for or notify MAS to carry out the additional regulated activity.

Undertaking an application can be a daunting experience. In addition to diligently completing the required forms, the business plan must clearly describe the planned activities and lay out the structure, material processes and the risk management framework of the applicant. A good understanding of regulatory requirements ensures that key risks are given due consideration.

[1] Sec. 24 PS Act read in conjunction with reg. 18 PSR.

[2] Reg 16 PSR.

[3] Sec. 23(3)(a) PS Act.

[4] Sec. 3 Moneylenders Act.

[5] Part 1 and Part 3 of the First Schedule to the PS Act.

[6] Part 1 and Part 3 of the First Schedule to the PS Act.

[7] Part 1 and Part 3 of the First Schedule to the PS Act.

[8] Part 1 and Part 3 of the First Schedule to the PS Act.

[9] Sec. 82 SFA read in conjunction with the Second Schedule to the SFA.

[10] Sec. 2(1) SFA.

[11] Sec. 82 SFA read in conjunction with the Second Schedule to the SFA.

[12] Sec. 6(1) FAA read in conjunction with the Second Schedule to the FAA.

[13] Sec. 6(9)(a) PS Act.

[14] Sec. 6(9)(b) and 14(1) PS Act.

[15] Sec. 6(9)(e)(i) PS Act.

[16] Part 1 of the First Schedule to the PS Act.

[17] Sec. 6(9)(c)(i) PS Act.

[18] Sec. 6(9)(c)(ii) PS Act read in conjunction with reg. 7 PSR.

[19] Reg. 12 PSR.

[20] Reg. 13 PSR.

[21] Sec. 6 PS Act.

[22] Appendix 1 of SFA04-G05.

[23] First Schedule to the SF(FMR)R.

[24] Para. 5(7B) and 5(7C) Second Schedule to the SF(LCB)R.

[25] Para. 7 FAA-G01.

[26] Reg. 15 FAR.

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