Capital Markets (CMS) Licence Requirements in Singapore
Are you seeking to enter the financial services sector in Singapore, such as conducting fund management services or engaging in securities financing? If your answer is yes, you should be aware that such financial activities are regulated in Singapore and you will require a capital markets licence to engage in them.
Read on to find out more about:
- What a capital markets licence is
- The eligibility requirements to apply for a capital markets licence
- How to apply for the capital markets licence
- The validity period of the capital markets licence
- The compliance obligations with regard to the capital markets licence
- The annual fee obligations with regard to the capital markets licence
What is a Capital Markets Licence?
A capital markets licence (CMS licence) is a type of financial services licence granted by the Monetary Authority of Singapore (MAS) for businesses that conduct certain activities regulated under the Securities and Futures Act (SFA).
These regulated activities include:
- Fund management
- Real estate investment trust management
- Advising on corporate finance
- Dealing in capital markets products (including securities, units in a collective investment scheme (CIS), over-the-counter (OTC) derivatives, exchange-traded derivatives and spot foreign exchange)
- Securities financing
- Providing credit rating services
- Providing custodial services for securities
If your entity intends to conduct any of the regulated financial activities listed above, then it will likely need to possess a CMS licence before it may do so. Common examples of capital markets entities include corporate finance dealers, credit rating agencies and real estate investment trust (REIT) managers and broker-dealers.
Certain types of entities are exempted from the CMS licence requirement. These include law firms, as well as licensed trust companies.
Penalties for carrying out business without a CMS licence
Unless a specific exemption applies, anyone who carries on business in any of the regulated activities above without a valid CMS licence will be fined up to $150,000 and/or imprisoned for up to 3 years on conviction. For continuing offences, a further fine of up to $15,000 for every day or part thereof would also apply.
Eligibility Requirements to Obtain a CMS Licence
In deciding whether to grant a CMS licence, MAS will consider the following factors, which you should also bear in mind when making an application:
- Fitness and propriety of the applicant (the business), its shareholders and directors;
- Track record and management expertise of the applicant and its parent company or major shareholders;
- Ability to meet the minimum financial requirements prescribed under the SFA. For example, there is a financial requirement of S$250,000 base capital for a credit rating agency, and a base capital requirement of S$1 million for a REIT manager;
- Strength of internal risk management and compliance systems; and
- Business model/plans and projections and the associated risks.
Further, to be eligible to apply for a CMS licence, the business must appoint the following individuals:
- Directors: At least 2 directors, with one director resident in Singapore;
- Chief Executive Officer: A Chief Executive Officer with at least 10 years of relevant experience, and who is resident in Singapore; and
- Representatives: At least 2 full-time Singapore-based individuals for each regulated activity should be appointed as representatives of the business. They will be the ones who carry out the regulated activities on behalf of your business.
There are certain eligible criteria for the representatives appointed by a CMS licensee, specifically:
- The individual must be at least 21 years old;
- He/she must satisfy the minimum academic qualification and examination requirements set out in this MAS Notice. For example, an individual who intends to provide credit rating services must hold a Bachelor’s degree in a relevant discipline.
- He/she must also satisfy the fit and proper criteria set out in these MAS Guidelines, meaning he must be someone who is competent, honest and possess sound financial standing.
Steps to Applying for a CMS Licence in Singapore
Step 1: Setting up your business
Before making an application to MAS, you should ensure that your business has been properly incorporated, and follow up with all the necessary arrangements, such as opening a corporate bank account for the injection of base capital and renting a physical office space, if needed.
It is also important to make sure that you have drafted your employment contracts and business model plans.
In addition, internal policies and procedures should be prepared with a view to ensuring compliance with Singapore’s Anti-Money Laundering/Counter-Financing of Terrorism laws and regulations. All these documents would play a big part in MAS’ overall assessment of your business when deciding whether to grant you a CMS licence.
Step 2: Submitting your application to MAS
Documents to prepare
There are two main forms you will need to prepare for your CMS licence application.
First, you should fill in and submit:
- Form 1A if you intend to operate a licensed fund management company;
- Form 1V if you intend to operate as a venture capital fund manager; or
- Form 1 for all other cases.
Next, you should also submit Form 3A to appoint representative(s) for the regulated financial activity that your business will be conducting.
Special circumstances may require you to appoint temporary or provisional representatives. If so, fill in and submit Form 3B (provisional representative) and/or Form 3C (temporary representative) to MAS.
Fees to pay
The CMS application fee is fixed at S$1,000. This fee is non-refundable. A fee of $200 also applies for each representative lodgement.
Step 3: Outcome
Typically, MAS will take up to 4 months to review and process an application, provided that you meet all the requirements, submitted all the documents properly and have paid the application fee. That said, if your business model is more complex, MAS will take a longer time to assess your business’ application.
Validity of the CMS licence
The CMS licence does not have a fixed validity period. However, MAS stipulates certain situations in which the CMS licence shall lapse, be revoked or be suspended. These include situations where the licensee:
- Stops conducting all the regulated activities on the licence;
- Fails to carry on business in the activities for which it was licensed; and
- Is wound up.
Even after you have obtained a CMS licence, note that you have continuing obligations. Non-compliance can result in the revocation of your business’ CMS licence. If this happens, your business will no longer be permitted to carry on business in the regulated activity in Singapore.
There are several types of obligations to be aware of. These obligations include:
- Ensuring no breach(es) of MAS’ rules. For example, under the Notice on Prevention of Money Laundering and Countering Financing of Terrorism (AML/CFT), businesses are required to put in place policies and procedures and conduct enterprise-wide assessments;
- Adhering to licence conditions. For example, a licensee must commence business within 6 months from the date of issue of the licence. If it is unable to do so, it must notify MAS. Another example would be ensuring that the minimum competency requirements of having two directors and appointed representatives are maintained; and
- Ensuring compliance with MAS’ written directions, where applicable.
In July 2020, Apical Asset Management had its CMS licence revoked for several serious breaches of the AML/CFT requirements. For one, the business had failed to implement basic AML/CFT policies and controls internally as required under MAS’ rules. Adding on to that, the business also did not conduct enterprise-wide risk assessments, including assessing its customers, to better understand its overall vulnerability to risks and adopt appropriate measures.
MAS also found the business’ monitoring controls to be deficient, notably from its failure to monitor a fund related to a politically exposed person. Lastly, there were no independent audits engaged to assess the effectiveness of the controls in place. Due to these fundamental breaches, MAS eventually revoked the business’ CMS licence, and also reprimanded the business’ directors for failing to discharge their duties to ensure compliance with its obligations.
Annual Fee Obligations
There are fees payable on an annual basis to maintain a CMS licence. These are:
- An annual fee for the CMS licence, which can range from S$2,000 to S$8,000, depending on the type of regulated activity you are engaged in. For example, the annual fee for product financing is S$2,000, while the fee for advising on corporate finance is S$4,000; and
- An annual fee for the representatives appointed, which is pegged at S$5 per representative from the 101st representative.
Trying to figure out the regulations and conditions applicable in the financial sector can be overwhelming, especially if you are not well acquainted with the regulatory landscape in Singapore. As can be seen above, applying for a CMS licence may not be straightforward and requires you to have a think about the eligibility requirements, and the protocols and controls to be put in place.
With this in mind, you should consider seeking legal advice from a fintech lawyer, who will be able to bring you through the legal and regulatory requirements applicable to the business you intend to run. This way, you will earn yourself a peace of mind and can focus on gearing up for your business’ operations.
Feel free to get in touch with one of our fintech lawyers here.
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