MAS issues revised notices on competency requirements for representatives under FAA and SFA effective 1 April 2024

19 October 2023

On 28 September 2023, the Monetary Authority of Singapore (“MAS”) issued the following revised notices, both of which come into operation on 1 April 2024 (collectively, “revised Notices”):

MAS also published its response to the feedback received (“Response”) on the drafts of the revised Notices which were proposed in a consultation paper issued in September 2020 (“2020 Consultation Paper”). The Response provides clarifications to queries from the public and outlines areas where feedback was incorporated into the revised notices.

There will be a transition period of six months before the revised notices take effect on 1 April 2024. The Institute of Banking & Finance (“IBF”) and Singapore College of Insurance (“SCI”) will start registrations for the new Capital Markets and Financial Advisory Services (“CMFAS”) examinations and make available the new study guides at least two months before the new examinations commence on 1 April 2024.

An overview of the revised Notices and Response is set out below.

Scope of revised Notices

The SFA Notice and FAA Notice set out eligibility and ongoing requirements for (a) representatives of holders of a capital markets services licence and exempt financial institutions, and (b) representatives of financial advisers, respectively. This includes entry, CMFAS examination, and continuing professional development (“CPD”) requirements.

The SFA Notice also sets out the obligations of financial institutions (“FIs”) in relation to their representatives while the FAA Notice sets out the obligations of licensed financial advisers and exempt financial advisers to maintain a register on the representatives’ compliance with the CMFAS examination requirements.

The SFA Notice will apply to (a) individuals who act or hold themselves out to be representatives who carry out regulated activities, (b) capital markets services licensees, and (c) banks, merchant banks, finance companies, and insurers who have appointed representatives conducting regulated activities under the Securities and Futures Act 2001 (“SFA”). It will supersede Notice SFA 04-N09 on Minimum Entry and Examination Requirements for Representatives of Holders of Capital Markets Services Licence and Exempt Financial Institutions (“Notice SFA 04-N09”), which will be cancelled with effect from 1 April 2024.

The FAA Notice will apply to all licensed financial advisers, exempt financial advisers, and their appointed representatives. It will supersede Notice FAA-N13 on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers (“Notice FAA-N13”), which will be cancelled with effect from 1 April 2024.

Background

The 2020 Consultation Paper proposed draft legal amendments to Notice SFA 04-N09 and Notice FAA-N13 to effect the enhancements to the CMFAS examinations and continued exemption for private banking (“PB”) representatives who only serve accredited investors (“AIs”).

MAS has carefully considered the feedback received and noted broad agreement from the industry on the draft amendments. The Response clarifies the requirements and exemptions applicable to representatives and considers the requests of a few respondents to broaden the scope of exemptions for PB representatives. Where appropriate, MAS has incorporated the feedback received into the revised Notices.

Read more about the 2020 Consultation Paper in our article titled “MAS seeks comments on draft notices on competency requirements for representatives conducting regulated activities under FAA and SFA”.

Response to feedback received

Clarification on CMFAS exam requirements for appointed representatives of licensed fund management companies

The Response sets out the following clarifications on CMFAS examination requirements:

  • Rules, ethics and skills (“RES”) modules for dealing representatives of a licensed fund management company (“LFMC”): The applicable RES modules for a representative of an LFMC should be aligned with the primary regulated activity of his/her principal company and the types of regulatory knowledge and skills that he/she should be equipped with to perform his/her role effectively. Representatives appointed by an LFMC to deal for funds managed by the LFMC and its related corporations should take the CMFAS exam module on rules, ethics and skills for fund management, also known as RES3 (“RES3”), as the module covers rules in relation to LFMCs and content on dealing. The SFA Notice has been updated to provide such individuals with the flexibility to pass either RES3 or the RES modules for dealing in capital market products (“CMPs”).
  • Exemptions for dealing representatives of LMFCs which serve only AIs and/or institutional investors (“IIs”): The previous draft of the SFA Notice exempts a “person whose principal manages funds only for AIs and/or IIs” from the CMFAS examinations for dealing in CMPs. These exemptions do not apply to representatives of other FIs such as banks. MAS explains that the term “person whose principal manages funds” in the SFA Notice refers to a representative whose principal is an LFMC. The term “person whose principal manages funds” has been amended to “individual whose principal is a Specified FMC” in the revised SFA Notice.
  • Requirements for LFMC representatives who market funds: As marketing of collective investment schemes (“CIS”) is no longer a regulated activity under the Financial Advisers Act 2001 (“FAA”) and has been subsumed under the regulated activity of “dealing in CMPs - CIS” under the SFA, representatives of LFMCs who market any CIS should pass RES3 and CM-EIP, under the revised SFA Notice, unless exempted. CM-EIP is a product knowledge module for representatives who advise on excluded investment products which are securities, units in a CIS, or exchange-traded derivatives contacts that are not future contracts.

LFMC representatives who only market CIS need not pass RES5 and M8 or M8A, the product knowledge modules on Collective Investment Schemes and Collective Investment Schemes II, respectively. However, if such representatives also provide financial advisory services, they must pass RES5 and the relevant product knowledge module(s) under the revised FAA Notice, unless exempted.

  • Exemptions for LMFC representatives who only market funds to distributors: LFMC representatives who limit their activities to marketing any CIS to “distributors” will continue to be exempted from CMFAS examinations and CPD The Response also clarifies that the term “distributors” includes licensed financial advisers in Singapore. MAS will update the FAQs on Minimum Entry and Examination Requirements for Representatives of Capital Markets Services Licence Holders and Exempt Financial Institutions.
  • Exemption from RES5 for LFMC representatives who limit their financial advisory activities: MAS initially proposed for LFMC marketing representatives to be exempted from RES5 if the representative limits their provision of financial advisory services to providing customised information on investment fund products managed by their LFMC. Incorporating suggestions by respondents, MAS will broaden the scope of the exemption to cover investment fund products managed by the LFMC’s related corporations, in addition to the funds managed by the LFMC. Further, while the Response clarifies that the term “customised information” in the draft FAA Notice refers to information that is customised to clients’ financial situation and needs, reference to this term has been dropped from the revised FAA Notice as the scope of the exemption is already well-circumscribed.

Exemptions from CMFAS examination requirements under SFA Notice for PB representatives

MAS in the consultation paper made the following two proposals:

  • Exemption for advisory representatives: Representatives providing financial advisory services (“advisory representatives”) would be exempted from the CMFAS exam requirements under the SFA CMFAS examinations if they (a) service only AIs, (b) conduct dealing activities that are incidental to their provision of financial advisory services (“incidental dealing activities”), and (c) have passed (or are exempted from passing) the Client Advisory Competency Standards examinations under the Singapore Private Banking Code of Conduct (“CACS examinations”). This exemption would apply to existing advisory representatives and newly appointed advisory representatives who meet these conditions.
  • Exemption for representatives of specialised units serving high net worth individuals: Representatives of specialised units serving high net worth individuals who (a) serve only AIs, and (b) have passed or are exempted from passing the CACS examinations would be exempted from the SFA CMFAS examinations.

These specialised units (“section 100(2) units”) were previously exempted under section 100(2) of the FAA from certain business conduct requirements under the FAA. This exemption under section 100(2) of the FAA was revoked on 8 January 2021, and the “high net worth individuals” class has been phased out with the adoption of the AI opt-in regime.

This exemption of representatives of section 100(2) units would apply to existing representatives from section 100(2) units who meet the stated conditions (“grandfathering exemption”) and caters to all representatives from section 100(2) units, including dealing representatives who are not eligible for the continuing exemption. Such dealing representatives are ineligible for the continuing exemption given that their dealing activities are not incidental dealing activities as they do not provide financial advisory services.

MAS agreed with a respondent’s proposal to broaden the scope of the grandfathering exemption to cover representatives from section 100(2) units who did not take the CACS examinations and/or those who serve IIs. The grandfathering exemption will continue to apply to representatives from section 100(2) units if they move to another FI subsequently, so long as they continue to serve only PB clients. To operationalise the grandfathering exemption when representatives move between FIs, the FIs in the PB industry have agreed to the following:

  • Issue an attestation letter to representatives from their section 100(2) unit, which must minimally include the following information (“minimum information”):
    • name of the representative;
    • period of employment in the section 100(2) unit; and
    • type of regulated activities conducted by the representative when employed in the section 100(2) unit.
  • Provide responses to reference checks by other FIs which are seeking to verify a prospective hire’s employment history and ascertain their eligibility for the grandfathering exemption from the SFA CMFAS examinations.
  • Keep a copy of the attestation letter or the minimum information stated in the letter in the FI’s records to facilitate responses to these reference checks.

MAS did not agree with two other proposals and provided the following two clarifications:

  • Continuing exemption not extended to new dealing representatives who do not provide financial advisory services: In disagreeing with a respondent’s proposal to extend the continuing exemption to newly appointed dealing representatives who execute trade orders from PB clients, MAS explained that newly appointed dealing representatives should pass the SFA CMFAS examinations to ensure that they have the requisite competencies and knowledge of rules and regulations, as trading irregularities could pose adverse market-wide impact.
  • Grandfathering exemption not broadened to include representatives serving clients who changed from AI to non-AI status: MAS clarified that FIs may continue to treat a client who was previously classified as an AI but who has opted out of AI status or no longer meets the AI eligibility criteria as if the client was an AI in respect of the specific transactions which were made before the change in client’s status to non-AI. Accordingly, there is no need to modify the grandfathering exemption as proposed by a few of the respondents as the exemption applies to representatives serving such clients insofar as their activities pertain to the unwinding of transactions or divesting of investments which were made before the change to non-AI status.

Minimum academic requirements and CPD requirements

In response to feedback received, MAS agreed to provide the grandfathering exemption to existing representatives from section 100(2) units who do not meet the minimum academic requirements under the FAA Notice.

MAS also agreed to update the SFA Notice to exempt representatives who serve only AIs, IIs and/or expert investors from the CPD requirements. This broadens the exemption in the SFA Notice to cover the same scope as the FAA Notice. Under the current Notice SFA 04-N09, only representatives who serve only AIs and/or IIs are exempted.

To provide recognition of the training hours undergone by representatives as part of certification by IBF, MAS has made the following adjustments in the revised FAA Notice:

  • MAS will allow representatives who attained Level 1 Certification to carry over training hours undergone to the next calendar year, and representatives who attained Level 2 or 3 Certification to carry over excess training hours to subsequent years for up to the next two calendar years.
  • In the case where representatives managed to attain more than one certification in the same calendar year or within two consecutive calendar years, they will be allowed to carry over excess training hours undergone for the certifications for up to the aggregate of the applicable periods specified in the above paragraph.
  • The representatives must have attained the IBF Certification within two years from the date of completion of the most recent course undergone as part of that IBF Certification, to be eligible for the treatment specified in the above two paragraphs.

MAS has worked with the Central Provident Fund (“CPF”) Board, IBF, and SCI to enhance CPF-related content in the CMFAS examinations and CPD training. This will help to equip financial advisory representatives with the relevant knowledge to incorporate CPF schemes into holistic financial advice and better assist consumers with retirement planning (e.g. top-ups to CPF Special Account). As part of these broader efforts, training hours from relevant CPD courses that are conducted by CPF Board will be recognised as Core CPD hours which can be counted towards fulfilling the minimum six hours of Core CPD training. MAS has updated the revised FAA Notice and states that CPF Board will provide details of the CPD courses in due course.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg:

 

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