MAS issues response to feedback received on proposed framework for single family offices

20 November 2024

The Monetary Authority of Singapore (“MAS”) has, on 6 November 2024, issued its response to feedback received from its public consultation on a proposed framework for single family offices (“SFOs”) (“Response”).

From 31 July 2023 to 30 September 2023, MAS conducted a public consultation on a revised framework aimed at simplifying the regime for SFOs to be exempt from the requirement to hold a capital markets services licence for fund management and addressing potential money laundering risks posed by SFOs. Currently, as SFOs do not manage third-party assets, they can either rely on existing exemptions from licensing requirements under the Securities and Futures Act 2001 or apply to MAS for case-by-case exemptions.

The Response provides guidance and clarification on matters including the qualifying criteria for a new class exemption, requirement for a legal opinion supporting the exemption qualification, maintaining business relations with MAS-regulated financial institutions (“FIs”), and notification and annual reporting requirements. This article provides a summary of the Response. 

Class exemption and qualifying criteria

In the public consultation, MAS proposed to introduce a structure agnostic class exemption for SFOs (“SFO Exemption”), which would remove the need for case-by-case licensing exemptions. MAS set out the criteria which an SFO must meet to operate in Singapore under the SFO Exemption and these pertained to matters such as ownership structure and permissible structures that SFOs can manage funds for.

MAS provided its response in the following areas:

• Ownership of SFOs: MAS has stated in its Response that it recognises that SFOs may operate under various ownership structures and that the SFO Exemption is intended to be structure agnostic. Hence, an SFO can be held via a trust, foundation, or any other structure, so long as the funding of the SFO originates exclusively from the family (other than key employees as discussed below). For instance, if an SFO is held via a family trust or foundation, the settlor or founder must be a family member.
• Permissible structures that SFOs can manage monies for: MAS proposed that under the SFO Exemption, SFOs may manage funds on behalf of family members, including family trusts and corporations wholly owned by and for the sole benefit of the family. MAS has clarified that regardless of structure, an SFO will qualify for exemption so long as the assets it manages originated from members of the same family (with the exception of monies managed for key employees as discussed below). MAS will also allow arrangements where family trusts and foundations that are managed by the SFO designate charitable organisations as beneficiaries, provided these beneficiaries do not have control over the trust or foundation assets and are merely persons designated to receive benefits. These charitable organisations may include those not funded exclusively by the family, so long as the SFO is not appointed to manage the assets of such charitable organisations.
• Managing monies of charitable organisations: MAS proposed that SFOs can only manage monies on behalf of charitable organisations funded exclusively by the family. MAS has stated in its Response that it will maintain this position. Permitting SFOs to manage the monies of charitable organisations that receive donation from third parties would be inconsistent with the rationale for the SFO Exemption where SFOs do not manage third party monies.
• Non-family key employees: MAS proposed to allow an SFO to manage monies for non-family members who are key employees which initially only included the SFO’s chief executive officer and executive directors. In acknowledgement that an SFO may wish for other employees to invest alongside the family for better alignment of economic interests, MAS will expand the definition of key employees to include the SFO’s executive directors, chief executive officer, chief financial officer, and investment professionals (i.e. persons who are in the management of, research on, or the trading of investment products). To prevent abuse of the SFO regime, MAS will impose a limit of 10% on the percentage of assets under management (“AUM”) that can be attributed to non-family key employees. To allow SFOs to incentivise performance and long-term commitment, these key employees will be allowed to own a non-controlling stake of up to 10% in the SFO. Key employees who cease their employment with the SFO will be given a one-year time allowance to divest their investments managed by the SFO.
• Definition of family members: MAS proposed to define family members as lineal descendants of a common ancestor (living or deceased), including current and former spouses, adopted children, and current and former stepchildren. The common ancestor should not be an extremely remote ancestor. In its Response, MAS explained that it will impose a generational limit at the time of commencement of the SFO’s business activities in Singapore to prevent abuse of the SFO Exemption by individuals claiming to be descendants of an extremely remote ancestor. The common ancestor must not be more than five generations back from the youngest generation that established the SFO in Singapore. All family members within the five generations can be served by the SFO. Thereafter, subsequent generations can be included and be served by the SFO. Further, the definition of family members will be expanded to include parents-in-law and siblings-in-law. MAS has also clarified that legally adopted children and stepchildren of the common ancestor are included.

Maintaining business relations with MAS-regulated FI to carry out AML/CFT checks

MAS proposed that an SFO establish and maintain business relations with an MAS-regulated FI, which would perform the necessary anti-money laundering and countering the financing of terrorism (“AML/CFT”) checks on the SFO.

Following feedback, MAS clarified that the AML/CFT checks that MAS-regulated FIs are expected to conduct on their customers are those set out in the relevant MAS AML/CFT Notices. MAS agreed with the suggestion received to extend the requirement for maintaining a business relationship to the SFO’s fund vehicle (“FV”) as the bulk of transactions would be done through the FV, while transactions done through the SFO itself may be largely administrative in nature.

To address the concerns over the definition of “business relations” and the range of MAS-regulated FIs that may be used by the SFO being overly broad, MAS will require the SFO and its FV to open and maintain an account with an MAS-regulated bank. Where the SFO manages a foreign-incorporated FV, the FV must open and maintain an account with an MAS-regulated bank in Singapore or with a regulated bank in a jurisdiction that complies with AML/CFT requirements consistent with the standards set by the Financial Action Task Force.

Notification and annual reporting requirements

• Timeline for initial notification: MAS originally proposed requiring SFOs to notify MAS and confirm their ability to comply with the qualifying criteria under the SFO Exemption within seven days of commencement of their operations in Singapore. Following requests, MAS will extend the timeline for such notification to within 14 days after commencement of business.
• Legal opinion: As part of the notification, MAS proposed that SFOs obtain a legal opinion supporting their exemption qualification and furnish the name of the law firm providing the legal opinion. MAS will retain the proposal to only allow legal opinions furnished by law firms in Singapore, and not allow a wider range of service providers to provide the legal opinion. As there are additional exemption criteria imposed on SFOs under the new framework, SFOs that applied for tax incentives under section 13O or section 13U of the Income Tax Act 1947, and previously furnished a legal opinion to MAS as part of their applications, will need to obtain a new legal opinion for above requirement.
• Signed declaration: MAS proposed requiring SFOs to furnish a signed declaration to confirm that the family members are currently not the subject of any investigation by authorities, or the subject of any civil or criminal proceedings whether in Singapore or elsewhere. MAS has considered feedback that that there may be different types of civil proceedings and will narrow the scope of disclosure for civil proceedings to those commenced by governmental and regulatory agencies.
• Point of contact: MAS proposed that SFOs must have an employee who is resident in Singapore as the designated point of contact between the SFO and MAS. MAS will proceed with the proposal that the designated person must be directly employed by the SFO and be resident in Singapore. A person will be considered to be resident in Singapore if he is primarily based in Singapore and has a Singapore residential address.
• Timeline for annual reporting: MAS proposed requiring SFOs to submit an annual return within 14 days after the end of each calendar year. In response to feedback that the timeframe is too short, MAS will extend the reporting timeline to within four months from the SFO’s financial year end.
• Information reported in the annual declaration: MAS proposed for SFOs to report in their annual return their (i) total AUM, and (ii) name(s) of MAS-regulated FI(s) with whom the SFO has established and maintained business relations with as at the end of the calendar year. In the Response, MAS stated that the SFO and its FVs should list all the MAS-regulated banks that they have opened and maintained accounts with.

Implementation plan

• Transitional period: Following requests for a longer transitional period to meet the qualifying criteria under the new SFO Exemption, MAS will extend the period from six months to one year from the effective date of the SFO framework. An SFO’s existing licensing exemption will be withdrawn, either upon the filing of the initial notification to MAS, or at the end of the one-year transitional period, whichever is earlier. MAS will provide further details on the effective date of implementation, revised legislation, and mode of submission for the initial notification and annual return prior to the implementation of the SFO framework.
• Case-by-case exemptions: As the intent of the SFO framework is to harmonise the qualifying criteria for SFOs operating in Singapore, MAS will generally not be granting case-by-case exemptions to SFOs who do not qualify for the class exemption unless there are exceptional reasons.
• Acknowledgement from MAS: To evidence that an SFO is exempted from being licensed, MAS will provide a system-generated acknowledgement to SFOs who have successfully filed a notification for exemption.

Reference materials

The Response is available on this webpage of the MAS website www.mas.gov.sg.