© ALL RIGHTS RESERVED

The Institute of Banking & Finance

September 2016 (Version 4.4)

No part of this Study Guide may be reproduced, stored in a retrieval system, or transmitted in any form by or
any means, electronic, electrical, chemical, mechanical, optical, photocopying, recording or otherwise,
without the prior permission of The Institute of Banking & Finance (IBF).

IBF shall not be responsible or liable for any loss or damage whatsoever that may be caused by or suffered as a
result of reliance on any statement, error or omission contained in this Study Guide.

This Study Guide contains information believed to be correct, current or applicable at the time of compilation.
The rules and regulations which are referenced in this Study Guide are updated as of 1 September 2016. The
reader or user is advised to seek professional assistance where appropriate.

You shall not modify, remove, delete, augment, add to, publish, transmit, sell, resell, license, create derivative
works from, or in any way exploit any of the study guide content, in whole or in part, in print or electronic form,
and you shall not aid or permit others to do so.

i
Acknowledgements
IBF would like to express its gratitude to the following individuals for their contributions and support in the
development of CMFAS Study Guide and Examinations:

CMFAS Examinations Board

Mr Tan Boon Gin, Singapore Exchange Limited (Chairperson)

Ms Grace Mok, Singapore Exchange Limited
Ms Yolanda Constantine, Monetary Authority of Singapore
Mr Kenneth Kaw, Monetary Authority of Singapore
Ms Lim Mei Shern, Monetary Authority of Singapore
Mr Rodney Lim, Nikko Asset Management Asia Limited
Ms Karen Tiah, Allen & Gledhill LLP
Ms Rachel Eng, WongPartnership LLP
Mr TK Yap, OCBC Securities Pte Ltd
Ms Yit Chwee Fung, UOB Bank Ltd
Ms Kao Shih Teng, Lion Global Investors Ltd
Ms Yvonne Ong, CapitaCommercial Trust Management Limited
Mr Martin Siah, Bank of America Merrill Lynch
Mr Kan Shik Lum

Study Guide Writers

Mr Gerard Tong
Ms Yvette Cheak

Candidates who have passed the CMFAS examinations are encouraged to continue on their learning journey by
attending IBF accredited programmes. For more information, please visit www.ibf.org.sg.

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Preface
Module 1B – Rules & Regulations for Dealing in Securities (Non SGX-ST Members)

The objective of the CMFAS Module 1B – Rules & Regulations for Dealing in Securities (Non SGX-ST Members)
(“M1B”) Exam is to test candidates on their knowledge and understanding of the regulatory framework including
the laws and regulations and associated codes, notices, practice notes and guidelines governing securities
dealing.

Candidates are required to pass the relevant modules of the CMFAS examinations pertaining to the regulated
activity that they intend to conduct. Once they have passed the relevant CMFAS examinations, candidates must
ensure that their notification to act as an appointed representative is lodged with MAS on the Public Register
via the Representative Notification Framework (RNF), before they can commence any dealings in regulated
activities. For details, please refer to the relevant MAS Notice under the Securities and Futures Act (SFA) – SFA
04-N09.

Organisation of the Study Guide

The Study Guide consists of 5 chapters, each devoted to a specific area of securities dealing and its related
regulations that the candidates will need to know in order to pass the M1B Exam.

Each chapter begins with a list of learning objectives, followed by a chapter introduction which provides an
overview of the chapter. Examples and case studies are also used where appropriate in the Study Guide to
enhance candidate’s understanding of key learning points and application of issues discussed.

A summary of each chapter is provided below:

Chapter 1: The Capital Markets Industry in Singapore & Participants in the Capital Markets
Provides an overview of the capital markets eco-system, regulatory bodies and the relevant
legislation and rules governing the conduct of capital markets activities in Singapore.

Chapter 2: Licensing and Business Operations

Outlines the obligations and regulatory requirements governing of the business operations of
Capital Markets Services licence holders, financial institutions and individual representatives in
securities dealing.

Chapter 3: Market Conduct

Highlights the rules and regulations prohibiting market misconduct in relation to securities
dealing.

Chapter 4: Central Provident Fund Investment Scheme (“CPFIS”)

Provides an overview of CPFIS.

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 Chapter 5: Prevention of Financial Crimes
Discusses the regulatory requirements for the prevention of money laundering and countering
the financing of terrorism.

To assist candidates in the review of the study materials, we have included a set of review questions and the
answer key at the end of the Study Guide. A list of essential readings is also provided. Candidates should ensure
that they complete the essential readings before attempting the examination.

Study Guide Updates

The Study Guide is updated at appropriate intervals to reflect changes and developments in the financial
industry. Candidates should ensure that they have the latest version of the Study Guide before sitting for the
examination. Please refer to the IBF website at www.ibf.org.sg or contact IBF directly to check for the latest
updates.

The Study Guide is available in electronic/e-book format. Candidates may request for printed hardcopies of the
Study Guide at an additional fee.

Candidates should note that the rules and regulations which are referenced in this Study Guide are updated as
of 1 September 2016.

Important Notes about the Exam

The M1B Exam is conducted at the Assessment Centre of IBF. The examination comprises of 60 multiple-choice
questions (MCQ) with a duration of 1.25 hours. The passing mark is 75%.

The exam includes questions that test candidates’ knowledge, understanding and application of the relevant
rules and regulations governing securities dealing.

Candidates should note that they will not be tested on the following in the M1B Exam:
i. The Capital Market Industry in Singapore & Participants in the Capital Markets (Chapter 1); and
ii. The amount of penalties applicable under the laws and regulations and associated codes, notices, practice
notes and guidelines governing securities trading.

For more information on the examination rules, regulations and other administrative procedures, please refer
to the IBF website at www.ibf.org.sg.

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 Contents
Chapter 1 – The Capital Markets Industry in Singapore and Participants in the Capital Markets……….…...
1.1 Introduction……………………………………………............................................................................................... 1
1.2 Institutional Participants in the Capital Markets……………………………........................................................ 3
1.3 The Regulatory Framework and Regulatory Bodies………………………………………………................................ 5
1.4 SGX Listing Framework…………………………………………………………................................................................. 9

Chapter 2 – Licensing and Business Operations………….............................................................................

2.1 Introduction………………………………….......................................................................................................... 17
2.2 Grant of CMS Licence………………………………............................................................................................... 18
2.3 Registration of Representatives………….................................................................................................... 21
2.4 Regulatory Requirements for Advertising..…………………………………………………………………………………………. 26
2.5 Opening of Customer Accounts..………………………………………………………………………………………………………… 27
2.6 Confidentiality of Customer’s Information..………………………………………………………………………………………… 32
2.7 Management of Customers’ Trading Accounts………………………………………………………………………………….. 34
2.8 Keeping of Books and Audit……………………….……………………………………………………………………………………….. 36
2.9 Customer’s Moneys and Assets………………………………………………………………………………………………………….. 39

Chapter 3 – Market Conduct………………………………………………....................................................................

3.1 Introduction………………..……...................................................................................................................... 48
3.2 Market Misconduct under the SFA ………………..………………....................................................................... 48
3.3 False Trading and Market Rigging Transactions....................................................................................... 49
3.4 Securities Market Manipulation…………………….…………………………………………………………………………………… 50
3.5 False or Misleading Statements and Information……………………………………………………………………………….. 51
3.6 Fraudulently Inducing Persons to Deal in Securities …………………………………………………………………………… 52
3.7 Employment of Manipulative and Deceptive Devices…………………………………………………………………………. 52
3.8 Dissemination of Information about Illegal Transactions…………………….……………………………………………… 53
3.9 Insider Trading……………………………………………………………….………………………………………………………………….. 54
3.10 Securities Hawking…………………………………..…………………………………………………………………………………………. 57
3.11 Other Market Conduct Rules and Guidelines……………………………………………………………………………………… 58
3.12 Penalties for Market Misconduct Under the SFA………………………………………………………………………………… 60

Chapter 4 – Central Provident Fund Investment Scheme (CPFIS)…………………….........................................

4.1 General Information and History of CPFIS…….......................................................................................... 62
4.2 Differences between CPFIS-OA and CPFIS-SA……….................................................................................. 63
4.3 What is a CPF Investment Account?.…..................................................................................................... 64
4.4 Eligibility Criteria……………………................................................................................................................. 64
4.5 Opening a CPFIS Investment Account……….............................................................................................. 64
4.6 Operational Process for Purchase and Sale of Investments (CPFIS-OA only)…………................................ 64
4.7 Service Providers under the CPFIS……………………………………………………………….......................................... 65
4.8 Criteria for Inclusion of Investment Products under CPFIS……………......................................................... 66
4.9 Transfer of Monies from CPF Investment Account to CPF Ordinary Account…....................................... 68
4.10 Dividends and Profits Earned…….............................................................................................................. 69
4.11 Charges..................................................................................................................................................... 69
4.12 Release of Investment Holdings……………………..….................................................................................... 69
4.13 Bankruptcy………………………………………….................................................................................................... 70
4.14 Death…......…......…......…......…......…......…......…......…......…......….............................................................. 70

Chapter 5 – Prevention of Financial Crimes…………………………………………………………………………………………….

5.1 Introduction to Prevention of Financial Crimes…………………………………………………………………………………… 71
5.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in Singapore.................................... 76
5.3 The Regulatory Framework of Financial Crimes – Rules and Regulations………........................................ 76
5.4 MAS Notices & Regulations on Prevention of Money Laundering & Countering the Financing of
Terrorism………………………………………………………………………………..…………………………………………………………………. 81
5.5 Targeted Financial Sanctions related to Anti-Money Laundering and Terrorism Financing.................... 82
5.6 Designation of Tax Crimes as Money Laundering Predicate Offences in Singapore ………………............... 83
5.7 The Three Lines of Defence…………………………………………………………………………………................................. 84
5.8 Client Onboarding …................................................................................................................................. 85
5.9 Enterprise-Wide Risk Assessment……….................................................................................................. 98
5.10 Operational Risk Controls to Prevent Financial Crimes…………………………….............................................. 98
5.11 Reporting and Filing Requirements……………………………………………………………………………………………………. 99
5.12 Penalties & Risks for Non-Compliance……………………………....................................................................... 100
5.13 Training, Audit and Internal Control Framework………………………………………………………………………………... 101

Appendix A – Criteria for the Assessment of a Customer Account Review ….…..……………………………………. 102

Appendix B – Criteria for the Satisfaction of the Customer Knowledge Assessment ………………................. 103

Appendix C – Risk Warning Statement for Overseas-Listed Investment Products…………………………………… 104

Appendix D – Excluded Investment Products…………………………………………………………………………………………. 107

Appendix E – Examples of Suspicious Transactions………………………………………………………………………………… 109

Appendix F – Review Questions…………………………………………………………………………………………………………….. 115

Appendix G – Essential Readings……………………………………………………………………………………………………………. 120

1 | Chapter 1 - The Capital Markets Industry in Singapore and Participants in the Capital Markets

Chapter 1:
The Capital Markets Industry in Singapore
and Participants in the Capital Markets
Learning Objectives
The candidate should be able to understand the:
 Basic features of the capital markets, including primary and secondary markets, exchanges (over-
the-counter and regulated) and financial intermediaries.
 Different business activities undertaken by institutional participants in the capital markets.
 Roles of each regulatory body in the regulation of the securities industry:
 Monetary Authority of Singapore
 Singapore Exchange Securities Trading Ltd
 The Central Depository (Pte) Limited
 Singapore Exchange Derivatives Trading Ltd
 Singapore Exchange Derivatives Clearing Ltd

 Origin of the relevant rules and requirements governing securities and derivatives trading and clearing
including:
• Securities and Futures Act
• Mainboard and Catalist Rules
• SGX-ST Rules
• CDP Clearing Rules
• DVP Rules
• CDP Depository Rules
• Futures Trading Rules
• SGX-DC Clearing Rules

1.1 Introduction

1.1.1 The Capital Markets in Singapore

1. The Primary Market

An important function of the capital markets is to provide opportunities for businesses to raise capital to fund
their business activities. These capital-raising activities take place in the primary market.

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Businesses raise capital through the issuance of various securities instruments such as shares / common stock
/ equity securities, bonds / fixed income securities and company warrants. Investors would then provide the
capital by buying these instruments.

When investors buy these instruments, they are taking on risk as the price of financial instruments fluctuates in
accordance with the company’s performance. Changes in the value of the instruments would eventually lead
to the investors wishing to sell their holdings, either to realize a profit, or to remove a poorly performing
instrument from their investment portfolio.

2. The Secondary Market

Trading activity that takes place outside of the initial capital-raising activities (i.e. in the primary market) take
place in the secondary market. As such, it can be said that the secondary market allows investors to manage or
transfer their risk to other parties.

Risk transfer or risk management can also be achieved by trading in futures or derivatives products instead of
simply selling the shares or bonds. Some examples of derivatives include Futures, Options, and Issuer or
Company Warrants.

Singapore Exchange Limited (SGX) provides capital-raising and risk management opportunities to the global
market through its product offerings.

Table 1.1.1: Examples of Products Offered by SGX for Capital Raising & Risk Management

Capital Raising Risk Management

SGX Securities  Shares  Issuer Warrants

Trading  Bonds
 Company Warrants
SGX Derivatives  Futures
Trading  Options

1.1.2 Exchanges

Primary and secondary market activities can either take place in the over-the-counter (OTC) markets or on
regulated exchanges. The OTC market is also known as the “call around” market, because market participants
call each other directly to determine each other’s interest to buy or sell any given security.

An exchange provides a centralized market where buyers and sellers can congregate. This allows for the easy
discovery of the prices and quantities at which each participant is interested to buy or sell securities. In order
to trade on an exchange, the buyer or seller needs to either be a Trading Member of the exchange, or a customer
of a Trading Member of the exchange.

1.1.3 Financial Intermediaries

There are different types of financial intermediaries that connect the businesses that need to raise capital with
public investors.

In the primary market, the process of raising capital through new securities is a complex process through which
businesses are able to reach out to potential investors. For example in the equity market, new shares are issued
through a process termed the Initial Public Offering (IPO) where a business is required to present investors with

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accurate information on its financial standing, future potential and any other relevant information. Financial
intermediaries such as banks or financial institutions with a capital markets services licence to advise on
corporate finance are usually appointed as issue managers, as most businesses are unlikely to have such
expertise in-house.

In the secondary market, it would be difficult for an investor who is holding a security to directly find a buyer for
the same security. In this case, other financial intermediaries such as brokers function as a middle agent to
match selling interest and buying interest.

1.2 Institutional Participants in the Capital Markets

1.2.1 Banks

There are different types of banks licensed under the Banking Act Cap. 19 or approved under the Monetary
Authority of Singapore Act, which may provide capital markets services, e.g. as dealing in securities.

The types of banking licences include:

i. Qualifying Full Banks/ Full Banks
ii. Wholesale Banks
iii. Offshore Banks
iv. Merchant Banks

1. Qualifying Full Banks/Full Banks

Qualifying Full Banks and Full Banks provide the whole range of banking business approved under the Banking
Act and are allowed to take deposits of any amount in any currency, including offering savings accounts. They
are also allowed to provide capital markets products, custodial business, underwriting, corporate finance
activities and some even offer life policies as distributors for insurance companies. In view of the fact that they
do not have restrictions in offering deposit products, many of the Qualifying Full Banks or Full Banks are also in
the retail banking business as well. Their clientele base is more diversified with mass retail, private banking and
institutional clients.

2. Wholesale Banks

Wholesale Banks provide the full range of banking business but are restricted in their deposit taking activities.
Wholesale Banks are only allowed to take foreign currency deposits in any amount but are restricted to take
deposits in Singapore dollars. They can only accept Singapore dollar deposits of at least S$250,000. They are not
allowed to operate Singapore dollar savings deposit accounts. Many wholesale banks therefore prefer to solicit
business from High Net Worth Individuals (HNWI) through their private banking arms. Such clients are usually
more interested in capital markets products for investments.

3. Offshore Banks

Offshore banks can generally carry on any banking business subject to restrictions on Singapore dollar business.
Offshore banks are not allowed to accept Singapore dollar deposits whether in the form of fixed deposits or
savings deposit from Singapore residents. It is also restricted in lending in Singapore dollars. Such Singapore
dollar lending cannot in aggregate exceed $500 million at any one time unless with the prior approval of MAS.
An offshore bank can accept Singapore dollar deposit from non-residents subject to a minimum threshold of
S$250,000 but cannot operate a savings deposit account even for non-residents. In view of the restrictions on

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their licences, offshore banks are not in the retail space and are usually in more specialised areas such as trade
finance with their corporate clients or private banking business where capital markets investment products and
services are offered.

4. Merchant Banks

Merchant Banks are not licensed under the Banking Act but are approved under the MAS Act. They are not
allowed to accept deposits or borrow from the public in any form except from banks, finance companies,
shareholders and companies controlled by shareholders. Merchant banks therefore are also not found in the
retail space but can undertake corporate finance activities (including flotation, underwriting, buying and selling
of shares and other securities), which falls under capital markets services or private banking through its Asian
Currency Unit for non-Singapore dollar banking business.

1.2.2 Capital Markets Services (CMS) Licence Holders

CMS licence holders which are related to securities include (amongst others):
i. Broker / Dealer Companies
ii. Corporate Finance Advisory Companies
iii. Providers of Custodial Services for Securities

1. Broker / Dealer Companies

Apart from banks, broker/dealer companies are another class of financial intermediary. These companies do
not engage in the deposit-taking and credit extension activities like banks, but instead specialise in matching
buyers with sellers. In the context of the capital markets eco-system, broker/dealer companies would also be
Trading or Clearing Members which provide trading or clearing facilities to their customers, allowing the
customers to trade on the exchange1.

2. Corporate Finance Advisory Companies

Corporate finance advisory companies provide corporate finance advisory services including acting as issue
managers or sponsors for listings on the Mainboard or Catalist of SGX-ST, as the case may be. They also advise
on arrangements, reconstructions and take-overs, acquisitions and disposals.

3. Providers of Custodial Services for Securities

These entities are required to hold a CMS licence in providing custodial services. Custodians serve institutional
clients, as well as individual clients. Besides providing general custodial services, custodians maintain records of
the movement of securities to and from their clients’ accounts and are the interface for their clients to the
exchanges for the settlement and delivery of securities. Some custodians also provide securities financing and
securities lending services. Securities lending is deemed as dealing in securities and consequently, an entity
which carries out securities lending is required to have a CMS licence to deal in securities. Securities financing
and securities lending are not similar activities and require a different type of CMS licence.

4. Others (Non-CMS Licence Holders) – Finance Companies

Finance companies are licensed under the Finance Companies Act and therefore are not required to apply for a
CMS licence for regulated activities which are not prohibited by the Finance Companies Act or where the finance

1 Refer to Section 1.3.1 for details about the Trading and Clearing Members of the SGX securities & futures markets.

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company has been granted an exception under Section 25(2) of the Act, and are exempted institutions. Finance
Companies generally are not active participants but usually use the services of Trading Members for the delivery
or settlement of purchases and sales of securities of their clients who are their customers with share financing
facilities. In providing such financing services, finance companies also provide custodial services of securities to
their clients and thus are responsible for the records of movement in the custodian accounts. Finance companies
are subject to MAS’ regulation, supervision and inspections.

1.3 The Regulatory Framework and Regulatory Bodies

Singapore’s regulatory framework for capital markets seeks to promote a sound, stable and progressive financial
services sector through regulation and supervision. Specifically, it seeks to safeguard interests of investors and
maintain confidence and stability in the market by:
 Keeping risks at acceptable levels to maintain both the stability of the financial system as a whole and the
soundness of individual institutions;
 Maintaining a safe and efficient financial infrastructure;
 Ensuring fair, efficient and transparent organised markets; and
 Keeping customers well-informed and empowered.

In order to achieve these objectives, the securities and derivatives markets, in particular, are regulated by
regulatory bodies including:
• Monetary Authority of Singapore (MAS)
• Singapore Exchange Securities Trading Ltd (SGX-ST)
• The Central Depository (Pte) Ltd (CDP)
• Singapore Exchange Derivatives Trading Ltd (SGX-DT)
• Singapore Exchange Derivatives Clearing Ltd (SGX-DC)

These regulatory bodies are responsible for originating and issuing the relevant rules and requirements
governing the trading and clearing of securities and derivatives trading, including:
• Securities and Futures Act (SFA)
• SGX Mainboard Rules
• Catalist Rules
• SGX-ST Rules
• CDP Clearing Rules
• Delivery-Versus-Payment (DVP) Rules
• CDP Depository Rules
• Futures Trading Rules
• SGX-DC Clearing Rules

1.3.1 Roles of the Regulatory Bodies

1. Monetary Authority of Singapore (MAS)

MAS was established under the MAS Act (1970), which came into force in 1972. Its mission is to promote
sustained non-inflationary economic growth, and a sound and progressive financial centre. Its functions are to:
a. Act as the central bank of Singapore, including the conduct of monetary policy, the issuance of currency,
the oversight of payment systems and serving as banker to and financial agent of the Government;

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b. Conduct integrated supervision of financial services and financial stability surveillance;

c. Manage the official foreign reserves of Singapore; and
d. Develop Singapore as an international financial centre.

MAS is responsible for, amongst others, the administration of the following legislations which are relevant to
the securities and futures industry, including:
 Securities and Futures Act (Cap. 289) (SFA), the main legislation governing the securities and futures
industry in Singapore.
 Securities and Futures (Licensing and Business Conduct) Regulations;
 Securities and Futures (Markets) Regulations;
 Securities and Futures (Clearing Facilities) Regulations;
 Securities and Futures (Financial and Margin Requirements for Holders of Capital Markets Services Licence)
Regulations; and
 Securities and Futures (Corporate Governance of Approved Exchanges, Designated Clearing Houses and
Approved Holding Companies) Regulations.

The SFA gives MAS a wide range of powers to enable the sound development of the securities and futures
market. These include (but are not limited to) the power to:
 Approve securities exchanges, futures exchanges and clearing houses;
 Review any amendments to rules and regulations of the Exchanges and clearing houses;
 Take disciplinary actions (such as warning, fine, reprimand, suspension of licence, revocation of licence and
issuance of prohibition order) if the licensed person contravenes any condition or restriction imposed on
its licence, or any direction issued to it by MAS under the SFA, or any provision in the SFA;
 Inspect the books of Exchanges, a person operating an exempt market, clearing house, a person operating
an exempt clearing facility, the holder of a capital markets services licence, an exempt person or a
representative; and
 Conduct investigation into alleged or suspected contravention of any provision of the SFA or written
direction issued under the SFA.

2. Singapore Exchange Limited (SGX)

SGX connects investors in search of Asian growth to corporate issuers in search of global capital. SGX is Asia’s
most international exchange with a large proportion of companies listed on SGX originating outside of Singapore.
It also offers clients the world’s biggest offshore market for Asian equity futures, centred on Asia’s three largest
economies – China, India and Japan.

In addition to offering a fully integrated value chain from trading and clearing, to settlement and depository
services, SGX is also Asia’s pioneering central clearing house.

In conducting its regulation of the markets, SGX has adopted six guiding principles:
 Guiding Principle One: Disclosure-Based Regulation – The facilitation of fair access to information for all
market users for achieving a fair, orderly, and transparent market.
 Guiding Principle Two: Comprehensive Risk Management - SGX focuses regulatory attention on the safe
and efficient operation of its clearing houses and requires a comprehensive, integrated, and reliable

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approach to the management of the counterparty risks from clearing and trading members as well as other
risks within the clearing houses.
 Guiding Principle Three: Risk-Based Targeting of Regulatory Activities - SGX adopts a pragmatic risk-based
approach. Supervisory activities focused on principles one and two are tailored according to risk profiles
developed for issuer sponsors and Member firms. Resources are allocated to those matters that it considers
as posing the greatest risks to achieving a fair, orderly, and transparent market and safe and efficient
clearing outcomes.
 Guiding Principle Four: Balanced Approach to International Best Practice - SGX aims to ensure that its rules
and regulatory activities are consistent with international best practice for exchanges and clearing houses,
striking an appropriate balance between internationally recognised practices and local needs and
conditions.
 Guiding Principle Five: Transparency - SGX seeks to be open and transparent in all its regulatory operations
to the extent consistent with its statutory obligations and the public interest.
 Guiding Principle Six: SGX as a Frontline Regulator and Managing Regulatory Conflict - MAS is the
statutory regulator and has oversight over SGX’s regulatory responsibilities. SGX performs a frontline
regulatory role in maintaining fair, orderly, and transparent markets, as well as safe and efficient clearing
facilities.

SGX maintains a close collaborative relationship with other regulatory and enforcement agencies such as the
MAS, Commercial Affairs Department (CAD) and the Accounting and Corporate Regulatory Authority (ACRA) on
matters such as regulatory policies, risk management, regulatory oversight, and enforcement actions.

3. Singapore Exchange Securities Trading Limited (SGX-ST)

SGX-ST is a subsidiary of SGX incorporated under the Companies Act. It undertakes the day-to-day regulation of
the securities market and administers the SGX-ST rules, which governs the access to and conduct in the securities
market of the SGX-ST. SGX-ST Trading Members are required to adhere to SGX-ST Rules.

SGX-ST is the only approved securities exchange in Singapore and is responsible for setting the rules and
membership and trading requirements of the exchange. SGX-ST can mete out disciplinary action for non-
compliance with any of the requirements.

SGX-ST allows companies and investors to achieve capital-raising and investment objectives through its rules,
such as the listing requirements for companies that wish to raise capital and to have their securities traded on
SGX-ST. Companies which are already listed can also raise further capital through the market and SGX-ST.

Companies can choose to be listed on the SGX Mainboard or the Catalist Board. The Mainboard caters to the
needs of more established companies, with higher entry and listing requirements such as minimum profit and
market capitalisation levels. The Catalist Board caters to the needs of smaller or fast-growing companies, and
has a different model where companies must be brought to list by approved Sponsors via an initial public offering
(IPO). For these companies, there is no minimum quantitative entry criteria required by SGX. Instead, Sponsors
will decide if the listing applicant should be listed.

The listing requirements applicable to all companies that wish to be listed on the SGX-ST platforms are covered
in the SGX-ST Listing Manual2, which contains the rules and regulations for among others:
 Listing Requirements;

2The SGX-ST Listing Manual contains the Mainboard Listing Rules and the Catalist Listing Rules. Refer to Section 1.5 or the SGX website
for further details http://rulebook.sgx.com/#

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 Acquisitions;
 Realizations;
 Takeovers; and
 Timely disclosure of corporate information.

4. The Central Depository (Pte) Limited (CDP)

CDP was established in 1987 as a wholly owned subsidiary of SGX. It provides integrated clearing, settlement
and depository facilities for the securities market, covering both equities and fixed income instruments. CDP
principally serves the Singapore market, but has links with other central depositories in the United States, Japan
and China to support settlement of cross-border trades.

CDP is now a Qualifying CCP (Central Counterparty). Members of Qualifying CCPs are subject to lower capital
requirement for their trade and default fund exposures under the new Basel III framework introduced by the
Basel Committee on Banking Supervision. This means that as a CDP member, one will benefit from lower capital
costs.

CDP holds the book-entry securities deposited with it as a bare trustee for the collective benefit of depositors.
Securities are immobilized at CDP where ownership is transferred via book-entry. The physical certificates of
immobilized instruments are safe kept with a CDP nominated custodian bank.

All trades executed on SGX are required to be settled on T+33. Each trade is settled on a gross basis during an
end-of-day settlement run. During the run, securities are transferred from a seller's securities account to that of
the buyer and vice versa.

For investors who hold direct accounts with CDP, they should ensure that their trading accounts maintained
with SGX-ST members are linked to their direct securities accounts before trading. The linkage effectively is a
standing instruction from the investor to CDP, to act upon the sole instruction of the SGX-ST member to debit
securities from and credit securities into the securities account pertaining to SELL and BUY contracts executed
through that trading account.

In 2008, CDP launched the Pre-Settlement Matching Service (PSMS) to replace the manual processes where
depository agents and SGX-ST members agree trade details over the phone before manually affirming the
transaction settlement details in CDP. PSMS positions Singapore securities processing in line with global markets
by introducing a straight-through-processing environment to automate the pre-settlement matching process
prior to settlement at the CDP. This automation, through PSMS, improves operational efficiency and minimizes
operational risk by eliminating errors and delays associated with manual processing and mitigates the risk of
settlement failures through the early matching of settlement instructions. Depository agents and SGX-ST
members will either upload a data file or manually input settlement instructions into PSMS without prior
communication with their settlement counterparts.

Participants can choose to settle their transaction on a Delivery-versus-payment (DVP) or Free-of-Payment (FOP)
basis. For DVP transactions, CDP acts as central counterparty between the participants. For transactions settled
on a FOP basis, participants make their money settlement without involving CDP.

DVP rules govern the settlement of trades on a delivery-versus-payment basis through CDP. Clearing Members
of CDP must adhere to the CDP Rules. These are the:
 CDP Clearing Rules
 CDP Depository Rules

3 Refers to T+3 exchange business days, which is 3 exchange business days after the trade day.

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5. Singapore Exchange Derivatives Trading Limited (SGX-DT)

SGX-DT was established under the Companies Act and carries on the business of establishing, conducting and
regulating a futures market with underlying assets including commodities and financial instruments under the
SFA. SGX-DT lays down the rules and requirements to ensure orderly trading and settlement of futures and
options on various products, including interest rates, equity and equity indices and energy, covering major
markets such as Asia, Europe and United States. These are contained in the Futures Trading Rules, which govern
SGX-DT Trading Members.

6. Singapore Exchange – Derivatives Clearing Limited (SGX-DC)

SGX-DC is a wholly owned SGX subsidiary, and provides clearing for:

 Products quoted on Singapore Exchange Derivatives Trading (SGX-DT);
 OTC commodity trades registered via the SGX OTC Trade Registration Platform (TRS); and
 OTC financial derivatives trades registered via industry-used trade registration system.

SGX-DC is now a Qualifying CCP. As mentioned in Section 1.4.1.4, members of Qualifying CCPs are subject to
lower capital requirement for their trade and default fund exposures under the new Basel III framework.
Similarly this means that as an SGX-DC member, one will benefit from lower capital costs.

Futures Clearing Members are governed by the SGX-DC Clearing Rules.

1.4 SGX Listing Framework

SGX provides an avenue for companies to raise capital for their businesses. It also sets the rules for this avenue
through its listing requirements.

1.4.1 Listing Process

A company seeking listing in the SGX must first apply to SGX, which requires the submission of an application
for listing. Before making the application, the company will first have to engage an adviser as the issue manager
to prepare for the listing application. Such services are usually provided by a bank or a financial institution with
a CMS licence for advising on Corporate Finance. The company then authorises the issue manager to deal with
the SGX on its behalf.

The issue manager plays an active role in the listing process. It will gather the required information, liaise with
the SGX on matters relating to the application and makes the final submission. Services of legal and accounting
firms are usually engaged to oversee the legal and accounting aspects of the application, especially on the factual
and legal representation and disclaimers.

1.4.2 Initial Public Offer (IPO) Timeline

Prior to the submission of the listing application, the company is advised to consult SGX and seek pre-clearance
on any issues it is unclear about to reduce any delays in the processing of the application.
There are two parts to the timeline:
 The pre-submission preparation and
 Post –submission approval and listing

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The average timeline for submission to approval and trading is as follows:

i. Pre-submission consultation - 2-6 months
ii. SGX & MAS review 9 – 12 weeks
iii. Lodgement & Public Exposure on MAS Opera website - 2 weeks
iv. Registration & Launch - 1-2 weeks
v. Trading Commences

Figure 1.4.2: Timeline to Launch

iii) Lodgement &

i) Pre-submission ii) SGX &MAS iv) Registration & v) Trading
Public Exposure
Consultation approval Launch Commences
on Opera

Source: SGX website (refer to Footnote 4)

1.4.3 Listing Requirements

1. Methods of Listing

Primary Listing - Companies must meet SGX’s initial listing requirements outlined below for either a Mainboard
or Catalist Listing. After listing, companies have to comply with all of SGX’s continuing listing obligations.

Secondary listing - Companies that are already listed on an acceptable exchange (referred to as the “home
exchange”) may seek a secondary listing on SGX Mainboard without having to comply with SGX’s continuing
listing obligations. Secondary-listed companies must make announcement to SGX and provide all information
and documents to it at the same time as they are released to the home exchange. They must comply with all
the rules of the home exchange and the laws of the jurisdiction in which the company is incorporated.

2. Global Depository Receipts (GDR)

A company that is already listed on an overseas exchange must abide by the rules of its home exchange. It can
also choose to list and raise funds via GDRs on SGX Mainboard. GDRs are specialist products offered only to
institutional and accredited investors. GDR issuers must provide all information and documents (in English) to
SGX at the same time as such information are released to the home exchange.

1.4.4 Initial Public Offering (IPO) or Introduction

A company seeking listing on SGX, whether on a primary or secondary listing basis, should at the beginning
indicate its listing preference and at the point of application do the following:
i. For an IPO – The company should indicate whether it intends to issue new shares or offer existing shares to
the investing public. It should then lodge a prospectus with MAS prepared in accordance with the relevant
regulations. During the course of the listing process, the prospectus will be subject to public comments for
up to 2 weeks.
3. For an Introduction - If the intention is to list by way of Introduction, no shares will be offered to the
investing public. This route is suitable for companies that do not require funds at the point of listing but
needs to pave the way i.e. by introducing itself in the market. An Introductory document has to be submitted
to SGX which is to be prepared based on the requirements in the relevant regulations. The Introductory
document will not be subjected to public comments.

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1.4.5 Mainboard Admission Requirements

A company seeking to list on the Mainboard must meet the admission requirements4 summarized in the table
below. Review of the listing documents is done by SGX and MAS.

New Mainboard admission criteria

Companies intending to join SGX’s Mainboard must meet one of the following
quantitative requirements:
• Minimum consolidated pre-tax profit of at least S$30 million for the latest
financial year with operating track record of at least 3 years;
• Profitable in the latest financial year, and has a market capitalization of not less
Quantitative than S$150 million based on the issue price and post-invitation issued share
Requirements capital with operating track record of 3 at least years; or
 Operating revenue in the latest completed financial year and a market
capitalization of not less than S$300 million based on the issue price and post-
invitation issued share capital. Real Estate Investment Trusts and Business
Trusts who have met the S$300 million market capitalization test but do not
have historical financial information may apply under this rule if they are able
to demonstrate that they will generate operating revenue immediately upon
listing. Operating track record required is at least 1 year.
Admission standards for MOG listing aspirants that are not in production

A MOG listing aspirant that is not in production seeking a listing has to satisfy the
following conditions:
• Has market capitalisation of not less than S$300 million based on the issue
price and post-invitation issued share capital; and
• Discloses its plans, milestones and capital expenditure to advance to
Mining, Oil & Gas production stage.
(MOG)
Requirement for all MOG companies:
Requirements
• Have at least achieved Indicated Resources (for Minerals) or Contingent
Resources (for Oil & Gas);
• Have sufficient working capital for 18 months from listing;
• Have at least one independent director with appropriate industry experience
and expertise; and
• Appoint an audit firm with the relevant industry experience.

• 25% of issued shares in the hands of at least 500 shareholders (For market
capitalisation > S$300 million, shareholding spread varies between 12-20%);
Shareholder Spread and
• At least 500 shareholders worldwide in the case of a secondary listing and
where the Exchange and the primary home exchange do not have an

4 Refer to SGX website: http://www.sgx.com/wps/portal/sgxweb/home/listings/getting_started/listing_boards?clink=equities=1=1

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established framework and arrangement to facilitate the movement of shares,

at least 500 shareholders in Singapore or 1,000 shareholders worldwide.
Independent
2 Singapore resident independent directors.
Directors
• After IPO, promoters cannot sell any of their shareholdings for 6 months. They
may sell up to 50% of their shareholdings thereafter for the next 6 months.
Moratorium • For Pre-IPO investors who had acquired their shares within the 12-month
period prior to IPO and hold > 5% shareholding, the “profit portion” of their
shareholdings is subjected to a moratorium period of 6 months after IPO.

• Prospectus;
IPO Documentation
• Lodged on MAS OPERA website.
Accounting
Singapore, US or International Accounting Standards.
Standard
Domicile At the discretion of the issuer.
Trading & Reporting
At the discretion of the issuer.
Currency
Business Operations No requirement for operations in Singapore.

Rules relating to disclosure of material information, periodic reporting, additional

Continuing
share issuance, corporate transactions, corporate governance guidelines, interested
Obligations
persons transaction and free float will apply.

1.4.6 Catalist Listing

1. Sponsorship

A company seeking a listing on Catalist can only choose the primary listing route. The company must also have
a sponsor for the Catalist listing, who has been approved by SGX.

Sponsors are chosen and approved by SGX based on stringent eligibility criteria which include experience in
corporate finance and compliance advisory work, and they are closely supervised and regulated through the
continuing obligation route. They are required to employ qualified professionals who must also be approved by
SGX as “Registered Professionals”.

Sponsors are responsible for the admission and continuing obligations of companies listed on Catalist as SGX no
longer undertakes direct supervision over admission and continuing obligations of companies listed on Catalist.
Such admission and supervision has been transferred to sponsors.

A company seeking listing through Catalist must comply with listing requirements even though there is no
minimum quantitative entry criteria set by SGX. The IPO documents are not reviewed by SGX. The admission of
the company is based on the sponsor’s assessment of its suitability for listing.

A company on Catalist must engage a sponsor on an ongoing basis for as long as they are listed on the Catalist
Board. Sponsors take direct supervision responsibility of the company listed on Catalist but SGX retains the
power to discipline them for breaches of rules and regulations.

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Figure 1.4.6.1: Timeline for Listing on Catalist

ii) Lodgement &

i) Notification iii) Registration Trading
Public Exposure
to SGX & Launch Commences
on Catalogue

Source: SGX website at http://www.sgx.com/wps/portal/sgxweb/home/listings/getting_started/listing_boards?clink=equities=1=1

2. Offer Document

Before registering with Catalist, the company has to lodge an Offer Document on SGX Catalodge website. The
Offer Document has to comply with the same disclosure requirements as a prospectus prepared in accordance
with the securities and futures regulations. This includes the provisions relating to civil and criminal liability
under the SFA.

The Offer Document is to be lodged with SGX, acting as agent of MAS. The Offer Document will be posted on
the SGX’s Catalodge website for a period of at least 14 days for public comments providing an avenue for public
to air any concerns they may have of the company and its status.

3. Working Capital Statement

The sponsor and directors of the company must include a statement in the Offer Document stating that the
company has sufficient working capital for their present requirements and for at least 12 months after IPO.

4. Shareholding Spread

Shareholding spread is set at 15% of issued capital in the hands of the public with a minimum of 200
shareholders.

5. Moratorium Period

To secure the commitment of promoters and pre-IPO investors there will be restrictions on the sale of the
shareholdings of the promoters.

If at the time of the IPO the promoters hold more than 50% of the post-invitation share capital, they are allowed
to sell provided their shareholdings will not go below 50% of the post invitation share capital. If they hold less
than 50% of the post-invitation share capital at the IPO, they cannot sell any shares at the IPO. They are also
prevented from selling any of their shareholdings during the 6 months after the IPO and may sell only 50% of
their shareholdings in the subsequent 6 months.

For pre-IPO investors who had acquired their shares within the 12 month period prior to IPO, the “profit portion”
of their shareholdings will be subject to a moratorium period of 12 months after the IPO. The profit portion is
calculated by multiplying the difference between the price paid by the investor for the shares and the IPO price
by the number of shares held.

6. Differences between the Mainboard and Catalist Listing Requirements

The main differences between the Mainboard and Catalist Listing requirements are shown in the table below:

Mainboard Catalist

Established Companies Fast Growing Companies

Target Companies
(Quantitative entry criteria) (No Quantitative entry criteria)

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Mainboard Catalist

Regulatory Approach Exchange-regulated & supervised Exchange-regulated, sponsor -supervised

Review of IPOs &

SGX Sponsors
Post-IPO Supervision

 Established Mainboard branding  Faster time to market

Key Advantages to  Access to wider range of  Easier subsequent fundraising,
Companies institutional investors acquisitions & disposals
 Open to more product type  Ongoing Sponsor guidance

Quantitative
Yes No
admission criteria

 Non pro-rata (not offered to

existing shareholders): 20%
Maximum thresholds  Non Pro-rata: 50% to 100%
for fund-raising  Pro-rata (offered to existing
 Pro-rata: 100%
shareholders in proportion to
their shareholdings

 Acquisition: 75% or more of

Thresholds for
20% or more of ratios calculated in Benchmarks
Shareholder Approval
comparison to specified benchmarks
for Acquisitions &  Disposal: 50% or more of Benchmark
(Benchmarks)
Disposals
 Fundamental change in business

1.4.7 Mainboard and Catalist Board Continuing Listing Obligations

Both methods of listing requires similar continuing listing obligations.

1.4.8 Roles & Responsibilities of the Sponsor and SGX with regard to the Catalist Board

1. Sponsors’ Roles & Responsibilities

The main obligations are summarized below and include:

i. Ensuring the proper assessment of eligibility criteria or conditions imposed by SGX for listing of companies
under their sponsorship;
ii. Reporting to SGX any material or adverse matters which may impact the company;
iii. Seeking SGX’s advice about the application or interpretations of rules;
iv. Notifying SGX promptly on the employment of new professional to be registered and the resignation of
registered professionals;
v. Having adequate systems and resources to discharge its obligations including having sufficient number of
registered professionals who are “Fit and Proper”;
vi. Acting professionally, transparently and efficiently in its dealings with the listing applicants or companies
as follows:

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a. Exercising due care and professionalism;

b. Maintaining regular contact with the companies;
c. Seeking assistance of other appropriately qualified and suitable professionals such as specialist in
law and accounting whilst retaining its overall management and oversight of the activity;
d. Avoiding conflict of interest situations and remaining independent in its relations with the listing
applicant; and
e. Accepting sponsorship of companies that are willing to submit to SGX’s rules and thus allowing itself
to discharge its duty.

2. SGX’s Role & Responsibilities

SGX’s role is to lay down the rules and review the performance, processes and controls of the sponsors against
these rules. In carrying their reviews they ascertain:
i. The quality and due diligence standards of the sponsor’s assessment process.
ii. The quality of its continuing activities;
iii. Whether there are breaches of the rules.

3. SGX’s Actions for Non-Compliance

In the event of breaches of the rules by the sponsors or its registered professionals, the SGX can take the
following actions:
i. Reprimand the sponsor or registered professional privately or publicly;
ii. Require the directors, senior management and registered professionals to attend a re-education program
focused on complying with the rules;
iii. Require rectification measures to be taken by the sponsor or registered professionals;
iv. Put conditions and restrictions on the activities of the sponsor or registered professionals; or
v. Suspend the sponsor or registered professional from carrying out some or all of its activities for a period of
time with the suspension being announced to the market.

1.4.9 Explanation of Terms

The term “Listing” means being listed on the official boards of SGX and companies “listed” will appear on the
official list of the SGX.

“Quotation” refers to companies that are quoted and are dealt with over the counter (OTC) and are not listed
on the SGX official list. In such instances, SGX acts only as a platform provider for the trades and the prices of
these companies are quoted on GlobalQuote platform. These companies are not required to meet listing
requirements or continuing listing requirements.

1.4.10 Access to Material Information about Listed Companies

Listed companies must announce all material information which investors would reasonably require to have in
order to make informed decisions on listed securities. They are to do this through the SGXNet system which is
accessible by the public on SGX website www.sgx.com.

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Such information includes information about its subsidiaries and associated companies which are necessary to
be reported to avoid what may seem like creating a false market or would be likely to affect the price or value
of the listed company’s shares.

1.4.11 Shareholders Rights to Vote at Meeting

Notices convening meeting shall specify the place, day and hour of the meeting and a meeting to consider special
businesses shall be accompanied by a statement regarding the effect of any proposed resolution in respect of
such businesses. Notices shall be given to all shareholders at least 14 days before the meeting for ordinary
resolutions and 21 days for special resolutions.

A holder of ordinary shares shall be entitled to be present and to vote at any general meeting. Shareholders who
are unable to attend a shareholders meeting may appoint a proxy to attend and vote on its behalf. A proxy shall
be entitled to vote on a show of hands on any matter at any general meeting.

1.4.12 SGX’s Actions on Breaches whether on Mainboard or Catalist Board

Breaches of the SGX-ST Rules and Futures Trading rules by Members, their directors, employees and
representatives will be investigated by the SGX’s Risk Management & Regulation Group. On completion of an
investigation SGX-ST or SGX-DT may do the following:
i. Issue a warning letter;
ii. Impose a fine on the Member;
iii. Initiate disciplinary proceedings before the appropriate disciplinary committees;
iv. Refer the matter to relevant government authority for further action;
v. Reprimand, Suspend, Fine or Expel a Member or its Representative;
vi. Publish the disciplinary action taken; and/or
vii. Do not take further action if there is insufficient evidence of a breach.

1.4.13 Listing of Debt Securities on SGX

Besides listing on SGX Mainboard and Catalist, companies or issuers can list debt securities on SGX, which gives
them access to the debt capital markets in Singapore. Types of debt securities eligible for listing on SGX include
fixed and floating-rate bonds, convertible and exchangeable bonds, covered bonds, asset-backed securities, loan
participation notes, commercial papers, hybrid capital securities (e.g. preference shares) and structured
products.

The listing of debt securities are similarly subject to listing requirements regarding the issuer’s profile, trustee
and trust deed, offering memorandum, listing fees and continuing obligations5.

5 Refer to SGX website for further info: http://www.sgx.com/wps/portal/sgxweb/home/listings/getting_started/listing_boards

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Chapter 2:
Licensing and Business Operations
Learning Objectives
The candidate should be able to understand:

 The regulatory requirements for the grant of capital markets services licence

 The requirements for notification as appointed representatives under MAS Representative Notification
Framework

 The regulations and guidelines for advertising

 The regulations and guidelines for Specified Investment Products trading accounts

 The laws and regulations for safeguarding the confidentiality of customer information

 The rules and regulations on managing customer accounts

 The rules and regulations on record keeping, audit and the protection of customers’ moneys and
assets

2.1 Introduction

This chapter focuses on the regulatory requirements governing the business operations of Capital Markets
Services (CMS) licence holders and Individual Representatives.

CMS licence holders are licensed and regulated under the SFA. A corporation may make an application for a
CMS licence1 to carry on business in one or more of the regulated activities as specified in the SFA. Individuals
acting for CMS licence holders to carry out the regulated activities are required to be appointed representatives
under the SFA2.

MAS is able to supervise CMS licence holders and their representatives via a framework of legal and regulatory
requirements to ensure that they are well-managed and resilient against systemic risks.

Confidence and stability are core to an efficient and well-functioning capital market. Therefore, in addition to
requiring CMS licence holders to be licenced, MAS requires them to conduct business professionally and act

1SFA 86 - Grant of CMS Licence

2SFA Second Schedule - Regulated Activities

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responsibly by having adequate resources, tools, systems, processes and controls in place to provide efficient
and quality services. CMS licence holders must also ensure that their representatives are properly trained and
competent to give fair and professional advice to their clients.

2.2 Grant of CMS Licence

A CMS licence will only be granted to a corporation3. A corporation proposing to conduct regulated activities
regulated activities under the SFA would need to hold a CMS licence under the SFA unless it is exempted under
the Third Schedule4 or is an exempt institution5.

The minimum licensing admission criteria for corporations applying for a CMS licence ensure that only financially
sound and reputable corporations that are prudently managed and directed by integrous and competent officers
are granted a CMS licence.

2.2.1 Base Capital Requirements

A CMS licence holder, a corporation needs to satisfy the Base Capital Requirements (BCR)6 for its proposed
regulated activities. The BCR for dealing in securities are shown on the following page:

Table 2.2.1: Base Capital Requirements for Dealing in Securities

Regulated Activity BCR (S$)

Dealing in securities (clearing member7) 5 million

Dealing in securities (non-clearing member8) 1 million
Dealing in securities (non-member9) 1 million
Dealing in securities (introducing broker10) 500,000
Dealing in securities (restricted broker11) 250,000

3For applicants that are incorporated in a foreign country, they should satisfy MAS that the branch in Singapore would be subject to
proper management oversight and be able to comply with all laws and regulations governing its operations.
4 SFA Third Schedule - Specified Persons
5SFA 99 - Exemptions from Requirement to Hold CMS Licence; SFR (LCB) - Second Schedule (Exemptions from Section 82(1) & 99(b) of
the Act
6SFR (Financial & Margin Requirements for Holders of Capital Markets Services Licences) First Schedule – Base capital requirement for
a corporation to be granted a CMS licence; SFA04-G01 - MAS Guidelines on Criteria for the Grant of a CMS licence, Annex 1(A)
7 Refers to a corporation which is a member of an approved clearing house authorised to operate a clearing facility for securities.
8Refers to a corporation (not being an introducing broker or restricted broker in relation to dealing in securities) which is a member of
a securities exchange.
9Refers to a corporation (not being an introducing broker or restricted broker in relation to dealing in securities) which is not a
member of a securities exchange.
10For the purposes of dealing in securities, refers to a corporation (dealing in securities) which does not carry any customer’s positions,
margins or accounts in its own books; and either (i) carries on the business only of soliciting or accepting orders for the purchase or sale
of any securities from any customer (not being a restricted broker); or (ii) accepts money or assets from any customer as settlement of,
or a margin for, or to guarantee or secure, any contract for the purchase or sale of securities by that customer.
11For the purpose of dealing in securities, refers to a corporation (dealing in securities) which (i) does not carry any customer’s
position, margins or accounts in its own books; (ii) deals in securities only with accredited investors; and (iii) does not accept money or
assets from any customer as settlement of, or a margin for, or to guarantee or secure, any purchase or sale of securities by that
customer.

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2.2.2 General Criteria

The applicant should be primarily engaged in the business of conducting any one of the regulated activities and
be operating out of a physical office in Singapore. The applicant must satisfy that it will discharge its duties
efficiently, honestly and fairly.

MAS would take into account whether the applicant is a reputable entity that has an established track record in
the proposed activity to be conducted in Singapore or in a related field, for at least the past 5 years. The
applicant and its holding company or related corporation, where applicable, should also have good home ranking
in its home country and is subject to proper supervision by its home regulatory authority. The applicant, its
officers, employees, representatives and substantial shareholders must be “fit and proper” persons in
accordance with MAS’ Guidelines on Fit and Proper Criteria12.

2.2.3 Criteria in Respect of the Board of Directors, Chief Executive Officer and Representatives of
the Applicant13

The board of directors and senior management of the applicant should uphold good corporate governance
standards and practices in directing and managing the applicants business. The board of directors should
compromise a minimum of 2 members, at least one of whom is resident in Singapore. The chief executive
officer14 of the applicant should also be a resident in Singapore.

The applicant must obtain MAS’ approval prior to appointing a person as its chief executive officer, its director
who resides in Singapore or is to reside in Singapore, or its director who is directly responsible for its business
in Singapore. In addition, the applicant is required to employ at least 2 full time individuals in respect of each
regulated activity for which the corporation is seeking to be licenced to conduct. These individuals must be
appointed as representatives for the relevant regulated activity as required under the SFA.

2.2.4 Notification of Change of Particulars

A CMS licence holder is required to inform MAS within 14 days of any change in particulars if it ceases to carry
on business in the regulated activity it is licenced for; or if there is a change in the CMS licence holder’s records15
as follows:
1. The CMS licence holder’s name;
2. The address of the principal place of business in respect of the licenced activity;
3. The regulated activity or activities to which its licence relates;
4. Where the business is carried on under a name or style other than the name of the CMS licence or the name
or style under which the business is carried on; and
5. Such other information as may be prescribed.
These changes have to be reported within 14 days as the information is required by MAS for publication and
communication to the investing community and market participants to enable them to assess the impact of the
changes.

12 FSG-01-MAS Guidelines on Fit and Proper Criteria

13 SFA 04 - G01-MAS Guidelines on Criteria for the Grant of a CMS Licence, sections 3.9 to 3.15
14 SFA 2(1) - Interpretation
15 SFA 94 - Records of Holders of CMS Licence

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2.2.5 Lapsing, Revocation and Suspension of Capital Markets Services Licence

A CMS Licence will lapse if the CMS licence holder is wound up or dissolved, whether in Singapore or elsewhere.
MAS may also revoke or suspend a CMS licence if it has reasons to believe that the CMS licence holder or its
representatives or officers had failed to discharge its duties efficiently, honestly and fairly, or had not acted in
the best interest of its customers or had breached the conditions imposed on their licences16.

Penalties – Lapsing, Revocation and Suspension of Capital Markets Services Licence (SFA 95)

Heavy penalties are imposed if a CMS licence holder continues to carry on business after its licence had lapsed
or been suspended or revoked. Fines of up to $150,000 will be imposed upon conviction, and a further fine
of not exceeding $15,000 will be imposed for every day the offence continues after conviction. This is to
ensure that customers are not misled into dealing with errant CMS licence holders which may result in
financial losses or credit issues for the unknowing customers.

2.2.6 Approval of CEOs and Directors

To ensure that CMS licence holders are soundly and prudently managed or directed by “fit and proper” persons,
CMS licence holders are also required to seek MAS’ prior approval for the appointment of a chief executive
officer or director17. This prevents individuals who are not of good standing from being appointed, especially if
they have been convicted in Singapore or elsewhere of dishonesty or fraud or are undischarged bankrupts, have
been compounded with creditors or have unsatisfied judgement debts.

This expectation of CMS licence holders to meet the “fit and proper” criteria” requirements continue even after
a CMS licence has been granted, and is monitored on a continuing basis. MAS has the power of authority to
remove the CMS licence holder’s executive officers or directors if they fail to meet “fit and proper” criteria, e.g.
if they had been convicted of an offence involving fraud and dishonesty, is an undischarged bankrupt, failed to
discharge their duties of office.

2.2.7 Duties of Capital Markets Services Licence Holders

CMS licence holders have to comply with all laws and rules governing their operations. To provide reasonable
assurance on the safety, effectiveness and efficiency of their business operations, CMS licence holders have to
institute adequate internal controls commensurate with the nature, scale and complexity of the business 18.
These include:
1. Implementing effective written policies on all operational areas, including financial policies, accounting and
internal controls, and internal auditing. CMS licence holders must ensure compliance with the policies;
2. Putting in place compliance function and arrangements, including specifying the roles and responsibilities
of officers and employees in helping to ensure its compliance with all applicable laws, codes of conduct and
standards of good practice in order to protect investors and reduce the CMS licence holder’s risk of incurring
legal or regulatory sanctions that may be imposed by MAS or any other public authority, financial loss, and
reputational damage;

16 SFA 95 - Lapsing, Revocation and Suspension of CMS Licence

17SFA 96 - Approval of Chief Executive Officer or Director of Holder of CMS licence; SFR (LCB) 12 - Application for Appointment of Chief
Executive Officer and Director
18 SFR (LCB) 13 - Duties of Holder of CMS Licence

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3. Identifying, addressing and monitoring the risks associated with the trading or business activities;
4. Ensuring that their business activities are subject to adequate internal audit;
5. Ensuring that internal audits include inquiring into the CMS licence holder’s compliance with all relevant
laws and all relevant business rules of any securities exchange, futures exchange and clearing house;
6. Setting out in writing the limits of discretionary powers of each officer, committee or sub-committee or
other group of persons empowered to commit the CMS licence holder to any financial undertaking or to
expose it to any business risk (including any financial, operational or reputational risk);
7. Keeping a written record of the steps taken by the CMS licence holder to monitor compliance with its
policies, its accounting and operating procedures, and the limits on discretionary powers;
8. Ensuring accuracy, correctness and completeness of any report, book or statement submitted by the CMS
licence holder to its head office (if any) or to MAS; and
9. Ensuring effective control and segregation of duties to mitigate potential conflicts of interest that may arise
from the CMS licence holder’s operations.

CMS licence holders also have the responsibility to implement clearly defined policies and procedures for
ensuring that only qualified persons are appointed as representatives for conducting regulated activities.

CMS licence holders must ensure that their representatives pass the requisite examination or are exempted
from the examination before registering them as representatives. They are required to maintain a register which
includes information on the type of regulated activities conducted by representatives, the date on which its
representatives completed the applicable examinations or non-examinable courses and the basis for exemption
if a representative is not required to pass a certain module of the CMFAS examination.

CMS licence holders must also ensure that independent and rigorous due diligence checks are conducted to
ensure that representatives meet “fit and proper” criteria. They have to file a “Report on Misconduct of
Representative” if any of its representatives fail to meet the “fit and proper” criteria or have committed acts
relating to market misconduct within 14 days after the discovery of the misconduct.19

CMS licence holders who fail to comply with their prescribed duties will be guilty of an offence which is
punishable with a fine.

2.3 Registration of Representatives

Individuals intending to conduct any regulated activity under SFA have to be an appointed representative,
temporary representative20 or provisional representative21 in respect of that type of regulated activity. They
can only commence dealings in regulated activities after they have satisfied the entry and examination

19 SFA 04-N11 - Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt Financial Institutions
20 Temporary representatives are appointed to conduct regulated activities on a short-term basis. They are eligible to be appointed for
a total of 6 months within any 24-month period, with each appointment not lasting more than 3 months. In addition to educational and
work experience-related admission criteria, they must be an employee of a related entity of the principal and must be currently licensed,
authorised or otherwise regulated for that activity in an overseas jurisdiction with a regulatory regime that is comparable to that of
Singapore. Refer to Frequently Asked Questions on SFR (LCB).
21Provisional representatives are given a grace period of three months to complete the requisite examinations applicable to appointed
representatives. During the grace period, they are allowed to conduct regulated activities. In addition to educational and work
experience-related admission criteria, provisional representatives must be currently or previously licensed, authorised or otherwise
regulated for at least 12 months (and not more than 12 months before) for the relevant activity in an overseas jurisdiction with a
regulatory regime that is comparable to that of Singapore. Refer to Frequently Asked Questions on SFR (LCB).

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requirements for regulated activities under SFA (refer to Section 2.3.2) and their name has been entered into
the Public Register of Representatives (refer to Section 2.3.6).

Financial institutions should ensure that they do not permit any individuals to conduct any type of regulated
activity under the SFA if they are not notified as appointed, temporary or provisional representatives under the
SFA22. Any person who carries out regulated activities without being registered with MAS will be guilty of an
offence if convicted and will be liable to the following penalties.

Penalties – Carrying out regulated activities without being registered with MAS (SFA 99B)

SFA 99B(1) - Any individual who conducts a regulated activity when he is not an appointed, provisional or
temporary representative contravenes SFA 99B(1) and shall be guilty of an offence and liable to a fine not
exceeding $50,000 or to imprisonment for a term not exceeding 12 months, or to both. In the case of a
continuing offence, to a further fine not exceeding $5,000 for every day or part thereof during which the
offence continues after conviction.
SFA 99B (3) - A financial institution which permits any individual who is not an appointed, provisional or
temporary representative to conduct any type of regulated activity under the SFA contravenes SFA 99B (3) and
shall be guilty of an offence and shall liable on conviction to a fine not exceeding $150,000 and, in the case of
a continuing offence, to a further fine not exceeding $15,000 for every day or part thereof during which the
offence continues after conviction.

2.3.1 Acting for One Principal

A representative can act for only one principal unless it has the approval of MAS to act for more than one
principal, or if the principals are related corporations23. MAS may require a representative who is applying to
act for more than one principal to furnish relevant information or documents to support the application. The
objectives of the one-representative-one-principal rule are two-fold:
1. To secure clarity for investors about the status of representatives, the principals they represent, and more
importantly, where responsibility rests for complaints and redress; and
2. To ensure that principals closely monitor and supervise their representatives at all times.

Penalties – Acting for more than one principal (SFA 99J)

Any person who breaches the one-representative-one-principal rule contravenes SFA 99J (1) and shall be guilty
of an offence and liable on conviction to a fine not exceeding $50,000 or to imprisonment for a term not
exceeding 12 months or to both. In the case of a continuing offence, to a further fine not exceeding $5,000 for
every day or part thereof during which the offence continues after conviction.

2.3.2 Minimum Entry and Examination Requirements

All appointed representatives who represent CMS licence holders or exempt financial institutions must meet
minimum entry and examination requirements24.

22 SFA 99B- Acting as Representative

23 SFA 99J - Representative to Act for Only One Principal
24SFA 04-N09 - Notice on Minimum Entry and Examination Requirements for Representatives of Holders of CMS Licence and Exempt
Financial Institutions

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To be eligible for registration as a Trading Representative, an applicant must fulfil all the following conditions:
1. Be at least 21 years old.
2. Have a minimum education level equivalent to:
 At least 4 GCE ―O‖ Level credit passes; or
 At least 2 GCE ―O‖ Level credit passes if he has 3 continuous years of relevant working experience
over the last 5 years.
3. Have satisfied the CMFAS examination requirements for those regulated activities he will deal in25.
4. Be a fit and proper person, which includes26:
 Possessing qualities of honesty, integrity and sound reputation;
 Competence and capability; and
 Financial soundness, e.g. not being an undischarged bankrupt, whether in or out of Singapore.

Some examples of the factors for assessing the “Honesty, Integrity and Reputation”, “Competence and
Capability” and “Financial Soundness” criteria are as follows:

1. Honesty, Integrity and Reputation

Whether the person:

i. Has been refused the right or restricted in his right to carry on any trade, business or profession for which
a specific licence, registration or other authorisation is required by the law in any jurisdiction;
ii. Has been the subject of any investigations or disciplinary proceedings or been issued a warning or
reprimanded by MAS or any other regulatory authority, an operator of a market or clearing facility, any
professional body or government agency, whether in Singapore or elsewhere;
iii. Has been convicted of any offence or is being subject to any pending proceedings which may lead to such
a conviction under any law in any jurisdiction;
iv. Has any judgement debt (in particular that associated with a finding of fraud, misrepresentation or
dishonesty) entered against the person in any civil proceedings or is a party to any pending proceedings
which may lead to such a judgement under the law in any jurisdiction;
v. Is or has been a director, partner, substantial shareholder or concerned in the management of a business
that has been censured, disciplined, prosecuted or convicted of a criminal offence or been the subject of
any disciplinary or criminal investigation or proceeding, in Singapore or elsewhere, in relation to any matter
that took place while the person was a director, partner, substantial shareholder or concerned in the
management of the business;
vi. Is or has been a director, partner, substantial shareholder or concerned in the management of a business
that has been suspended or refused membership or registration by MAS, any other regulatory authority,
an operator of a market or clearing facility, any professional body or government agency, whether in
Singapore or elsewhere;
vii. Is or has been a director, partner, substantial shareholder or concerned in the management of a business
that has gone into insolvency, liquidation or administration during the period when, or within a period of

25 Refer to SFA 04-N09 for list of required CMFAS Examinations

26 Refer to FSG-G01 - MAS Guidelines on Fit and Proper Criteria

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one year after, the person was a director, partner, substantial shareholder or concerned in the management
of the business, whether in Singapore or elsewhere.

2. Competence and Capability

Whether the person:

i. Has satisfactory past performance or expertise in regards to the nature of his business or duties whether in
Singapore or elsewhere;
ii. Is assuming concurrent responsibilities which would give rise to a conflict of interest or otherwise impair
his ability to discharge his duties in relation to any activity regulated by MAS;
iii. Has satisfactory educational qualification or experience, relevant skills and knowledge in relation to the
nature of duties they are required to perform. The person should have satisfied the minimum entry and
examination requirements for representatives conducting any activity regulated by MAS.

3. Financial Soundness

Whether the person:

i. Is or has been unable to fulfil all or any of his financial obligations in Singapore or elsewhere;
ii. Has entered into a compromise or scheme of arrangement with his creditors;
iii. Is subject to a judgement debt which is unsatisfied, either in whole or in part, in Singapore or elsewhere;
iv. Is an undischarged bankrupt in Singapore or elsewhere;
v. Is or has been the subject of a bankruptcy petition or any other similar process in Singapore or elsewhere.

The list of examples cited are not exhaustive. Please refer to “MAS Guidelines on Fit and Proper Criteria” (FSG-
G01) which set out the fit and proper criteria applicable to all relevant persons in relation to the carrying out of
any activity regulated by MAS.

2.3.3 Due Diligence Checks

CMS licence holders are expected to conduct rigorous and independent checks on the fitness and propriety of
their representatives as the onus is on them to establish that their representatives are fit and proper persons.
Prior to appointing an individual as its representative, the CMS licence holder is expected to carry out the
following due diligence checks on the proposed representative27:
1. Probity checks on representative’s identity by obtaining a copy of his current identity documentation (e.g.
National Registration Identity Card, Foreign Identification Number or Passport) and verify his identity. If the
proposed representative is a foreigner, the CMS licence holder is expected to verify that he has the relevant
employment pass or has sought approval from the relevant authorities to work in Singapore.
2. Probity checks of representative’s past records which includes conducting reference checks with the
proposed representative’s previous employers to confirm that he has not been dismissed or asked to resign,
and to ask if he has any material adverse record taken by the previous employer. CMS licence holders are
also expected to check the Public Register of Representatives (refer to Section 2.3.5.1) on MAS website and
conduct probity searches, including but not limited to publicly available registers provided by enforcement
and regulatory agencies, self-regulatory organisations, and professional body or association, to verify the

27CMI 01/2011 MAS Circular on Due Diligence Checks and Documentation in Respect of the Appointment of Appointed, Provisional and
Temporary Representatives

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proposed representative’s past records of employment and regulatory status, including any past criminal or
disciplinary records under any law or rule in any jurisdictions.
3. Probity checks on the representative’s financial status. At a minimum, the CMS licence holder should obtain
the proposed representative’s records from the Ministry of Law’s Insolvency and Public Trustee’s Office
Online Portal to ensure that he is not an undischarged bankrupt. If the proposed representative was self-
employed, the CMS licence holder should obtain the individual’s records from the CPF Board to verify that
he is not in arrears of his contributions to the CPF Board as required under the CPF Act. The CMS licence
holder should also conduct checks with credit agencies, including bankruptcy status in overseas jurisdictions
as well as requesting the proposed representative to provide a search result of his credit status with the
Credit Bureau (Singapore).

2.3.4 Revocation and Refusal of Registration of Licence28

The decision whether to register a representative or to revoke a registration depends on the following:
1. The seriousness or severity of circumstances surrounding the person’s failure to meet a specific criteria;
2. The relevance of the unfulfilled criteria in relation to the duties that are, or are to be performed and the
responsibilities that are, or are to be assumed by the person;
3. The amount of time that has lapsed since the person’s failure to meet a specific criteria.

2.3.5 Representative Notification Framework

Financial institutions can register representatives as an appointed29, provisional30 or temporary31 representative

with MAS through the Representative Notification Framework (“RNF”). The RNF allows financial institutions to
lodge notifications with MAS electronically via the online system for their representatives who intend to conduct
regulated activities. As part of the notification, financial institutions are to certify that the representatives whom
they intend to appoint are fit and proper and meet the competency, financial soundness and integrity standards
required. Once a registration has been processed, the name of the proposed representative would be published
on the online Register of Representatives on MAS website.

1. Public Register of Representatives

This register will display the name of the representative, the regulated activities which the representative is
allowed to conduct, the principal companies which the representative has worked for within the past 3 years
and any formal regulatory action taken by MAS against the representative.

2. Importance of RNF Number

All representatives are assigned a unique representative number, which will stay with them even if they change
principals. With this number, members of the public may verify the representatives whom they are dealing with
against the Register of Representatives, thereby reducing their risk of dealing with unregulated individuals.
Financial institutions are encouraged to make the unique representative numbers of their representatives
readily available to consumers for consumers to verify the representative’s regulatory status. It is thus important
for representatives to know their own RNF number.

28 SFA 99M - Power of Authority to Refuse Entry or Revoke or Suspend Status of Appointed, Provisional or Temporary Representative
29 SFA 99D - Appointed Representative
30 SFA 99E - Provisional Representative
31 SFA 99F - Temporary Representative

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3. Cessation of Status of Representatives

The status of an appointed, provisional or temporary representative in respect of any regulated activity is valid
until it ceases under the following circumstances:
i. The principal notifies MAS of such cessation;
ii. The appointed representative has ceased to act as a representative for a continuous period of one month,
and his principal has not notified MAS of his cessation as a representative;
iii. MAS has revoked the status of the appointed representative;
iv. The principal ceases to carry on business in that type of regulated activity;
v. The licence of his principal lapses, the licence is revoked by MAS, or a prohibition order is issued by MAS
against his principal prohibiting it from carrying out that type of regulated activity.

The above also apply to temporary and provisional representatives, with necessary modifications and
adaptations. In addition, the status of a provisional or temporary representative is only valid for a maximum of
3 months from the date his name is entered into the Public Register of Representatives.

2.3.6 Change of Particulars

An appointed, provisional or temporary representative is required to inform his principal company of any change
in his residential address or other personal particulars within 7 days after the date of change of the particulars.
The principal company is required to notify MAS of its representative’s change of particulars no later than 14
days after the date of the change of the particulars in the prescribed form and manner32.

2.3.7 Continuing Education

Under the Guidelines on Fit and Proper Criteria33, “Competence and Capability” is one of several important
criteria for considering whether a person is fit and proper. MAS expects appointed, provisional or temporary
representatives to keep abreast of developments in the industry and update skills and knowledge relevant to
the activities they conduct34. In this regard, their principal companies must ensure that representatives receive
adequate training to have the knowledge and skills to conduct the regulated activities under the SFA. Principal
companies should also provide quality, on-going training to their representatives. These training programmes
should be well structured and go beyond satisfying requirements on training hours. Where the training is
conducted by a product provider or any third party trainer, the principal company must be satisfied that the
training is adequate.

2.4 Regulatory Requirements for Advertising

To prevent the investing community from being misled, SFA35 has rules and regulations governing the use of
advertisements in relation to securities dealing. CMS licence holders and Representatives must adhere to these

32 SFA 99H(5) - Lodgment of Documents; SFR(LCB) 5 – Change of Particulars and Additional Regulated Activity of Representative
33 MAS Guideline No. FSG-G01 - Guidelines on Fit and Proper Criteria
34
MAS Notice No. SFA 04-N09 - Notice on Minimum Entry and Examination Requirement for Representatives of Holders of Capital
Markets Services Licence and Exempt Financial Institutions
35 SFR(LCB) 46 – Advertisement; SFR(LCB) 46A – Certain representations prohibited

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rules when publishing advertisements, market letters or similar information, collectively called advertisements
in this study guide.

2.4.1 Securities and Futures (Licensing & Conduct of Business) Regulations

The Securities and Futures (Licensing and Conduct of Business) Regulations stipulate that advertisements:
1. Should not refer to specific profitable recommendations it made in the past. If past recommendations are
referred to, the advertisement must:
i. List ALL the recommendations, both profitable and unprofitable, that it made in at least the 12 months
immediately before the date of the advertisements;
ii. State the name of each instrument recommended, the date and nature of the recommendation, the
market price at that time, the price at which the recommendation was to be acted upon, and the current
market price of the instrument; and
iii. Contain a statement, in as large a font as the largest font used in the body of the advertisement, that
explains that past results of instruments in the list does not guarantee similar results in the future.
2. Should not directly or indirectly claim that any chart, formula, strategy or device referred to in the
advertisement can be used to determine which instruments to buy or sell, or when to buy or sell them,
without prominently disclosing its limitations and difficulties in usage.
3. Should not claim that any report, analysis or other service will be provided free of charge, unless it is in fact
provided, in its complete form, without any condition or obligation.
4. Should not contain any inaccurate, misleading or exaggerated statement or presentation that is designed to
exploit an audience’s lack of experience and knowledge.
5. Should not claim that its abilities or qualifications have in any way been approved by the Authority.

Penalties – Prohibition of representation in relation to MAS (SFR (LCB) 46A)

CMS licence holders who represent or knowingly permit to be represented or implied in any manner to any
person that its abilities or qualifications have been approved by MAS contravenes SFR (LCB) 46A and shall be
guilty of an offence and liable on conviction to a fine not exceeding $50,000 and, in the case of a continuing
offence, to a further fine of $5,000 for every day or part thereof during which the offence continues after
conviction.

2.5 Opening of Customer Accounts

2.5.1 Customer Accounts

It is important to know your customers, both from the perspective of being able to offer the correct products
and services to suit their investment needs, as well as to prevent money laundering. The regulatory
requirements in relation to client onboarding is covered in Chapter 5. This section focuses on requirements that
CMS licence holders and exempt financial institutions must fulfil before selling specified investment products to
customers.

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2.5.2 Specified Investment Products Trading Account36

Specified Investment Products (SIPs) are derivatives or products which may contain derivatives. They have
complex features and risks which can expose investors to more factors which can cause a loss. Some SIPs are
listed on an exchange while others are not.

Examples of SIPs Listed on an Exchange Examples of SIPs Not Listed on an Exchange

 Certain exchange traded funds and notes  Structured notes (e.g. equity-linked structured
 Structured warrants notes, credit linked structured notes)
 Futures  Certain unit trusts
 Certificates  Certain investment-linked life insurance policies

1. Customer Account Review & Customer Knowledge Assessment

Not all customers have the knowledge or experience to assess an SIP’s complex features. As such, CMS licence
holders and exempt financial institutions must conduct:
i. Customer Account Review (CAR) based on criteria set out in Appendix A before opening a SIP trading
account for a customer who is a retail investor37 to transact in any SIP which is listed for quotation or quoted
on a securities market or a futures market; or
ii. Customer Knowledge Assessment (CKA) based on the criteria set out in Appendix B before opening a SIP
trading account for a customer who is a retail investor to transact in any SIP which is neither listed for
quotation nor quoted on a securities market or a futures market.

For joint trading accounts, the requirement to conduct the CAR or CKA will apply to each of the customers
intending to open the joint SIP trading account.

For the purpose of the CAR and CKA, a CMS licence holder or exempt financial institution has to take into
consideration information on a customer’s educational qualifications, investment experience and work
experience. If a customer does not provide these information, he shall be deemed as not possessing knowledge
or experience in derivatives (for CAR) or in the unlisted SIPs (for CKA).

When conducting a CAR or CKA for a new customer, or a customer whose previous CAR or CKA is no longer valid,
CMS licence holders or exempt financial institutions will assess customers’ investment experience according to:
a) The classification of the capital markets product(s) previously transacted by the customer; and

36 MAS Notice SFA 04-N12 - Notice on the Sale of Investment Products

37 SFA 4A – Specific Classes of Investors:
(i) Retail Investor refer to an investor who is not an accredited investor, institutional investor or expert investor.
(ii) Accredited Investor includes an individual whose net personal assets exceed in value $2 million or whose income in the preceding
12 months is not less than $300,000; or a corporation with net assets exceeding $10 million in value
(iii) Institutional Investor refers to a bank, a merchant bank, a finance company, a company/co-operative society licensed as an insurer
in Singapore, a Trust company, the Government, a statutory board, a pension fund/collective investment scheme, a CMS licence
holder for securities dealing, fund management, providing custodial services for securities, REIT management, securities financing,
or futures contracts trading, a person carrying on the business of dealing in bonds with accredited/expert investors, and the Trustee
of a Trust.
(iv) Expert Investor refers to a person whose business involves the acquisition and disposal, or holding of capital markets products,
whether as principal or agent.

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b) The listing status of such capital markets product(s);

at the time that the customer had transacted in such capital markets product(s).

A CMS licence holder or exempt financial institution shall highlight to the customer in writing that any inaccurate
or incomplete information provided by the customer may affect the outcome of the CAR or CKA.

2. Approval to Open SIP Trading Accounts

A CMS licence holder must not open a SIP trading account for a customer unless its senior management who is
not involved in that particular account opening process and is not a connected person of that customer is
satisfied, on the basis of the outcome of the CAR or CKA, that the customer has knowledge or experience in
derivatives (for CAR) or in the unlisted SIP (for CKA), and has approved the opening of the customer’s SIP trading
account. Regardless of the outcome of the CAR, a CMS licence holder or an exempt financial institution shall
include a statement in its account opening form that a customer can, at any time, request for advice concerning
a SIP. Upon such request, the licence holder or exempt financial institution shall provide advice to the customer.

Notwithstanding a positive outcome of the CKA, the CMS licence holder or exempt financial institution should
offer to provide advice concerning the unlisted SIP to the customer. If the customer does not wish to receive
advice, the CMS licence holder or exempt financial institution must document the customer’s decision in writing
and highlight to the customer that it is the customer’s responsibility to ensure the suitability of the product
selected. The customer should also be warned in writing that the customer had chosen not to receive advice
and to confirm in writing if the customer wishes to proceed without advice.

3. Requirements for Customers are Assessed Not to Possess Knowledge or Experience in Derivatives or
Unlisted SIPs

The licence holder or exempt financial institution shall inform the customer of the outcome of the CAR if they
are assessed not to possess knowledge or experience in derivatives following the CAR. If the customer intends
to proceed to open a SIP trading, the CMS licence holder or exempt financial institution shall:
i. Inform the customer in writing of the outcome of the CAR;
ii. Obtain the customer’s written confirmation that he still intends to proceed with the opening of the SIP
trading account despite not being in possession of knowledge or experience in derivatives;
iii. Explain to the customer the general features and risks associated with investing in derivatives and provide
the customer a written statement of the explanation given; and
iv. Inform the customer in writing that it is the customer’s responsibility to ensure that he understands any
capital markets product(s) that he intends to transact using the SIP trading account.

The licence holder or exempt financial institution shall inform the customer of the outcome of the CKA if they
are assessed not to possess knowledge or experience in derivatives following the CKA. If the customer intends
to proceed to open a SIP trading, the CMS licence holder or exempt financial institution shall:
a) Inform the customer in writing of the outcome of the CKA and that it is unable to proceed to transact in the
unlisted SIP on behalf of the customer unless it is also an exempt financial adviser; and
b) where the CMS licence holder or exempt financial institution is also an exempt financial adviser, it shall
provide financial advisory services to the customer in accordance with the standards set out in the Notice
on Recommendations on Investment Products38.

38 MAS Notice No. FAA-N16 – MAS Notice on Recommendations on Investment Products

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4. Validity of the Outcome of CAR39

The CMS licence holder or exempt financial institution must not allow a customer to transact in a SIP through
the SIP trading account after 3 years has expired from the date of the conduct of the CAR for the customer
concerned, until and unless:
i. The CMS licence holder or exempt financial institution has checked and is satisfied that the customer has
transacted in a listed SIP through the account
a) More than once during the preceding 3-year period; and
b) More than once during each subsequent 3-year period; or
ii. The CMS licence holder or exempt financial institution has conducted a new CAR for the customer
concerned.

5. Validity of the Outcome of CKA40

Where a customer is assessed to have knowledge or experience to transact in an unlisted SIP, the CMS licence
holder or exempt financial institution may allow the customer to transact the unlisted SIP for a period of 1 year
from the date of the assessment. After a year has elapsed, the CMS licence holder or exempt financial institution
shall conduct a new CKA on the customer before it transacts on behalf of the customer in any unlisted SIP.

6. Documentation and Record Keeping41

A CMS licence holder or exempt financial institution shall document every CAR and CKA conducted for each
customer. The documentation must include:
i. Information collected from a customer on his educational qualification, work experience and investment
experience;
ii. An assessment of the customer’s knowledge and experience in derivatives or unlisted SIPs;
iii. The outcome of the CAR or the CKA; and
iv. The approval of its senior management to open the customer’s SIP trading account, where applicable.

Where a CMS licence holder or an exempt financial institution transacts in any SIP which is listed for quotation
or quoted on a securities market or a futures market on behalf of a customer, the CMS licence holder or exempt
financial institution must maintain records of all communication between them and the customer in respect of
the relevant trade, including a record in the form of a file note or a tape recording of the telephone conversation.

7. Requirements on CMS Licence Holders and Exempt Financial Institutions Dealing in Overseas-Listed
Investment Products42

Overseas-listed investment products carry a different set of risks and levels of protection for investors. As such,
CMS licence holders and exempt financial institutions are required to warn retail customers of the possible risks
prior to the customer’s first purchase of an overseas-listed investment product. They have to provide the risk
warning statement set out in Appendix C and obtain the customer’s acknowledgement of the risk warning

39 SFA 04-N12 Notice on the Sale of Investment Products – Paragraph 16 Validity of the Outcome of CAR
40 SFA 04-N12 Notice on the Sale of Investment Products – Paragraph 26 Validity of the Outcome of CKA
41 SFA 04-N12 Notice on the Sale of Investment Products – Paragraph 27-29 Documentation & Record Keeping
42SFA 04-N12 Notice on the Sale of Investment Products – Paragraphs 29D-29K Requirements on Licenced Persons and Exempt
Financial Institutions Dealing in Overseas-Listed Investment Products

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statement, in written form or otherwise, before allowing the customer to transact 43 in any overseas-listed
investment product for the first time.

Risk Warning Statement - The risk warning statement highlights the key risks that customers should be aware
of when trading overseas-listed investment products, such as:
 Level of investor protection and safeguards afforded in the relevant foreign jurisdiction;
 Differences between the legal systems in foreign jurisdiction and Singapore;
 Tax implications, currency risks, and additional transaction costs that may be incurred;
 Exposure to counterparty and correspondent broker risks;
 Political, economic and social developments that may influence overseas markets.

These and other risks may affect the value of the investment and customer need to understand them before
they trade in foreign-listed investment products.

CMS licence holders or exempt financial institutions shall maintain records of the Customer’s acknowledgement
for a period of not less than 5 years44.

Where a CMS licenced holder or exempt financial institution offers an overseas-listed investment product to its
customers, the CMS licence holder or exempt financial institution may implement a system to identify and
determine that the overseas-listed investment product is to be classified as an “Excluded Investment Product”
(refer to Appendix D for list of Excluded Investment Products).

Where a CMS licenced holder or an exempt financial institution does not implement a system to identify and
determine that an overseas-listed investment product is to be classified as an excluded investment product, the
overseas-listed investment product shall be classified as a specified investment product, and the requirements
to conduct the CAR shall apply to a CMS licence holder or an exempt financial institution dealing in the overseas-
listed investment product for a customer.

Where a CMS licence holder or an exempt financial institution has classified an overseas-listed investment
product as an excluded investment product, it shall ensure the classification of the overseas-listed investment
product concerned remains accurate and current at all times.

A CMS licence holder or exempt financial institution may outsource the identification and classification of an
overseas-listed investment product as an excluded investment product to another party. Where the
identification and classification of an overseas-listed investment product has been outsourced, the CMS licence
holder or exempt financial institution shall be responsible for the implementation of the classification system,
including but not limited to, the accuracy of the classification.

Penalties – Contravention of any direction issued by MAS (SFA 101)45

Under SFA 101(3), any persons who contravenes any direction issued by MAS (which includes the Notice on
the Sale of Investment Products), shall be guilty of an offence and shall be liable on conviction to a fine not

43According to the MAS Notice on the Sale of Investment Products (SFA 04-N12, Paragraph 29F), “transact” means (a) The purchase or
sale of any overseas-listed investment product other than in connection with the creation of short positions; or (b) The sale of any
overseas-listed investment product in connection with the creation of short positions.
44 SFA 102(3) - Keeping of Book and Furnishing of Returns.
45 SFA 101 – Power of Authority to issue written directions

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Penalties – Contravention of any direction issued by MAS (SFA 101)45

exceeding $50,000 and, in the case of a continuing offence, to a further fine not exceeding $5,000 for every
day or part thereof during which the offence continues.

2.6 Confidentiality of Customers’ Information

CMS licence holders and its appointed representatives must protect and keep customers’ information
confidential. Exempt financial institutions which are licensed banks or merchant banks are subject to banking
secrecy regulations under Section 47 of the Banking Act (for banks) and the Banking Regulations (for merchant
banks). All intermediaries are required under common law and the Personal Data Protection Act (PDPA) to
safeguard the confidentiality of their customer information.

2.6.1 Banking Act Section 47 - Banking Secrecy

Under Section 47 of the Banking Act, a bank in Singapore or any of its officers cannot disclose customer
information to any third party except as permitted under the Banking Act. These would include following
circumstances:
1. Where the bank has the prior written consent of the customer, and in accordance with the terms of the
consent;
2. The disclosure is necessary for risk management of the bank and for the internal audit by internal and
external auditors, lawyers, or consultants approved or engaged by the bank;
3. The disclosure is required under any law or rules for investigating or prosecuting an offence alleged or
suspected to have been committed under any written law (which is in turn defined in the Banking Act).
Penalties – Contravention of Section 47 of the Banking Act

Any person who contravenes of shall be guilty of an offence and shall be liable on conviction:
1. in the case of an individual, to a fine not exceeding $125,000 or to imprisonment for a term not exceeding
3 years or to both; or
2. In any other case, to a fine not exceeding $250,000.

When a request is received to disclose customer information, it is good practice to refer the request to the
bank’s legal or compliance department to be professionally assessed whether the disclosure is permitted by law
or contractual agreement between the bank and the customer concerned.

In the event that a disclosure is made, a bank still has the duty to inform and remind the person to whom the
information is released to, that the recipient of the information has an obligation to safeguard confidentiality or
bear the consequence of a breach.

In addition, the requirement to maintain confidentiality of customer information is covered under SFR (LCB)
regulations and SGX-ST rules.

Under the SFR46, CMS licence holders should not divulge information relating to a customer’s order, unless the
disclosure is:

46 SFR(LCB) 47(2) - Trading Standards

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1. Necessary for the effective execution of the order;

2. Permitted under the rules of the relevant securities exchange, futures exchange, clearing house or
recognised trading system provider, as the case may be; or
3. Required by MAS.

Banks or CMS licence holders who fail to comply with their prescribed duties will be guilty of an offence which
is punishable with a fine.

2.6.2 Personal Data Protection Act47

The Personal Data Protection Act was passed into law and will be implemented in phases:
1. Phase 1 which covers largely administrative matters such as the establishment of the Personal Data
Protection Commission (PDPC) came into effect on 2 January 2013;
2. Phase 2 relating to the Do Not Call Registry (DNC) was implemented on 2 January 2014; and
3. Phase 3 relating to the data protection framework will come into effect on 2 July 2014.

Data protection is an aspect of privacy protection which deals with control over the collection, storage, accuracy,
use and disclosure of personal information. The purpose of data protection is to ensure that personal data is
not collected, used or disclosed without the knowledge or consent of the individual concerned. The PDPA is also
aimed at preventing the processing of incorrect or inaccurate personal data about a specific individual.

Impact on Business Operations - CMS license holders and exempt financial institutions should establish clear
policies and procedures to comply with the provisions of the PDPA and other confidentiality obligations which
include requiring representatives to:
1. Check with the “Do Not Call” registry before making marketing calls to a Singapore telephone number;
2. Seek clear and unambiguous consent through written forms such as other means as satisfies the PDPA.
Violation of “Do Not Call” provisions of the PDPA is an offence.

The Personal Data Protection Commission recognises consent given before 2 Jan 2014 for the sending of a
specified message, provided that such consent:
1. Has not been withdrawn by the individual on or after 2 Jan 2014;
2. Is clear and unambiguous; and
3. Is evidenced in writing or other forms so as to be accessible for subsequent reference.

Penalties – Contravention of the PDPA

An organisation that breaches any of its duties under the DNC provisions in the Act commits an offence and is
liable on conviction to a fine of an amount not exceeding $10,000 for each offence. In appropriate cases, the
Commission has the power to compound the offence for a sum of up to $1,000.

47 Personal Data Protection Act 2012

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2.7 Management of Customers’ Trading Accounts

Only after the account has been opened with the requisite legal documents obtained, suitability assessment
completed and risk profile established, then should the customer be allowed to trade within his investment
profile. This section covers the business conduct rules on keeping records of customer transactions, issuance of
contract notes and provision of statement of accounts to customers.

2.7.1 Contract Notes

Under the SFR (LCB), a CMS licence holder must send its customer a contract note for the purchase or sale of
securities or futures contracts by the next market day48. In cases where any detail about the transaction which
needs to be included in the contract note only becomes available later, the CMS licence holder should issue the
contract note by the next business day after the detail becomes available.

The contract note must contain information specified in Regulation 42(1) of the SFR (LCB)49. Such details include:
1. The name under which the CMS licence holder carries on its business of dealing in securities, and the
address of the principal place of business;
2. A statement informing the customer that the CMS licence holder is dealing in securities as a principal if the
CMS licence holder is doing so;
3. The name and address of the recipient of the contract note;
4. The date of the transaction;
5. The quantity and type of the securities that was transacted;
6. The price per unit of the transaction;
7. The total amount of money involved in settling the transaction;
8. Any amounts that are to be added or deducted from the transaction;
9. The rate and amount of commission (if any) charged; and
10. The amount of all stamp duties or other duties or taxes payable in connection with the transaction.

A record, with the details mentioned above from (1) to (10), in the form of a contract note is to be sent to the
customer for him to check and verify his transaction to be in order and to report any discrepancy. There must
be dedicated resources and communication channels for a customer to make enquiries and report discrepancies
or make complaints. In addition to the above record of transaction, customer statements must be prepared and
sent to them monthly on the movement in the account and the position at each reporting period.

Penalties – Contravention of any provisions of Contract Notes (SFR (LCB) 42)

CMS licence holders that without reasonable excuse, contravenes this provision shall be guilty of an offence
and liable on conviction to a fine not exceeding $50,000 and, in the case of a continuing offence, to a further
fine of $5,000 for every day or part thereof during which the offence continues after conviction.

48 SFR(LCB) 42 - Contract Notes; SGX-ST Rule 12.6.1 -Contract Notes

49 SGX-ST Rule 12.6.3 - Contract Notes

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2.7.2 Provision of Statements to Customers

1. Monthly Statements50

Under SFR (LCB), a CMS licence holder shall send monthly statements of account to customers. The statement
must contain the following information:
i. Securities transactions of the customer and the prices at which the transactions are entered into;
ii. The status of every asset of the customer that the CMS licence holder is holding in custody, including any
asset deposited with a third party that is used for securities lending or held as collateral;
iii. The date, amount and reason for movement of the assets of the customer;
iv. The movement of every asset of the customer, the date of and reasons for such movement, and the amount
of the asset involved;
v. The movement and balance of money in the customer account; and
vi. A detailed account of all financial charges and credits to the customer's account during the statement
period, unless these have been included in any contract note or tax invoice issued by the CMS licence holder
to the customer.
The Member does not need to send a monthly statement to a customer if:
a) The information that is to be contained in the statement has already been sent to the customer by a Clearing
House, which the Member is a member of; or
b) There has been no change to the customer’s account in the month; or
c) The customer is an Accredited Investor, or a corporation related to the Member, and:
A. Real-time electronic statements have been made available to the customer, and the customer has
agreed to using these electronic statements; or
B. The customer has requested, in writing, not to receive such monthly statements.

2. Quarterly Statement

If a monthly statement has not been sent for the last month of a calendar quarter (i.e. March, June, September
and December), the CMS licence holder shall send a quarterly statement to the customer, containing the same
information that is required on a monthly statement of account51.

CMS licence holders who fail to comply with their prescribed duties will be guilty of an offence which is
punishable with a fine.

50 SFR(LCB) 40(1) & (2) - Provision of statement of account to customers

51 SFR(LCB) 40(3) - Provision of statement of account to customers

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2.8 Keeping of Books and Audit

2.8.1 Keeping of Books and Furnishing of Returns

Under the SFA52, CMS licence holders are required to keep books of account and records of transactions which
should sufficiently explain the transactions and financial position of the CMS licence holder’s business, and
enable true and fair profit and loss accounts and balance sheets to be prepared from time to time.

The books should be kept for a period of at least 5 years, and in a manner which would enable them to be
conveniently and properly audited.

The CMS licence holder must be able to furnish returns and records when notified by MAS in writing, and provide
information relating to its business as MAS may require.

SFR (LCB) 39 53 stipulates that CMS licence holders must keep books and records in English containing the
following:

1. Customer Details
 Particulars of every customer, and guarantors
 Particulars of authorized traders
 Every power of attorney or other document authorising the CMS licence holder to operate the account of
the customer on a discretionary basis
 Customer statement of accounts
 Particulars of each customer asset, including :
o The amount, description of each asset deposited with and held in trust for the customer, and the date
of deposit;
o The person for whom the asset is held;
o Whether it is held for safe custody, mortgaged, charged, or pledged;
o The date and quantity of each movement of assets into or out of the trust account or custody account
arising from any asset borrowing or lending activity;
o The date, amount and purpose of each withdrawal from the trust account or custody account; and
o The date and amount of, and the reason for, each disposal of collateral from the trust account or custody
account;

2. Customer Correspondence
 Every written agreement entered into by the CMS licence holder with its customer;
 Every statement acknowledging receipt of assets from a customer indicating the person in whose name the
assets are registered;
 Every report, letter, circular, memorandum, publication, advertisement and other literature or advice
distributed by the CMS licence holder to any existing or prospective customer, indicating the date of

52 SFA 102 - Keeping of Books and Furnishing Returns

53 SFR(LCB) 39 – Books of holder of capital markets services licence

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publication, and every report, statement, submission, letter, journal, ledger, invoice, and other record, data
or memoranda, which has been prepared or received in the course of business of the holder;

3. Particulars of every proprietary transaction of the CMS licence holder

 The description and quantity of the assets
 The price and fee arising from the transaction;
 The transaction date and settlement or delivery date;
 The name of the counterparty to the transaction; and
 The realised or unrealised gain or loss;

4. Particulars of all income and expenses of the CMS licence holder

 Particulars of all liabilities (including contingent liabilities) of the CMS licence holder and,
 Particulars of all assets of the CMS licence holder, where they are held, and whether or not they have been
pledged as security against loans or advances.

The list of records cited above are not exhaustive. Please refer to SFR (LCB) 39 which set out the books and
record keeping requirements for CMS licence holders.

Penalties – Contravention to improper keeping of books and furnishing of returns

SFA 102(1), (3), (4) or (5) - Any CMS licence holder that contravenes SFA section 102(1), (3) or (4) or any
regulation made under section 102(5) without reasonable excuse shall be guilty of an offence and liable on
conviction to a fine not exceeding $50,000 and, in the case of a continuing offence, to a further fine of $5,000
for every day or part thereof during which the offence continues after conviction.
SFR(LCB) 39 (1), (2) & (3) - Any person who contravenes SFR (LCB) 39 (1), (2) and (3) shall be guilty of an offence
and liable on conviction to a fine not exceeding $50,000.

2.8.2 Audit

CMS licence holders must appoint an auditor to audit its accounts54 and prepare a true and fair profit and loss
account and a balance sheet for each financial year55. The account and balance sheet must be lodged with MAS
within 5 months after the end of the financial year, together with the auditor’s report on the account and
balance sheet.

The CMS licence holder may apply to MAS for an extension of the 5-month period for lodgement of account and
balance sheet. If MAS is satisfied that there is a special reason for requiring an extension, it will extend the
period by not more than 4 months, subject to conditions or restrictions which MAS may think fit to impose.

MAS may direct a CMS licence holder to remove and replace its auditor if it is not satisfied with the performance
of duties by the auditor.

54 SFA 106 - Appointment of auditors

55 SFA 107 - Lodgment of annual accounts, etc.

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Penalties – Lodgement of annual accounts beyond required time duration by MAS (SFA 107)

A fine not exceeding $500 for every day or part thereof that the lodgement is late, subject to a maximum fine
of $50,000. A CMS licence holder which contravene any condition imposed by MAS for an extension of
lodgement shall be guilty of an offence and be liable on conviction to a fine not exceeding $50,000.

2.8.3 Reports by Auditor

The auditor should immediately send a report in writing to MAS if it discovers any of the following matters or
irregularity whilst performing its duties as an auditor:
i. Any matter which adversely affects or may adversely affect the financial position of the CMS licence holder
to a material extent;
ii. Any matter which constitutes or may constitute a contravention of any provision of the SFA or an offence
involving fraud or dishonesty; or
iii. Any irregularity that has or may have a material effect upon the accounts, including any irregularity that
may affect or jeopardise the moneys or assets of any customer of the CMS licence holder.

A copy of the report should be sent to the securities exchange or futures exchange if the CMS licence holder
concerned is a member of a securities or futures exchange.
Where the CMS licence holder fails to lodge an auditor’s report as required under section 107 of SFA or where
MAS receives a report by the auditor of any matter or irregularity found during an audit of the CMS licence
holder, MAS has the power to appoint an auditor to carry out an examination and audit of the CMS licence
holder’s books.

2.8.4 Offence to Destroy, Conceal, Alter Books56

Any person who destroys, conceals or alters any book relating to the business of the CMS licence holder with
the intent to prevent, delay or obstruct the performance of an examination or audit will be guilty of an offence
and be liable on conviction to a fine not exceeding $100,000 or to imprisonment for a term not exceeding 2
years or both.

The same penalty applies to any person who sends or conspires with another person to send out of Singapore
any book or asset belonging to a CMS licence holder will be guilty of an offence and will be liable to similar
penalties.

2.8.5 Safeguarding of Books

A CMS licence holder shall take reasonable precautions to prevent falsification of books required to be kept
under the SFA and to facilitate the discovery of any falsification of books 57 . Any CMS licence holder who
contravenes this regulation shall be guilty of an offence under the SFA.

The objective of requiring the segregation of assets is to ensure that the customers’ interest is protected and
returned to customers by liquidators in the event of a liquidation.

56 SFA 111 - Offence to destroy, conceal, alter, etc., books

57 SFA 112 - Safeguarding of books

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2.9 Customers’ Moneys and Assets

2.9.1 Definitions58

For the purpose of this section on customer’s moneys and assets, “customer” in relation to the CMS licence
holder, does not include:
1. The CMS licence holder in carrying out any regulated activity for its own account;
2. An officer, an employee or a representative of the CMS licence holder; or
3. A related corporation of the CMS licence holder with respect to an account belonging to and maintained
wholly for the benefit of that related corporation.

A reference to “money received on account of a customer” of the CMS licence holder includes:
i. Money received from, or on account of, the customer in respect of a sale or purchase of futures contract
or a transaction connected with leveraged foreign exchange trading;
ii. Money received from, or on account of, the customer for the purchase of or holding of securities, or the
maintenance of a securities trading account by the customer;
iii. Money received for the account of the customer in respect of a sale of securities;
iv. Money received from, or on account of, the customer, where the CMS licence holder provides securities
financing to the customer;
v. Money received from, or on account of, the customer for the purpose of managing the customer’s funds;
and
vi. Money received from, or on account of, the customer in the course of the business of the CMS licence
holder,

But does not include:

a) Money which is to be used to reduce the amount owed by the customer to the holder;
b) Money which is to be paid to the customer or in accordance with the customer’s written direction;
c) Money which is to be used to defray the holder’s brokerage and other proper charges; and
d) Money which is to be paid to any other person entitled to the money.

“Customer’s assets”, in relation to the CMS licence holder means securities and assets (other than money),
including Government securities and certificates of deposits, that are beneficially owned by a customer of the
CMS licence holder.

58 SFR(LCB) 15 - Definitions of this Part

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2.9.2 Customers’ Moneys

1. Money Received on Account of Customer59

The CMS licence holder must treat and deal with all money received on account of its customer as belonging to
that customer. The money must be deposited in a trust account or in another account directed by the customer
no later than the next business day60 after receiving the money.

The customer’s money must not be commingled with other funds, or used as margin or guarantee for, or to
secure any transaction of, or to extend the credit of, any person other than the customer.

The CMS licence holder may commingle monies from different customers into the same trust account, but
must separately account for the monies and assets of each customer.

2. Maintenance of Trust Account with Specified Financial Institutions61

The CMS licence holder must maintain a trust account in which it deposits moneys received on account of its
customers with:
i. A bank licenced under the Banking Act;
ii. A merchant bank approved as a financial institution under the MAS Act; or
iii. A finance company licenced under the Finance Companies Act.

The CMS licence holder may deposit customer’s moneys which are denominated in a foreign currency in a trust
account with a custodian outside Singapore which is licenced, registered or authorised to conduct banking
business in the country or territory where the account is maintained, subject to the customer’s prior written
consent.

3. Notification and Acknowledgement from Specified Financial Institutions62

Before depositing moneys received on account of its customers, the CMS licence holder must give written notice
to the financial institution and obtain acknowledgement from it that all moneys deposited in the trust account
are held on trust by the CMS licence holder for its customer and the financial institution cannot exercise any
right of set-off against the moneys for any debt owed by the CMS licence holder to the financial institution; and
the account is designated as a trust account, or a customer’s or customers’ account which shall be distinguished
and maintained separately from any other account in which the CMS licence holder deposits its own money.

4. Customer’s Money Held with a Clearing House63

The holder of a CMS licence to deal in securities may deposit moneys received on account of its customer with
a clearing house or a member of a securities exchange for a purpose specified under the business rules and
practices of the clearing house or securities exchange, as the case may be.

59 SFR (LCB) 16 - Money Received on Account of Customer

60“Business day” means the business day of the CMS licence holder, or if the custodian with whom the trust account is maintained is
closed for business on that day and the CMS licence holder is unable to deposit the money in the account, the next business of the
custodian.
61 SFR (LCB) 17 - Maintenance of Trust Account with Specified Financial Institutions
62 SFR (LCB) 18 - Notification and Acknowledgement from Specified Financial Institutions
63 SFR (LCB) 19 - Customer’s Money Held with a Clearing House, etc.

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5. Investment of Moneys Received on Account of Customers64

A CMS licence holder may hold moneys received on account of its customer on trust for the customer, including
moneys which the CMS licence holder may from time to time advance to the customer’s trust account in any of
the following forms of investment:
i. Any Government securities;
ii. Any debt instrument of the government of the country of the securities market or futures market or futures
exchange on which the CMS licence holder normally transacts its business; or
iii. Any other securities or instrument as MAS may determine.

The CMS licence holder shall keep a record of all transactions relating to such moneys including:
a) The date on which the transaction was made;
b) Where applicable, the name of the person through whom the transaction was made;
c) The amount of money invested in the transaction;
d) A description of the transaction;
e) The place, if any, where the moneys and assets are kept;
f) Where applicable, the date on which the subject-matter of the transaction was realised or otherwise
disposed of and the amount of money received from the realisation or disposal; and
g) Where applicable, the name of the person to whom or through whom the subject-matter of the transaction
was disposed of.

6. Withdrawal of Money from Trust Account65

The CMS licence holder must not withdraw any money from a customer’s trust account except to:
i. Making a payment to another person entitled thereto;
ii. Making a payment to meet obligation of a customer whose money is deposited that account; being an
obligation that arises from any dealing in securities, trading in futures contracts or leveraged foreign
exchange trading by the CMS licence holder for the customer;
iii. Defraying brokerage and other proper charges;
iv. Making a payment to another person or account with written instruction of the customer;
v. reimbursing the CMS licence holder any moneys that it had advanced to the account and any interest and
returns that it is entitled to by virtue of SFR(LCB) 2366, as long as the withdrawal does not result in the
account becoming under-margined or under-funded;
vi. Making a deposit on account of its customer with a clearing house or a member of the securities exchange
or for an investment in accordance with SFR(LCB) Regulation 2067;
vii. Making a payment or withdrawal that is authorised by law.

64 SFR (LCB) 20 - Investment of Moneys Received on Account of Customer

65 SFR (LCB) 21 - Withdrawal of Money from Trust Account
66 SFR(LCB) 23 - Placement of Licensee’s Own Money in Trust Account
67 SFR(LCB) 20 - Investment of moneys received on Account of Customers

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7. Interest Arising from Trust Account68

Interest earned from the maintenance of the moneys received on account of the customer in a trust account
and all returns from the investment of money in accordance with SFR (LCB) Regulation 20, shall accrue to the
customer. The CMS licence holder has to ensure that the interest or returns accrued to the customer are paid
to or held for the benefit of the customer.

8. Placement of licensee’s Own Money in Trust Account69

A CMS licence holder may advance sufficient money to a customer’s trust account from its own funds under the
following circumstances:
i. To prevent the customer’s trust account from being under-margined or under-funded; or
ii. To ensure the continued maintenance of that account.

The CMS licence holder may retain any interest earned and return arising on the moneys which it has advanced
to the account.

9. No effect on lawful claims or liens70

Nothing in SFR (LCB) Division 271 shall be construed as avoiding or affecting any lawful claim or lien which any
person has in respect of any money held in a trust account in accordance with this Division or any money
belonging to a customer before the money is paid into a trust account.

Penalties – Mishandling of Customers’ Moneys under SFR(LCB)

Any person who contravenes the following SFR(LCB) regulations shall be guilty of an offence and liable on
conviction to a fine not exceeding $50,000:
 SFR(LCB) 16(1) or (2) Money Received on Account of Customer;
 SFR(LCB) 17(1) Maintenance of Trust Account with Specified Financial Institutions;
 SFR(LCB) 18 Notification and acknowledgement from specified financial institutions;
 SFR(LCB) 20(2) Investment of moneys received on account of customers;
 SFR(LCB) 21 Withdrawal of Money from Trust Account; or
 SFR (LCB) 22(2) Interest Arising from Trust Account, etc.

2.9.3 Customer’s Assets

CMS licence holders are required to comply with SFR (LCB) in relation to customer’s assets received and held on
account of the customer or as collateral for any amount owed by the customer to the CMS licence holder72.

68 SFR (LCB) 22 - Interest arising from Trust Account

69 SFR (LCB) 23 - Placement of Licensee’s Own Money in Trust Account
70 SFR(LCB) 24 - No Effect on Lawful Claims or Liens
71 SFR(LCB) Division 2 – Customer’s Moneys
72 SFR(LCB) 25 - Application of this Division

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1. Duties of CMS Licence Holders upon Receipt of Customers’ Assets73

The CMS licence holder must deposit a customer’s assets in a custody account held on trust for the customer
and ensure that the customer’s assets are not commingled with any other assets. They should make
arrangements for a custodian to maintain the custody account.

The CMS licence holder shall deposit the customer’s assets in the custody account no later than the business
day immediately following the day on which they receive the assets or is notified of the receipt of such assets,
whichever is the later, unless the assets have in the meantime been returned to the customer or deposited in
an account directed by the customer.

A customer’s assets may be commingled with the assets of another customer and deposited in the same custody
account. The CMS licence must separately account for the assets of each customer.

2. Maintenance of custody account with specified custodians74

The CMS licence holder must maintain a custody account in which it deposits a customer’s assets with:
i. A bank licensed under the Banking Act;
ii. A merchant bank approved as a financial institution under the MAS Act;
iii. A finance company licensed under the Finance Companies Act;
iv. A depository agent within the meaning of section 130A of the Companies Act for the custody of securities
listed for quotation or quoted on SGX-ST or deposited with the Central Depository (Pte) Ltd;
v. An approved trustee for a collective investment scheme within the meaning of section 289 of the SFA; or
vi. Any person licensed under the SFA to provide custodial services for securities.

The CMS licence holder may maintain the custody account itself where it is licensed under the Act to provide
custodial services.

Subject to the customer’s prior written consent, the CMS licence holder may, for the purpose of the safe custody
of the customer’s assets denominated in a foreign currency, maintain the custody account with a custodian
outside Singapore which is licensed, registered or authorised to act as a custodian in the country or territory
where the account is maintained.

3. Notification and Acknowledgment from Specified Custodian75

Before depositing a customer’s assets in the account, the CMS licence holder must give written notice to the
custodian, and obtain an acknowledgment from the custodian that:
i. All assets deposited in the custody account are held on trust by the holder for its customer; and
ii. The account is designated as a trust account, or a customer’s or customers’ account, which shall be
distinguished and maintained separately from any other account in which the holder deposits its own assets.

73 SFR(LCB) 26 - Duties of Holder on Receipt of Customer’s Assets

74 SFR(LCB) 27 - Maintenance of Custody Account with Specified Custodians
75 SFR(LCB) 28 - Notification and Acknowledgment from Specified Custodian

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4. Suitability of Custodian76

The CMS licence holder which maintains its customer’s assets in a custody account must:
i. Before opening the custody account, conduct due diligence as to the custodian’s suitability for the holder’s
customer or class of customers; and
ii. Maintain records of the grounds on which it has satisfied itself of the suitability of the custodian.

5. Customer’s Assets Held with Clearing House, etc.77

A CMS licence holder dealing in securities may deposit its customer’s assets with a clearing house or a member
of a securities exchange for a purpose specified under the business rules and practices of the clearing house or
securities exchange, as the case may be.

6. Customer Agreement78

A CMS licence holder providing custodial services for its customer’s assets must notify the customer of the terms
and conditions that would apply to the safe custody of the customer’s assets. These shall include:
i. The arrangements for the giving and receiving of instructions by or on behalf of the customer in respect of
the services to be provided including, where applicable, the arrangements for the giving of authority by the
customer to another person and the extent of that authority and any limitation thereto;
ii. Any lien over or security interest in the assets by the holder or a third party;
iii. The circumstances under which the holder may realise the assets held as collateral to meet the customer’s
liabilities to the holder;
iv. Where the customer’s assets are to be held with a custodian other than the holder, the liability of the holder
in the event of default by the custodian;
v. Where the holder intends to commingle the customer’s assets with those of other customers and maintain
such assets with a custodian other than itself, a statement that the customer’s interest in the assets may
not be identifiable by separate certificates, or other physical documents or equivalent electronic records,
and a condition that the holder shall maintain records of the customer’s interest in the assets that have
been commingled;
vi. The person in whose name the assets are registered;
vii. The arrangements in relation to claiming and receiving dividends, interest payments and other entitlements
accruing to the customer, and the exercise of any right and power arising from ownership of the assets;
viii. The arrangements for the provision of information relating to the custody of the asset to the customer; and
ix. All applicable fees and costs for the custody of the assets.

7. Custody Agreement79

Before placing its customer’s assets in a custody account with a custodian, the CMS licence holder must agree
with the custodian, in writing, to the following:

76 SFR(LCB) 29 - Suitability of Custodian

77 SFR (LCB) 30 - Customer’s Assets Held with Clearing House, etc.
78 SFR(LCB) 31 - Customer Agreement
79 SFR(LCB) 32 - Custody Agreement

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i. That the account shall be designated as that of the customer or customers;

ii. That the custodian shall hold and record the assets in accordance with the holder’s instructions; and the
records shall identify the assets as belonging to the holder’s customer and the assets shall be kept separate
from any asset belonging to the holder or to the custodian;
iii. That the custodian shall not claim any lien, right of retention or sale over any asset standing to the credit of
the custody account, except
a) Where the holder has obtained the customer’s written consent and notified the custodian in writing of
the written consent; or
b) In respect of any charges as agreed upon in the terms and conditions relating to the administration or
custody of the asset;
iv. That the custodian shall provide sufficient information to the holder in order that the holder may comply
with its record-keeping obligations under the Act or these Regulation or under any other law;
v. The person in whose name the assets are registered;
vi. That the custodian shall not permit any withdrawal of the assets from the custody account, except for
delivery of the assets to the holder or on the holder’s written instructions;
vii. The arrangements for dealing with any entitlement arising from the assets in the custody account, such as
coupon or interest payment;
viii. The extent of the custodian’s liability in the event of any loss of the assets maintained in the custody account
caused by fraud or negligence on the part of the custodian or any of the custodian’s agents; and
ix. The applicable fees and costs for the custody of the assets.
Unless the CMS licence holder is licensed to provide custodial services for customer’s assets, it must disclose to
the customer the terms and conditions agreed with the custodian before depositing its customer’s assets in a
custody account.

8. Lending of Customer’s Securities80

A CMS licence holder may lend or arrange for a custodian to lend its customer’s assets which are securities if
the following conditions are met:
i. The CMS licence holder has explained the risks involved to the customer; and
ii. Obtained the customer’s written consent to do so.

Before the commencement of such lending, the CMS licence holder must enter into an agreement with that
customer setting out the terms and conditions for such lending with the customer whose securities are to be
lent. The CMS licence holder must also enter into an agreement with the custodian setting out the terms and
conditions for the lending, and disclose these terms and conditions to the customer.

9. Mortgage of Customer’s Asset81

The CMS licence holder may mortgage, charge, pledge or hypothecate its customer’s assets under the following
circumstances:

80 SFR(LCB) 33 - Lending of Customer’s Securities

81 SFR(LCB) 34 - Mortgage of Customer’s Assets

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i. Subject to an agreement between the CMS licence holder and its customer, where the CMS licence holder
is owed money by the customer, the CMS licence holder may mortgage, charge, pledge or hypothecate the
customer’s assets but only for a sum not exceeding the amount owed by the customer to it.
ii. The holder of a capital markets services licence does not contravene the regulation by reason only of an
excess arising on any day through the reduction of the amount owed by the customer to the holder on that
day, but only if the holder pays or transfers to the mortgagee, chargee or pledgee concerned money or
assets of an amount sufficient to reduce such excess as promptly as practicable after the excess occurs and,
in any event, no later than the next business day.
The CMS licence holder may mortgage, charge, pledge or hypothecate the customers’ assets together if and only
if:
a) The sum of the claims to which such customers’ assets are subject as a result of such mortgage, charge,
pledge or hypothecation does not exceed the aggregate amounts owed by the customers to the holder;
and
b) The claim to which each customer’s assets are subject as a result of such mortgage, charge, pledge or
hypothecation does not exceed the amount owed by the customer to the holder.

10. Withdrawal of Customer’s Assets82

The CMS licence holder must not withdraw any of its customer’s assets from a custody account except for the
purpose of:
i. Transferring the asset to any person entitled thereto;
ii. Meeting the customer’s obligation arising from any dealing in securities, trading in futures contracts or
leveraged foreign exchange trading, as the case may be, by the holder for the customer;
iii. Transferring the asset to any person or account in accordance with the customer’s written directions;
iv. Securities lending;
v. Mortgaging, charging, pledging or hypothecating the assets in accordance with regulation 34;
vi. Making a deposit in accordance with regulation 30; or
vii. Making a transfer that is authorised by law.

11. No Effect on Lawful Claims or Liens

Nothing in SFR (LCB) Division 383 shall be construed as avoiding or affecting any lawful claim or lien which any
person has in respect of any money held in a trust account in accordance with this Division or any money
belonging to a customer before the money is paid into a trust account.

82 SFR(LCB) 35 - Withdrawal of customer’s Assets

83 SFR(LCB) Division 3 – Customer’s Assets

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Penalties – Mishandling of Customers’ Assets under SFR(LCB)

Any person who contravenes the following SFR (LCB) regulations shall be guilty of an offence and liable on
conviction to a fine not exceeding $50,000:
 SFR(LCB) 26(1) or (2) Duties of Holder on Receipt of Customer’s Assets;
 SFR(LCB) 27(1) Maintenance of custody account with specified custodians;
 SFR(LCB) 28 Notification and acknowledgement from custodians;
 SFR(LCB) 29 Suitability of Custodians;
 SFR(LCB) 31 Customer Agreement;
 SFR(LCB) 32 Custody Agreement;
 SFR(LCB) 33(2), (4), or (5) Lending of Customer’s Securities;
 SFR(LCB) 34 Mortgage of Customer’s Assets; or
 SFR (LCB) 35 Withdrawal of Customer’s Assets.

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Chapter 3:
Market Conduct
Learning Objectives

The candidate will understand:

 What constitutes market conduct and prohibited conduct

 Different types of market misconduct under SFA regime
 Different types of market misconduct penalties under SFA
 Trading related acts, rules and regulations under SFA and SFR(LCB)

3.1 Introduction
A sound and progressive financial services sector is the aim of MAS as Regulator of financial institutions and it
seeks to achieve this objective through both financial supervision and development initiatives.

Public confidence in a fair and orderly capital market, one that reflects the forces of genuine supply and demand,
enhances the liquidity and efficiency of the market. Improper conduct which gives a false and misleading
impression of trading activity, price movements or market information leads to a reduction in market efficiency
and confidence.

Rules regulating trading activity under the SFA rules, effective surveillance and robust investigations are part
and parcel of the overall enforcement strategy against capital market misconduct.

All capital market participants play a part to ensure a fair, efficient and transparent market environment and
any market misconduct will be dealt with stringently by MAS.

3.2 Market Misconduct under the SFA

A high standard of ethical conduct is expected from all participants of the capital market. This is covered in the
market conduct rules under the SFA and SFR.

The rules apply to acts occurring in Singapore with respect to any securities, whether listed or quoted in or
outside Singapore. That is, the rules have extraterritorial reach. If the act is deemed as misconduct in Singapore,
it would also be deemed as misconduct even if the transactions take place outside Singapore1. Similarly, the
rules apply to acts occurring outside Singapore with respect to securities listed or quoted on a securities market
in Singapore.

1 SFA 196 – Application of this Division

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Practices that gives an unfair advantage to certain customers over the general public is strictly prohibited as it
goes against the grain of fair competition. Therefore all customers, intermediaries and their representatives and
those seeking to raise funds through the capital market must abide by the regulations that guide market
conduct. The severity of the fines and imprisonment term reflects how serious MAS is in deterring market
misconduct and ensuring personal liability for any persons breaching the laws on market conduct.

The SFA spells out the prohibited market conduct as:

 False Trading and Market Rigging Transactions
 Securities Market Manipulation
 False or Misleading Statements and Information
 Fraudulently Inducing Persons to deal in Securities
 Employment of Manipulative and Deceptive Devices
 Dissemination of Information about Illegal Transactions
 Insider Trading

3.3 False Trading and Market Rigging Transactions 2

False trading and market rigging can be described as the use of artificial means or methods to influence the price
of any securities, or to cause volatility without real basis in the market instead of letting the natural market
forces prevail. Such conduct is prohibited and any CMS licence holder or representative who commits such
offences will face stringent penalties, reputational repercussions and possibly a suspension or revocation of
licence.

False Trading includes:

 Creating or having the intention to create an appearance of active trading on any securities;
 Buying and selling any securities that do not involve a change in beneficial ownership of those securities to
cause fluctuations in the market price of the securities in the market;
 Creating transactions that are intended to give a false and misleading appearance with respect to the market
price of any securities.

Many devices have been used to rig trades and create a false market. The more common devices are:
1. Buying and selling without a change in beneficial ownership;
2. Wash trades; and
3. Matching orders which are specifically spelt out to in SFA Section 197(3)(a) to (c) as prohibited.

Example – No change in beneficial ownership

A person A may transfer his title of shares to person B with a side arrangement for person B to hold them in
trust for him, unknown to the brokerage. Then when person B sells the shares, the proceeds of that sale
actually goes to person A as the shares still belong to person A under the side arrangement. In this example,
there is no change in the beneficial ownership as in fact, person A owns the shares all the time. Therefore,
person A had not in effect sold the shares but continued to have ownership throughout, creating a false
impression that ownership had changed hands thus misleading the investing public.

2 SFA Section 197 – False trading and market rigging transactions

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A wash sale is a transaction effected through the market which involves no change in the beneficial ownership
of any securities. SFA Section 197(5)3 provides that there is no change in the beneficial ownership of security if
a person who had an interest in the securities before the purchase or sale continues to have an interest in the
securities after the purchase or sale.

Example – Wash Sale

A wash sale occurs when a person places 5 orders to buy a certain number of shares of Company D through a
broker. He then places another number of orders to sell the same number of shares in Company D through
another broker. Effectively the same number of shares in a company is bought and sold through different
brokers but by the same person with no change of ownership. The intended effect is to give an appearance of
active trading in Company D’s shares.

Matching orders are similar to having a side arrangement in Example (1) above. This involves the entering of an
order for the purchase of securities through a broker with the knowledge that a sales order for the same amount
or price has been entered or will be entered into at about the same time by another party known to him through
a different broker. The purpose of which is to create an impression of active trading in the securities.

Example – Matching Order

A matching order is where person X and person Y wish to dispose of their shares in Company Z at a substantial
profit. At the time, these shares are quoted at $1 on the Exchange. Person X enters a sale order for shares in
Company Z at a price slightly higher than the current price, say, $1.10. Person Y then enters a buy order for the
same shares and for the same number and price. They then repeat their trades, reversing their roles and for a
slightly higher price. This process is repeated as often as is necessary. This has the effect of nudging up the share
price and attracting other investors to trade in Company Z. When the price of the shares in Company Z is
sufficiently high. Person X and person Y can close out and unload their own shares at the artificially inflated
price.

While there is probably no limit to the devices that can be used in false trading or market rigging, two of the
most common techniques are wash sales and matching orders.

3.4 Securities Market Manipulation 4

In broad terms, market manipulation involves intentional interference with the free forces of supply and
demand to deceive or defraud investors, or for some other ulterior purpose. To prevent market manipulation,
there are provisions in SFA which disallow any person from directly or indirectly effecting two or more
transactions in securities of a corporation if the transactions have the effect of raising, maintaining or stabilising
the price of securities of the corporation in the securities market.

Example - Securities Market Manipulation

Market manipulation happens when a person (person X) executes trades using his account and the accounts of
a number of his clients to trade at prices above the previous traded price which has the effect of artificially
maintaining or increasing the price of the security.

3 SFA 197 - False trading and market rigging transactions

4 SFA 198 – Securities market manipulation

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It was found that through the execution of manipulative or fictitious buy orders, a false market was created by
person X.

Person X will not only face disciplinary action but will be liable, on conviction, to penalties for market
misconduct.

Penalties - SFA Part XII Market Conduct, Division 1 Prohibited Conduct –Securities

Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both5.
Refer to Section 3.11 for civil penalties and civil liabilities.

3.5 False or Misleading Statements and Information 6

The dissemination of information or statements that are false or misleading in a material particular that is likely
to:
 Induce the subscription of securities by other persons,
 Induce sale or purchase of securities by other persons; or
 Raise, lower, maintain or stabilise the market price of securities,

is strictly prohibited, if the person disseminating the information or statement does not care whether the
information or statements is true or false, or he knew or should have known that the information or statements
are false or misleading in a material particular. Such prohibition is spelt out in Section 199 of the SFA. Such
dissemination can be in the form of:
 newsletter,
 research papers,
 electronic means; or
 the media or word of mouth

CMS licence holders or their representatives should not knowingly with intent make or publish any statement,
forecast or promise that are false or misleading to induce others to deal in securities. If a CMS licence holder or
it representative recklessly does so through wilfully concealing material facts which are recklessly published,
stored or recorded will be contravening the SFA sections mentioned above.

Penalties - SFA Part XII Market Conduct, Division 1 Prohibited Conduct –Securities

Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.
Refer to Section 3.11 for civil penalties and civil liabilities.

5 SFA 212 - Penalties under this Division

6 SFA 199 - False or misleading statements, etc.

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3.6 Fraudulently Inducing Persons to Deal in Securities 7

Under SFA Section 200(1), it is an offence to induce or attempt to induce another person to deal in securities by:
1. Making or publishing any statement, promise or forecast that he knows or ought reasonably to have known
to be misleading, false or deceptive;
2. Any dishonest concealment of material facts;
3. Reckless making or publishing of any statement, promise or forecast that is misleading, false or deceptive;
or
4. Recording or storing in, or by means of, any mechanical, electronic or other device information that is now
to be false or misleading in a material particular.

Penalties – SFA:

SFA Part XII Market Conduct

Division 1 Prohibited Conduct – Securities
Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.
Refer to Section 3.11 for civil penalties and civil liabilities.

3.7 Employment of Manipulative and Deceptive Devices 8

Under SFA Section 201, it is an offence for any person to directly or indirectly, in connection with the
subscription, sale or purchase of any securities to:
1. Employ any device, scheme or artifice to defraud;
2. Engage in any act, practice or course of business which operates as a fraud or deception, upon any
person;
3. Make any statement he knows to be false in a material particular; or
4. Omit to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.

Example - Employment of Manipulative and Deceptive Devices

Person Y entered 5 buy orders for a certain counter during the Pre-Open phase at a price between $3.38 and
$3.48 totalling 1.1 million shares representing 62.7% of all buy quantities queuing at the material time. At the
same time he also placed a sell order for 100,000 shares of the same counter at $3.35. He then deleted the buy
orders at 8.59 am just before the opening price was determined.

By deleting the buy orders, Person Y showed that he had no intention of fulfilling his order. His real intention
is to cause the market opening price at 9 am to be at a favourable level for him to fulfil his sell order at $3.35,
which will result in a profit for himself.

7 SFA 200 – Fraudulently inducing persons to deal in securities

8 SFA 201 – Employment of manipulative and deceptive devices

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In this example, Person Y had used deceptive device to influence the share price and deceived the market.

The pre-open and the pre-close phases of the market were introduced to increase efficiency and to ensure
market integrity and transparency and that orders are genuine. Any device or action used to misuse the phases
are deemed as manipulative and deceptive which is an offence under the SFA.

Penalties – SFA Part XII Market Conduct, Division 1 Prohibited Conduct –Securities:

Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.
Refer to Section 3.11 for civil penalties and civil liabilities.

3.8 Dissemination of Information about Illegal Transactions 9

Just as the use of manipulative devices is prohibited as they create artificial market conditions, the dissemination
of information about illegal transactions is also prohibited. This is to prevent those “in the know” from taking
advantage of and benefitting from the resultant market movements. This is really a “blackout rule” to prevent
undesirable practices.

SFA Section 202 makes it an offence to circulate, disseminate, or authorise, or be concerned in the circulation
or dissemination of any statement or information to the effect that the price of any securities of a company or
a business trust will, or is likely, to rise or fall or be maintained as a result of an illegal transaction
1. Which the person disseminating the information or a person associated with him has entered into or
purports to enter into or has done or purports to do any such act or thing;
2. If the person disseminating the information or a person associated with him has:
i. received, or expects to receive directly or indirectly, any consideration or benefit for circulating or
disseminating the information; or
ii. received, or expects to receive, directly or indirectly, any consideration or benefit for authorising,
or being concerned in the circulation or dissemination of the statement or information.

Example - Dissemination of Information about Illegal Transactions

Person Z directed Person A to use deceptive methods to influence the price of securities in a corporation.
Person Z knew that the actions would cause the price of the securities to move in a certain direction. Person Z
then inform others about the possible outcome in order for them to benefit from it. Person Z expects to receive
a cut of the profits made from these other persons as a result of the price movements.

Penalties – SFA Part XII Market Conduct, Division 1 Prohibited Conduct –Securities:

Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both.
Refer to Section 3.11 for civil penalties and civil liabilities.

9 SFA 202 – Dissemination of information about illegal transactions

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3.9 Insider Trading 10

3.9.1 What is Inside Information?

Inside or “insider” information is information that is not generally available, and if known would or would be
likely to have a material effect on the price of value of securities. A reasonable person would be taken to expect
information to have a material effect if the information is likely to influence persons who commonly invest in
securities in deciding whether or not to buy, subscribe for or sell the securities11.

Information is considered to be “public” or “generally available” if:

i. It consists of readily observable matter;
ii. Without limiting the generality of (i),
a) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons
who commonly invest in securities of a kind whose price or value might be affected by the information;
and
b) since it was made known, a reasonable period for it to be disseminated among such persons has elapsed;
or
iii. It consists of deductions, conclusions or inferences made or drawn from either or both of (i) and (ii)(a) above.

3.9.2 Definition of Insider Trading

Insider trading therefore is to trade on such privileged and confidential information. Trading on such inside
information therefore serves to provide an advantage over other investors resulting in an unfair market.

Persons with inside information on a corporation or its securities must not enter into transactions in such
securities. It is irrelevant that the person did not have an intention to use the inside information. They must also
not communicate the information to other parties.

3.9.3 An Insider

The provisions in the SFA make a differentiation between the sources of “insider” information, that is, from a
“connected person” and a “non-connected person”. The distinction is in the prosecution of the perpetrators.

1. A Connected Insider12

In the case of a connected person, it has to be proven that the connected person was in possession of
information which was not generally available. It is also presumed until proven otherwise that the connected
person knew that the information was not generally available and if the information was generally available, it
might have a material effect on the price or value of the security.

A person is connected to a corporation if he/she:

i. Is an officer of the corporation or of a related corporation;
ii. Is a substantial shareholder in that corporation or in a related corporation;

10 SFA Section 218 & 219 – Prohibited conduct by connected & other persons in possession of inside information
11 SFA Section 216 – Material effect on price of value of securities
12 SFA Section 218(5) – Prohibited conduct by connected persons in possession of inside information

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iii. Occupies a position that may reasonably be expected to give them access to price sensitive information by
virtue of:
a) any professional or business relationship existing between them (or their employer or a corporation of
which they are an officer) and that corporation or a related corporation; or
b) them being an officer of a substantial shareholder in that corporation or in a related corporation.

A person is an officer of a corporation if he/she is:

i. A director, secretary or employee of the corporation;
ii. A receiver, or receiver and manager, of property of the corporation;
iii. A judicial manager of the corporation;
iv. A liquidator of the corporation; or
v. A trustee or other person administering a compromise or arrangement made between the corporation and
another person.

It should be noted that the issuer's lawyers, accountants, bankers, investment bankers, public relations
consultants, advertising agencies, consultants, valuers and other third parties are also regarded as insiders.
Where an issuer is involved in the negotiation of an acquisition or transaction, the other parties to the
negotiation may also be regarded as insiders13.

2. A Tippee

In the case of a non-connected person (a “tippee”), it has to be proven that the person knew that the information
in his possession was not generally available and is price sensitive. A tippee is different from a connected insider
in that:
i. A tippee does not have to be connected to the corporation in respect of which he knows price sensitive
information;
ii. Actual knowledge that the information is not generally available and is price sensitive is required before
the tippee is obliged to not subscribe for or trade in the securities, or to procure another person to do the
same. This is opposed to a connected insider where it is sufficient to show that they ought reasonably to
have known that they possessed information which is not generally available and which is price sensitive;
and
iii. There is also a shift in the burden of proof against the connected insider in that if it is shown that he/she
possessed confidential price sensitive information, it will be presumed, unless proved otherwise, that he
knew that the information was not generally available and was price sensitive.

Unlike earlier provisions for market misconduct, a tippee does not have to:
a) Be the one who received information, directly or indirectly, from an insider;
b) Have an arrangement or association with the insider; and
c) Be aware that the insider himself is precluded from dealing.

All that is required is that the tippee must possess the price sensitive information and that he/she must know
that the information is not generally available and is price sensitive. It is irrelevant where the information came
from. Such a tippee is not permitted to subscribe for or trade in securities or procure another person to do so. It is
irrelevant that the tippee did not have an intention to use the inside information.

13 Paragraphs 27 & 28 of the SGX-ST Listing Manual

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3. Tipping Off Offence

If a person possesses inside information, he or she must not communicate the information or cause the
information to be communicated to a third party, if he or she knew or ought to know that the third party would
(or would cause another person to) deal in such securities (known as the “tipping off offence”).

Notwithstanding the source of insider information, i.e. whether it came from connected persons or non-
connected persons, it is clear that the rules and regulations prohibit trades carried out through the knowledge
of “inside” information to unfairly benefit “insiders” and thus prevents fair competition and places other
customers at a disadvantage. It is also not necessary to prove that the person with “inside” information intended
to use the information.

3.9.4 Exceptions and Defences14

There are excepted categories of individuals and situations that are found within the SFA. These are:
i. The redemption by trustees or managers in respect of a collective investment scheme, subject to certain
conditions (SFA Section 222);
ii. Persons acting as underwriters and pursuant to the performance of their roles (SFA Section 223);
iii. The purchase or sale of securities pursuant to legal requirements such as requirements imposed by written
law or a court order (SFA Section 224);
iv. Price-sensitive information communicated pursuant to legal requirements such as requirements imposed
by written law or a court order (SFA Section 225);
v. Knowledge within corporation– knowledge of an officer is typically regarded as knowledge of the
corporation, unless Chinese walls apply (SFA Section 226);
vi. Knowledge within partnership and limited liability partnerships – knowledge of a partners is typically
regarded as knowledge of the partnership or limited liability partnership, unless Chinese walls apply (SFA
Section 227);
vii. Knowledge by virtue of a natural person’s own transactions (SFA Section 228); and
viii. Knowledge of a corporation’s own transaction (SFA Section 229).

Beside the above Defence and Exceptions, SFA Section 231 also deals in exception based on the ‘Parity of
Information’, i.e. if both parties have the same information, the parties would be on equal footing and can enter
into the transaction with one another.

SFA Section 231 states as long as the court is satisfied that the information comes into the defendant’s
knowledge solely as a result of information having been made known to any persons who commonly invest in
securities affected by the information, or ought reasonably to have known of the information, before entering
into the transaction or before the information was communicated, is considered as good defence.

Section 230 provides for an exemption for broker-dealers. A CMS licence holder for dealing in securities can
trade on a stock market if it or its representative entered into the transaction on behalf of a principal, where the
instruction of the principal was not solicited by, and the principal was not advised by the CMS licence holder or
its representative, and the principal and the CMS licence holder or its representatives are not “associates”.

14 SFA 222 – 229 – Insider Trading: Exceptions and Knowledge Attributions

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Example - Insider Trading

Person A has information of a potential takeover of Company B by Company C when working for Company B.
He used this information to buy up a large number of shares in Company B using the account of a third party
D. After the announcement of the takeover, the price of Company B went up 12.8% higher than the previous
traded price.

However, the takeover did not take place and knowing that it will not take place, Person A then sold an even
larger number of shares in Company B using the same account of third party D, avoiding a substantial loss
from his earlier trades because after the announcement of the withdrawal of takeover, the price fell by 70%
of the previous traded price. By using third party D’s account with the brokerage firm, Person A had also
deceived the brokerage firm.

Person A thus had breached regulations on Insider Trading Section 218 (2)(a) and (b) in addition to Section
201(b) on SALE and purchase of securities under the SFA. A civil penalty of $2.9 million was imposed on A
after MAS commenced civil proceedings against him in the courts.

Penalties - SFA Part XII Market Conduct, Division 1 Prohibited Conduct –Securities

Any person who contravenes any provisions of this Division shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to both15.
Refer to Section 3.11 for civil penalties and civil liabilities.

3.10 Securities Hawking 16

Securities hawking refers to making an offer of securities in an unsolicited meeting. The securities hawking
prohibition aims to prevent pressure selling of financial products to retail clients (e.g. “boiler room” practices,
badgering).

Representatives are not allowed to offer or invite any subscription or purchase of securities, during any
unsolicited meetings with clients or other investors. This requirement does not apply to offers made to securities
that do not need a prospectus, such as those to institutional investors, accredited investors17.

Example - Securities Hawking

A customer visits a bank to enquire about obtaining a credit card. When he is waiting for his credit card
application to be processed, a bank employee approaches him to sell an investment product to him. The bank
employee is engaging in securities hawking if he has not obtained the customer’s consent or has not enquired
if the customer is interested to listen to the sales pitch, before approaching the customer.

15 SFA 204 – Penalties under this Division

16 SFA Section 309 – Securities hawking prohibited
17SFA Section 304 - Offer made to institutional investors; SFA Section 305 - Offer made to accredited investors and certain other
persons

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Penalties – SFA Part XII Market Conduct, Division 3 – Securities Hawking

Any person who is guilty of the securities hawking offence will be liable on conviction to a fine not exceeding
$10,000 or to imprisonment for a term not exceeding 6 months or to both and, in the case of a second or
subsequent offence, to a fine not exceeding $20,000 or to imprisonment for a term not exceeding 12 months
or to both.18

3.11 Other Market Conduct Rules & Guidelines

Apart from the market conduct offences stipulated above, there are other trading related regulations and rules
that the CMS Licence Holder or its Representatives have to comply with.

There are other market conduct guidelines which CMS licence holders and representatives are expected to
comply with. These include:
 Short Selling Guidelines
 Marking Sell Orders
 Securities Borrowing and Lending

3.11.1 Short Selling Guidelines19

The Guidelines on Short Selling Disclosure (SFA 15-G02) are derived from the provisions of Part II of the SFA.

Short Selling as defined in the SFA 15-G02, “is the sale of securities that the seller does not own at the time of
the sale, short selling may be ‘covered’ or ‘uncovered’ (also known as ‘naked’ short selling).”

In ‘covered’ short selling, at the time of the sale, the seller has borrowed the securities or has otherwise made
arrangements to fulfil his obligation to deliver the securities. In ‘uncovered’ short selling, at the time of the sale,
the seller is not in possession of securities or has not otherwise made arrangements to meet his delivery
obligation.

The motivation for short selling is that the person believes that a security’s price will decline, so it sells the
security first, hoping that he or she can buy the securities back at a lower price later after the price has fallen to
make a profit from the transaction.

There are advantages to allow some form of short selling as it provides for a more efficient price formation,
increases market liquidity and facilitates risk management and the development of hedging activities.

Conversely it could also result in increased market volatility, potentially leading to disorderly markets under
conditions of significant market uncertainty. Short selling may also be used as a tool in market abuse, where
false rumours are passed with the objective of causing others to sell thus bringing prices down in a panic.
‘Uncovered’ short selling may also result in disruptions of the settlement process.

In view of the negative impact of short selling, and to mitigate the potentially disruptive impact on the
settlement process, The Central Depository (Pte) Limited (CDP), purchases securities on behalf of sellers who
not possess securities for delivery on settlement day (a term ‘buying in” is used to describe this activity). When
the CDP carries out the buying-in, the cost of purchase and an additional penalty is charged to the seller who

18 SFA Section 309(4) – Securities hawking prohibited

19 MAS Guidelines on Short Selling Disclosure (SFA 15-G02)

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failed to deliver the securities. Such buying-in procedures are determined at the discretion of the CDP, as
covered in the buying-procedures in CDP Clearing Rule 6.7.4.

The combined actions of the CDP and SGX-ST help mitigate some of the potential negative effects of short selling
and ensure that markets continue to function in an orderly and efficient manner.

Although it is good to gather information on short selling and interpret the information, market participants are
cautioned to exercise care when interpreting such information. For instance, information on short sale volume
may not reflect the outstanding short position in those securities. Volume of short sales may include trades
which have been offset by the buy-in trades.

3.11.2 Marking Sell Orders20

Under section 330(1)21 of the SFA, it is a statutory obligation to make true and accurate disclosure of short selling
information. Any person who, with intent to deceive, makes or furnishes, or knowingly and wilfully authorises
or permits the making or furnishing of, any false or misleading statement or report to a securities exchange,
futures exchange, designated clearing house or any officers thereof relating to dealing in securities shall be guilty
of an offence and shall be liable on conviction to a fine, or to imprisonment, or to both. MAS will consider
whether there was intent to deceive in respect of sell orders that had been inaccurately marked by SGX-ST
Trading Members or inaccurately disclosed by market participants.

Penalties - SFA 330(1)

Any person who contravenes this section shall be guilty of an offence and shall be liable on conviction to a
fine not exceeding $50,000 or imprisonment term not exceeding 2 years or both.

3.11.3 Securities Borrowing and Lending22

Just as short selling is allowed subject to conditions including having pre-arrangements for ‘covered’ short
selling, securities borrowing and lending is allowed as a market practice subject to conditions as outlined in the
SFR (LCB) 45.

When a CMS licence holder borrows from an owner of securities, the CMS licence holder must ensure that it
provides collateral up to 100% of the market value of the securities borrowed. Similarly if the CMS licence holder
lends securities, including those belonging to its customers, it must obtain collateral from the borrower, up to
100% of the market value of the securities borrowed. Such collateral arrangement does not apply if the CMS
licence holder borrows from an accredited investor as defined in the SFA. However, such arrangements and
conditions must be documented in writing.

The value of the collateral throughout the borrowing and lending arrangement must be 100% of the market
value of the securities.

Such borrowing and lending must be clearly documented in writing and the written agreement must:
 State the capacities in which the arrangement was entered into, as agent or principal.
 Provide for the transfer of title to and the interest in the securities to the CMS licence holder from the
borrower or from the CMS licence holder to the lender as the case may be.

20 MAS Guidelines on Short Selling Disclosure (SFA 15-G02)

21
SFA 330 - Duty not to furnish false statements to securities exchange, futures exchange, licensed trade repository, approved clearing
house, recognised clearing house and Securities Industry Council.
22 SFR (LCB) 45 – Securities Borrowing and Lending

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 Provide for the transfer of title to and interest in whole or in part of the collateral provided or obtained by
the CMS licence holder which is at least 100% of the market value of the securities borrowed by the CMS
licence holder from the lender or lent by the CMS licence holder to the borrower as the case may be.
 Provide the rights to document the borrowing and lending arrangement including the treatment of dividend
payments, voting and other rights and arrangement for dealing in any corporate action.
 Provide for the daily mark to market valuation of the collateral to determine the procedure for calculating
margin and treatment of shortfalls, if any.
 Provide the procedures for the return of securities lent and borrowed.
 Provide for the termination of agreement, setoff of claims, default conditions, calculation of lending or
borrowing fees as the case may be.
 Provide for the governing law and jurisdiction subjected to.

Before any borrowing arrangements can be entered into, the CMS licence holder must explain the risk in such
arrangements to the customer and obtain his understanding in writing.

Penalties (SFR(LCB) 55)

Any person who contravenes regulations 55(1), (3), (4), (5), (6) or (7) shall be guilty of an offence and shall be
liable on conviction to a fine not exceeding $50,00023.

3.12 Penalties for Market Misconduct under the SFA

A CMS Licence Holder and its Representatives are duty bound to immediately report to SGX-ST of any suspicion
of attempted market manipulation, false trading or insider trading.

Any contravention of the provisions of the market conduct rules will result, if found guilty, of:
 Criminal penalties
 Civil penalties
 Civil sanctions , financial and reputation Loss
 In the event of a suspension, or loss of licence.

3.12.1 Criminal Penalties24

The Market Misconduct offences are criminal and carries with it heavy penalties of fine of up to S$250,000 or
imprisonment of 7 years or both.

3.12.2 Civil Penalties25

In addition to criminal penalties, if found guilty, the CMS Licence Holder or its Representatives may also face
civil action in which the offender may offer remedies and the Authority is empowered to bring an action in court

23 SFR(LCB) 55 - Offences
24 SFA 204, 221 - Penalties under this Division
25 SFA 232, 233 - Civil Liability - Civil penalty & Action under section 232 not to commence, etc., in certain situations

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resulting in the court imposing a civil penalty in place of the criminal penalty. Such civil penalty can be the higher
of either the following sums:
a) A sum not exceeding 3 times the amount of profit the defendant has gained or the amount of loss that he
has avoided, as a result of the contravention or
b) A sum equal to S $50,000 if he is not a corporation or S $100,000 if he is a corporation.

If the defendant is convicted or acquitted in the trial of the criminal proceedings brought against him,
proceedings for a civil penalty will not be commenced. If there is a withdrawal of the charge against the
defendant, the MAS is still in a position to commence its action against him. Likewise, should the civil penalty
proceedings be concluded against a defendant whereby he is ordered to pay the civil penalty, no criminal
proceedings shall be commenced. Similarly, ongoing civil penalty proceedings will be stayed should there be
criminal proceedings commenced on the same set of facts against the defendant in the civil penalty
proceedings26.

3.12.3 Civil Sanctions, Financial and Reputation Loss27

In addition to criminal action brought against the offender, or having to face civil penalties, the CMS licence
holder or its Representative may face civil liabilities through legal action taken out against them for losses
incurred by the market players due to their manipulative actions. Such action may require damages to be paid
resulting in financial loss. But more painful will be the loss of reputation which may result in loss of customers,
confidence in the firm and finally financial loss. And in more serious case, Trading Members may even have its
licence suspended or revoked depending on the severity of the defective action and for its Representative,
suspension, dismissal or de-register from the public register.

The person who may bring such a civil action is one who:
i. Had contemporaneously with the commission of the offence, entered into trades of the same description;
and
ii. Had suffered market losses due to the effects of the offence

The person may recover the amount he lost subject to the following ceiling:
a. The amount of profit gained by the defendant; or
b. The amount of loss avoided by the defendant.

In addition, the amounts recovered by other individuals from the defendant for similar claims will be deducted
from the amount that may be recovered. In other words, the profit gained / loss avoided by the defendant will
essentially be divided among those who suffered from his market misconduct.

If criminal proceedings or proceedings for a civil penalty are brought, the action for damages must be stayed
pending resolution of these other proceedings. However, if these proceedings are successful, the civil claimants
may piggy-back on the results of these proceedings subject to proving that they suffered a loss.

In practice, given the difficulties involved in bringing a claim, and the relative resources of the state compared
to private individuals, in most cases, criminal proceedings or proceedings for a civil penalty will be brought first,
with civil claimants relying on the results of these proceedings to recover their losses.

26 SFA 233 – Action under SFA 232 not to commence etc., in certain situations
27SFA 234 - Civil liability; SFA 235 Action under section 234 not to commence, etc., in certain situations & SFA 236 Civil liability in event
of conviction, etc.

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Chapter 4:
Central Provident Fund Investment Scheme
(CPFIS)
Learning Objectives
The candidate should be able to:
 Know the CPFIS and its history
 Know and differentiate between the two parts of the CPFIS
 Know the account opening process and operating process
 Know the factors a member has to take into account before he commits to an investment using
his/her CPF ordinary account’s balances
 Be aware of the investments included under the CPFIS
 Know the CPF investment limits for the various instruments
 Know the restrictions tied to investing in securities through CPFIS
 Know how profits, losses and dividend etc. are treated in CPFIS
 Know that there are charges for investing in securities through CPFIS
 Know the circumstances under which a member’s investments through CPFIS will be released to
him
 Know how bankruptcy and death cases impact the CPFIS and the use & distribution of the funds

4.1 General Information and History of CPFIS

The Central Provident Fund (CPF) savings scheme is meant to be a savings scheme for retirement. However in
May 1986, the government made certain concessions and changed the CPF Act, to allow CPF members to use
part of their savings in the ordinary account (OA) to invest in approved investment products to enhance their
assets value by the time they retire. This scheme is known as the Approved Investment Scheme (AIS).

Over the years, more options were added to the scheme, for members to invest in with their CPF savings. In
October 1993, the AIS was liberalized with a 2-tier scheme i.e. the Basic Investment Scheme (BIS) and Enhanced

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Investment Scheme (EIS). These two schemes were eventually merged in January 1997 to form the Central
Provident Fund Investment Scheme (CPFIS). The scheme was broadened in January 2001 to allow members to
invest using savings in their Special Accounts as well.

Currently, the CPFIS has 2 parts:

 CPFIS-Ordinary Account (CPFIS-OA); and
 CPFIS-Special Account (CPFIS-SA).

4.2 Differences between CPFIS-OA and CPFIS-SA

Under CPFIS-OA, investments can only be made using funds from the members’ Ordinary Account Savings whilst
the Special Account Savings can only be used for investments under CPFIS-SA. The types of products allowed for
investment under CPFIS-OA and CPFIS-SA are also different.

A CPF Investment account is required for investments made under the CPFIS-OA but not required for CPFIS-SA.

4.2.1 Types of Investments Allowed under the 2 Types of the CPFIS and Investment Limits1

CPFIS-OA CPFIS-SA

Ordinary Account savings can be invested in: Special Account Savings can be invested in:
 Fixed Deposits  Fixed Deposits
 Singapore Government Bonds  Singapore Government Bonds
 Singapore Government Treasury Bills  Singapore Government Treasury Bills
 Statutory Board Bonds  Statutory Board Bonds (secondary markets
 Bonds Guaranteed by Singapore Government only)
 Annuities  Bonds Guaranteed by Singapore
 Endowment Insurance Policies Government
 Fund Management Accounts  Annuities
 Selected Investment-Linked Insurance Products (ILPs)  Endowment Insurance Policies
 Unit Trusts  Selected ILPs2
 Exchange Traded Funds (ETFs)  Selected Unit Trusts2
 Selected ETFs2
Up to 35% of investable savings can be invested in:
 Shares
 Property Funds (or Real Estate Investment Trusts)
 Corporate Bonds

Up to 10% of investable savings can be invested in Gold:

 Gold ETFs
 Other Gold products (Only UOB offers these new gold
products)

1Refer to the list of instruments that can be invested under CPFIS (CPF website):
https://www.cpf.gov.sg/Assets/members/Documents/INV_InstrumentsunderCPFIS.pdf
2Only ILPs, unit trusts and ETFs in the lowest 3 tiers of CPF Board’s Risk Classification System Table (i.e. lower risk, low to medium risk
and medium to high risk)

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Only monies in excess of $20,000/- in the ordinary account and $40,000 in the special account can be invested.
However, a member can continue to service his/her regular premium insurance policies (but NOT recurring
single premium insurance policies or regular savings plans for unit trusts).

4.3 What is a CPF Investment Account?

A CPF Investment account is an account opened with a CPFIS agent bank to facilitate the settlement of a
member’s purchases & sales of investment and to keep track of his/her investment holdings and transactions in
his/her CPF Investment Account.

CPFIS agent banks are appointed by the CPF Board and are one of the 3 local banks i.e. Oversea-Chinese Banking
Corporation Ltd (“OCBC”), United Overseas Bank Ltd (“UOB”) and DBS Bank Ltd (“DBS”).The agent banks are
appointed by the CPF Board for their extensive branch network and facilities to support the investment and
settlement of equities & bonds listed on the Singapore Exchange. Each member can only maintain one CPF
Investment Account at any one time.

4.4 Eligibility Criteria

A CPF member who meets the following requirements is allowed to participate in the CPFIS:
1. Is at least 18 years of age
2. NOT an undischarged bankrupt
3. Have more than $20,000 in his/her Ordinary Account (for Investment under CPFIS-OA) and/or more than
$40,000 in his/her Special Account (for investment under CPFIS-SA)

4.5 Opening a CPFIS Investment Account

To open an investment account under CPF Investment Scheme Ordinary Account (CPFIS-OA), a member can
approach any one of the following CPFIS agent banks:

 DBS
 OCBC
 UOB

A member will need to bring along his or her identity card and any of his CPF statement for agent bank to verify
his/her CPF account number. He or she can access his or her statement at www.cpf.gov.sg via mycpf Online
Services by using his/her SingPass. Members can only maintain one CPF Investment Account at any one time.

4.6 Operational Process for Purchase and Sale of Investments (CPFIS-OA

only)

After opening a CPFIS account with an agent bank, the member must inform his/her dealer of the account details
for settlement of transactions before entering into a transaction using his/her CPF funds.

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The agent bank will liaise with the CPF Board and the various product providers to settle the member’s purchase
and sale of investment, and keep track of his/her investment holdings and transactions in his/her CPF investment
account.

A member can sell his/her investments which are listed on the Singapore Exchange one trading day after the
purchase date if the purchase trade has been accepted by the agent bank as a CPFIS-OA trade. Agent banks may
accept the trade provided:
i. The stock broker has keyed the purchase trade on the day the purchase contract is made; the trade was
successful, and
ii. The member has sufficient investible funds (and limits for stock and/or gold investments) in his/her CPF
investment and/or Ordinary Account to settle the purchase.

4.7 Service Providers under the CPFIS 3

Members are required to buy or sell their investments only through Service providers included under the CPF
Investment schemes as provided in the table below:

Instruments Service/Product Providers

Fixed Deposits Deposit Banks

Singapore Government Bonds Bond Dealers or Brokers

Singapore Government Treasury Bills Bond Dealers

Statutory Board Bonds Bond Dealers or Brokers

Bonds Guaranteed by Singapore Government Brokers

 Annuities Insurance Companies

 Endowment Insurance Policies
 Investment linked Insurance products

Unit Trusts  Fund Management Companies

 Investment Administrators

Fund Management Accounts Fund Management Companies

 Shares Brokers
 Property Funds
 Corporate Bonds
 Exchange Traded Funds (ETFs)

Gold  For Gold ETFs: Brokers

 For other Gold products:
 Gold ETFs o Sell through your Agent Bank
 Other Gold products o Buy through UOB Agent Bank and you need a UOB
investment account

3 Refer to CPF website at https://www.cpf.gov.sg/Members/Schemes/schemes/optimising-my-cpf/cpf-investment-schemes

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4.8 Criteria for Inclusion of Investment Products under CPFIS

All instruments (except Gold products offered by CPF Agent Banks, Singapore Government Bonds and
Singapore Government Treasury Bills) under the CPFIS are only included upon the product providers’
applications and CPF Board’s review4. These instruments must meet the inclusion criteria.

All investment made under CPFIS must be in Singapore dollars except where otherwise stated. Investments
under CPFIS cannot be assigned, pledged or used as collateral. The table below show the conditions attached to
some of these investments:

4.8.1 Inclusion Criteria for Investment Products

Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria

Fixed Deposits (i) Must be offered by CPFIS-included Fixed Deposit Banks only;
(ii) The bank must be locally incorporated with minimum capital funds of S$1.5 billion
and good credit rating; or
(iii) The bank must be a subsidiary of a locally-incorporated bank which meets the
criteria at (i). The bank must continue to be a subsidiary of the locally-incorporated
bank; or
(iv) If the bank is a foreign bank, it must be accorded the Qualifying Full Bank privileges.

 Singapore The bonds/treasury bills are scripless.

Government
Bonds
 Singapore
Government
Treasury Bills

Statutory Board (i) The bonds are listed on SGX;

Bonds5
(ii) The bonds are traded in Singapore dollars;
(iii) The bonds are not offered to institutional investors or accredited investors and
certain other persons only under Section 274 or 275 of the Securities and Futures
Act (“SFA”);
(iv) The bonds are not subject to trading restrictions in the secondary market; and
(v) Prospectus, which comply with the SFA requirements for the bonds, are issued.
For bonds which are exempted from the prospectus requirement, an information
memorandum setting out the terms of the issue, the risks of investing in the bonds
and other relevant information must be issued and made available to CPF
members.

4 Unit Trusts, Investment-linked insurance products and Exchange Traded Funds would need to be evaluated by CPF Board’s appointed
Investment Consultant before they can be included under CPFIS.
5 Under CPFIS-SA, currently members can only invest in Statutory Board Bonds in the secondary market.

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Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria

Bonds Guaranteed (i) The bonds are listed on SGX.

by Singapore
(ii) The bonds are scripless.
Government

 Annuities (i) Must be offered by Insurance Companies included under CPFIS.

 Endowment (ii) Life insured must be the member himself.
Insurance (iii) Only single premium or recurring single premium policies are allowed (new regular
Policies premium policies are not allowed from 1 January 2001).
 Investment (iv) For endowment policies, maturity date must not be later than the member’s 62nd
linked birthday.
Insurance
products6

Unit Trusts7 (i) Must be managed by Fund Management Companies included under CPFIS.
(ii) Must be evaluated by CPF Board’s appointed Investment Consultant to be among
the top 25th percentile of global peer group.
(iii) Must have Total Expense Ratio (TER) not exceeding the TER caps set by CPF Board.
(iv) Must have sales charge not exceeding 3%.
(v) Preferably have track record of good performance for at least 3 years.
(vi) Must comply with the CPF Investment Guidelines (“CPFIG”) set by CPF Board.

Exchanged Traded (i) Must be listed on the Singapore Exchange-Securities Trading (SGX-ST).
Funds7
(ii) Must be managed by Fund Management Companies included under CPFIS.
(iii) Must meet the top 25th percentile of global peer group set by CPF Board.
(iv) Must comply with CPFIG.

Fund Management Fund managers are required to invest according to the CPFIG set by CPF Board.
Accounts7 (CPFIS-
OA only)

 Shares of (i) Must be offered by companies incorporated in Singapore.

Companies (ii) The shares are listed on the SGX MainBoard.
(CPFIS-OA only)
(iii) The company allows CPF investors, who have pre-registered with CPF Agent
 Units of Banks, to attend their shareholders’ meetings (if any) as observers.
Property Funds
or Property

6Can be denominated in non-Singapore dollar currencies. Refer to

https://www.cpf.gov.sg/Assets/members/Documents/INV_AnnexA.pdf
7 Members can use part of all of the available amount in their Ordinary Account to open a Fund Management Account (FMA) with an
approved fund manager. Members must apply to CPF Board to withdraw the funds from their Ordinary Account. If Members wish to
close their FMA or the fund manager is no longer approved by CPF Board, the fund manager must transfer the members’ money to
their CPF Investment Account. Refer to the CPF website at https://www.cpf.gov.sg/Assets/members/Documents/RCSUT.pdf

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Instruments Included Under the CPF Investment Scheme (CPFIS)

Instrument Criteria
Trusts (CPFIS-
OA only)

Corporate Bonds (i) Must be offered by companies incorporated in Singapore.

(CPFIS-OA only)
(ii) The shares are listed on the SGX MainBoard.
(iii) The bonds are not offered to institutional investors or accredited investors and
certain other persons only under Section 274 or 275 of the SFA.
(iv) The bonds are not subject to trading restrictions in the secondary market.
(v) The bonds are rated at least A2 by Moody's, A by Standard and Poor's or A by
Fitch.
(vi) Prospectus, which comply with the Securities and Futures Act requirements for
the bonds, are issued. For bonds which are exempted from the prospectus
requirement, an information memorandum setting out the terms of the issue, the
risks of investing in the bonds and other relevant information must be issued and
made available to CPF members.

Gold (CPFIS-OA a) Gold ETFs8:

only)
(i) Must be listed on the Singapore Exchange-Securities Trading (SGX-ST);
(ii) The gold ETF is backed by physical gold that meets the London Good Delivery
Rules issued by London Bullion Market Association (or other equivalent
globally accepted standards);
(iii) The gold ETF is offered by a Singapore-incorporated company (for locally
constituted gold ETF authorized by MAS) or through a local representative
(for foreign gold ETF recognised by MAS); and
(iv) The company allows CPF investors, who have pre-registered with CPF Agent
Banks, to attend their shareholders’/ unitholders’ meetings (if any) as
observers.
b) Other Gold products
Only UOB offers these gold products. If you wish to invest in gold, you need an
investment account with UOB.

4.9 Transfer of Monies from CPF Investment Account to CPF Ordinary

Account

A member may transfer monies from his/her CPF Investment Account to his/her CPF Ordinary Account at any
time using his/her agent bank’s facilities (e.g. ATMs/ Phone/ Internet banking facilities). The member may also
make the transfer over the counter at the bank.

8Refer to the CPF website

(https://www.cpf.gov.sg/Assets/members/Documents/LISTOFGOLDEXCHANGETRADEDFUNDSINCLUDEDUNDERCPFIS.pdf) for the list of
Gold ETFs traded under CPFIS & the criteria for Gold ETFs inclusions

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The agent bank will also automatically transfer the cash balance held in the member’s CPF Investment Account
to his/her CPF Ordinary Account (at the end of the month) if his/her Investment Account has been inactive (I.e.
If the member has not made any investment transactions) for two consecutive months. If the member has been
unsuccessful in an IPO application, his/her agent bank will transfer the unused CPF for the IPO application to
his/her Ordinary Account at the end of the month.

4.10 Dividends and Profits Earned 9

Any dividends, profits earned from investments under CPFIS-OA and / or CPFIS-SA are not withdrawable as the
purpose of investing is to grow members’ CPF savings for retirement. However, the dividends or profits can be
used for other CPF schemes, subject to the terms and conditions of these schemes. However, losses do not
need to be made good.

4.11 Charges

A member will incur charges for his/her CPFIS investment, which can be paid out of his/her CPF savings. Charges
may be levied by product or service providers or by the agent bank for providing the CPF Investment Account
and facilitating the settlement and accounting for transactions.

4.12 Release of Investment Holdings 10

Upon reaching the age of 55 years old, a member can apply to the CPF Board to withdraw his/her CPFIS-OA and
CPFIS-SA investments as well as the cash balance in his/her Investment Account, as long as he has set aside the
CPF Minimum Sum and Medisave Minimum Sum.

For CPFIS-OA, the Board will inform the agent bank to close the member’s CPF Investment Account. The member
may approach the bank for the withdrawal of investments and cash after the Board has notified him. The
member’s investment will be transferred to his/her own name and he may thereafter liquidate them as he
wishes and have the sales proceeds paid to him directly.

For CPFIS-SA, CPF Board will inform the member’s product provider(s) to transfer the member’s investment to
his/her own name and he/she may thereafter liquidate them as he/she wishes and have the sales proceeds paid
to him directly.

If a member is unable to set aside the CPF Minimum Sum and Medisave Minimum Sum, his/her investments will
not be transferred to him/her. Upon liquidating the investments, the sale proceeds will be credited to his/her
CPF Investment Account for CPFIS-OA or Special Account for CPFIS-SA.

9Refer to the CPF website (https://www.cpf.gov.sg/Members/FAQ/schemes/optimising-my-cpf/cpf-investment-schemes) for FAQs on

for FAQs on Investment Profits & Losses.
10
Refer to the CPF website (https://www.cpf.gov.sg/Members/FAQ/schemes/optimising-my-cpf/cpf-investment-schemes) for FAQs on
Withdrawal of Investment Holdings (Reaching 55)

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4.13 Bankruptcy

Undischarged bankrupts, who had previously used their CPF monies to invest can hold or liquidate their
investments. The sale proceeds upon liquidation will be credited back into their CPF Investment Account or
Special Account. They are however, not allowed to use their CPF monies again for new investments.

Upon reaching the age of 55 years, an undischarged bankrupt will need to set aside the CPF Minimum Sum and
Medisave Minimum Sum before his/her CPFIS investments and cash balance in CPF Investment Account can be
withdrawn. CPFIS investments and cash balances in the CPF Investment Account are protected from claims by
creditors and/or the Official Assignee as long as these remain within the CPF Investment Scheme.

4.14 Death

CPFIS Investments are not covered under CPF Nomination. When a member passes away, his/her investments
under the CPF Investment Scheme and any cash held in his/her Investment Account with his agent bank will
form part of his/her estate. CPFIS insurance policies with revocable nominations made with insurers will bypass
the estate administrator/executor process, and be paid directly to the beneficiaries nominated with the insurer.
In the absence of nomination, then the death proceeds will then be distributed by the administrator/executor
together with the rest of the deceased’s estate. (Irrevocable nomination is not allowed for CPFIS insurance
policies.)

The estate administrator/executor must produce the Letters of Administration/ Grant of Probate to claim the
investments from the “agent” bank or product providers. Upon the death of the member, the CPFIS investments
& cash in his/her Investment Account would cease to be protected and might be used to satisfy the deceased
member’s creditor’s claim in accordance with the Probate and Administration Act.

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Chapter 5:
Prevention of Financial Crimes
Learning Objectives
The candidate should be able to understand:
 What are financial crimes and the concept of key financial crimes:
• Money laundering / terrorism financing
• Sanctions & embargoes
• Fraud
 The anti-money laundering and counter-terrorism financing regime in Singapore.
 The laws and regulations against financial crimes, and the roles and responsibilities of financial
institutions and representatives in the prevention and detection of financial crimes.
 The know-your-customer, risk profiling and due diligence process (including simplified and enhanced
due diligence) which must be carried out before account opening and client onboarding.
 Red flags to look out for during the due diligence process, and internal policies for ongoing monitoring,
reviews and operational controls.
 Documentation and record keeping requirements, including the independent verification of client
information.
 Penalties and risks associated with non-compliance of regulatory requirements:
• Legal risks
• Financial risk
• Reputation risk
• Civil & Commercial risk
 Reporting & filing requirements
 Training requirements

5.1 Introduction to Prevention of Financial Crimes

5.1.1 Definition of Financial Crimes

Financial crime is a wide and complex term that involves a range of criminal offences. The main financial crimes
that impact financial institutions and systems most and are on regulators’ radar screens are:
i. Money Laundering
ii. Terrorism Financing
iii. Embargoes and Sanctions
iv. Fraud

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Financial institutions1 are the major movers of funds through deposits, payments and transfers. Not only do
they move cash but transfers are made through global clearing systems of securities and paper assets.
Therefore, it is crucial that the international community make concerted effort to combat financial crimes.
Regulators in international financial centres have to proactively manage the risks of being used as a conduit for
illicit funds by putting in place a robust framework of laws and regulations against financial crimes as well as a
rigorous regime of supervision on financial institutions to prevent and detect such crimes.

5.1.2 Definition of Money Laundering

Money laundering (ML) is a process intended to mask the proceeds obtained from criminal activities such as
drug trafficking and other serious crimes so that they appear to have come from a legitimate source.

There are generally three steps in the process of money laundering:

1. The Placement stage refers to the physical disposal of benefits for criminal conduct. These are placed with
licensed deposit-taking companies like banks and finance companies.
2. The Layering stage refers to the separation of benefits of criminal conduct from their sources by creating
layers of financial transactions designed to disguise the audit trail. Criminals may buy luxury or high value
goods from genuine suppliers, resell them to unknowing customers and then place the legitimate funds
back in the bank as payments by cheque or wire transfers.
3. The Integration stage refers to the provision of apparent legitimacy to the benefits of criminal conduct. If
the layering succeeds, the integration schemes place the laundered funds back into the financial system,
making them appear as legitimate business funds.

However, these stages do not need to take place sequentially. Please refer to the diagram on the following page
an illustration of the stages of the money laundering process.

Capital market transactions within financial institutions offer a vast array of opportunities for transforming
money into a diverse range of assets, as capital market transactions are no longer predominantly cash based.
The ease with which these assets can be converted to other types of assets, especially if they are liquid and
marketable, further aids the layering process. Hence capital markets transactions are particularly attractive to
money-launderers for layering their illicit proceeds for eventual integration into the general economy.

Unless proper action is taken, financial institutions could unwittingly facilitate the layering and integration stages
through high-frequency transactions and payments to third parties or dealing with clients whose beneficial
owners (BOs)2 are not clear through holdings in shell companies and whose ultimate beneficiaries could be
people on sanctioned lists. Criminals may set up these companies with their ill-gotten gains in offshore
jurisdictions where the laws against money laundering are not as stringent and are not committed to follow the
Financial Action Task Force (FATF) standards. Ownership of these companies may not be transparent or it may
be layered through holding many subsidiaries to block the audit trail of ownership. They may then use these
shell companies on the pretext of investing through private bankers acting as intermediaries, who then deal
through brokers or introduce them to brokers. Any of these parties could be a financial institution.

1Financial institutions refer to banks, merchant banks and holders of Capital Markets Services (CMS) licence as defined in Appendix 2 of
MAS Notice SFA04-N02 (Notice on Prevention of Money Laundering and Countering the Financing of Terrorism) and MAS Notice 626
(Prevention of Money Laundering and Countering the Financing of Terrorism – Banks)
2As defined in MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism (SFA 04-N02) and (MAS
Notice 626), a beneficial owner (BO) is, in relation to a customer of a financial institution, as the natural person who ultimately owns or
controls the customer of natural person on whose behalf a transaction is conduced or business relations are established, and includes
any person who exercises ultimate effective control over a legal person or legal arrangement.

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An Illustration of the Money Laundering Process

(Figure 5.1.2)

1. PLACEMENT STAGE
Cash deposited in banks
or finance companies

Proceeds from
Criminal Activities

2. LAYERING STAGE 1st Layer

Payments from customers
by cheques or wire Purchase of luxury
Resells assets and high-end or high value
transfers are placed as supplies to unknowing
“legitimate funds” back in goods from
customer genuine suppliers
banks
2nd Layer

3. INTEGRATION STAGE
Sale of Investments and
return of sale proceeds
from Brokers in the form of
cheques or wire transfers
to banks
Shell Company
Issues Bearer Shares

Transfer of Investment
with Brokers

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Financial institutions must have adequate due diligence processes to identify the ultimate beneficiaries or BO
because they are at risk of unwittingly dealing for the clients who are involved in ML activities. The high
frequency of transactions serves to keep ‘’washing’’ the funds which adds legitimacy to the payments and
transfers as they come from licensed and regulated entities. With the funds given legitimacy, the criminal audit
trail gets harder to follow as it gets circulated and eventually fully integrated in the legitimate financial system.

5.1.3 Definition of Terrorism Financing

Terrorism Financing (TF) can be defined as providing funds to terrorists to carry out acts of terrorism which
usually have roots in political beliefs or ideology and seek to influence or compel governments into particular
course of action or intimidate the public or a section of the public. The sources of funding can be illegitimate as
well as legitimate; illegitimate sources include robbery, drug trafficking, kidnapping, extortion or hacking of
online accounts and legitimate sources include donations from charities, sale of publications on beliefs and
ideology, legitimate business operations and self-funding by individuals.

Similar to money laundering activities, a financial institution may inadvertently allow itself to be part of a TF
scheme, for example when funds are transferred to a third party who is not a client of the CMS financial
institution and due diligence has not been conducted on the third party. Financial institutions should ensure
that its payment policies and processes require further checks for payments to third parties. Financial
institutions should be vigilant as TF does not always involve large sums of money and can be hard to detect.

5.1.4 Criminal Liability Involving Embargoes & Sanctions

An embargo is the complete ban or prohibition of trade or financial dealings with a particular country, in order
to isolate it from participating in economic activity. Different categories of embargoes include:
 Embargoes affecting all relations with a particular country e.g. North Korea;
 Embargoes affecting certain named individuals or entities e.g. Specially Designated Names (SDN);
 Embargoes on certain sectors e.g. Armaments and Weaponry; and
 Economic sanctions which also vary from imposing import duties on products from certain countries and
blocking of exports of certain goods to target countries, or full blockage of a country’s products.

Sanctions are the trade prohibition on certain type of products, services or technology to another country due
to various reasons, including nuclear non-proliferation and humanitarian purposes. Sanctions can be considered
as “partial embargoes” as they restrict trade in certain areas.

Embargoes or sanctions are considered strong measures imposed in an effort by UN, US, EU or the embargo-
imposing country, to elicit a positive reaction from the country on which it is imposed. Sanctions are used where
diplomatic efforts have failed and military force remains a last resort.

Although a financial institution does not deal in goods, it could unintentionally allow itself to enter into
transactions with an SDN listed party for securities transactions. It may have dealt with an off-shore company
where the ultimate BO is not known or is not transparent in the structure. Many sanctioned parties have created
layers of shell companies to get around sanctions which were imposed to keep them out of the financial markets.

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Implications
Why should financial institutions be concerned with embargoes and sanctions when they deal only in
financial securities?

Financial assets are high value items and thus large amounts can be transacted each time. Many people
may have formed layers of shell and off-shore companies making it difficult to trace the ultimate BOs.
Financial institutions may not have traced the many layers of ownership to the BOs or even if they know
who the ultimate BO is on onboarding, the ultimate BOs may change over time especially if the
ownership of companies are “bearer” shell companies and not “registered”.

In such situations, financial institutions may unwittingly be facilitating transfer of funds through sale
and purchase of securities by SDNs or embargoed country nationals to fund their activities. By
facilitating such transfers, they would have breached the regulations on sanctions and embargoes and
this may result in fines imposed by the sanction imposing country. For example, in Singapore, if a
financial institution facilitates an Iranian transfer, it would have breached MAS notice on prohibition on
transactions with Iran.

“Bearer Share” companies do not list their shareholders and as the name suggests, the owner is the
person who holds the share certificate. Many financial institutions these days do not accept dealings
with bearer share companies and if they do, with clients they know, they require the shares to be
deposited with them. This is still a risk as the shareholder can always get a replacement claiming that
they have “lost” the shares. The policy in most institutions is to request clients to register the shares.
A good policy is not to accept “Bearer Share” companies as clients because of the inability to know for
certain the identity of the ultimate BO.

5.1.5 Fraud

Fraudulent acts are acts that involve deception and dishonesty by which a person obtains or seeks to obtain an
advantage or benefit at the expense of another. It can be committed by staff or outside parties when operational
risk is not properly managed or is caused by a non-alert staff.

Example – Internal Fraud

A representative may know his client’s behaviour, and be aware that the client could be out of town. Taking
advantage of the situation and knowing client’s account details, the representative could instruct the sale of
investments and arrange for payments to be made to a fictitious account operated by him.

When the funds are received, they will be withdrawn very quickly and the representative too will disappear. In
some cases, if he does not disappear, he will cover his tracks through falsifying the client’s instruction records.
Therefore, operational tests and audits must be robust in a financial institution.

Example – External Fraud

External fraud could occur when someone outside of the institution uses a client’s name and account after
discovering the details (e.g. through hacking a client’s computer system), and then instructs a representative
of the financial institution to sell the client’s holdings and pay to their own account which is different from the
records in the books of the financial institution. This is possible because very often instructions are given
through the telephone.

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Financial institutions must be able to have controls in place to verify such instructions. If not, then the fraudster,
after receiving the funds into his account, will withdraw it very quickly and disappear without being caught.

Therefore it is important for a financial institution to have a good system of control and verification process for
instructions and payments. Another good practice is to have a policy in place for staff receiving telephone
instructions to do a call back to the client to verify the instructions. If it is not an instruction given by the client,
then the bank will be alerted and the fraud can be prevented as no transfer will be allowed.

5.2 Anti-Money Laundering and Counter-Terrorism Financing Regime in

Singapore

Singapore is a member and signatory to the Financial Action Task Force (FATF) which is an Inter-Governmental
body established in 1989 by the Ministers of its Member jurisdictions to set standards and promote effective
implementation of legal, regulatory and operational measures for combating money laundering, terrorist
financing and the financing of proliferation, and other related threats to the integrity of the international
financial system. The FATF Recommendations set out a comprehensive and consistent framework of measures
which countries should implement in order to combat money laundering and terrorist financing, as well as the
financing of proliferation of weapons of mass destruction.

As a member of FATF, Singapore is committed to the effective implementation and enforcement of the FATF
Recommendations. Regulators have found that the most efficient way to stem out the flow of funds to criminals
or to starve them of their funding for criminal activities is to stop institutions from facilitating such flows by
making financial institutions like banks, brokerages, investment companies etc., and their employees
responsible for preventing the flow of funds to them.

5.3 The Regulatory Framework of Financial Crimes – Rules and Regulations

5.3.1 The Singapore Penal Code Cap 224

The Penal Code of Singapore sets out general principles of the criminal law of Singapore, as well as the elements
and penalties of common criminal offences such as homicide, theft and cheating.

5.3.2 Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act
(CDSA), Chapter 65A

The CDSA regulates money laundering activities and includes among others, drug trafficking, prostitution,
gambling, terrorist financing and tax evasion offences. It was introduced to criminalize money laundering and
to allow for investigation and confiscation of benefits from money laundering. When the CDSA was introduced,
drug trafficking was the primary source of funds for money laundering. It has since been amended to include
money laundering activities and confiscation of benefits and criminal conduct including bribery, criminal breach
of trust, counterfeiting, theft extortion, robbery, cheating as well as tax evasion.

The following is a summary of the money laundering offences under the law:

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1. Laundering Own Criminal Benefits

Any person who:

i. Conceals or disguises any property which (in whole or in part, directly or indirectly) represents his benefits
from drug trafficking or criminal conduct; or
ii. Converts or transfers that property or removes it from the jurisdiction, shall be guilty of an offence.

2. Money Laundering by Acquisition

Any person who knowing or having reasonable grounds to believe that any property (in whole or in part, directly
or indirectly) represents another person’s benefits from drug trafficking or criminal conduct, acquires that
property for no or inadequate consideration shall be guilty of an offence.

3. Knowingly Assisting to Conceal

Any person who knowing or having reasonable grounds to believe that any property (in whole or in part, directly
or indirectly) represents another person’s benefits from drug trafficking or criminal conduct is guilty of an
offence if he or she:
i. Conceals or disguises that property; or
ii. Converts or transfers that property or removes it from the jurisdiction for the purpose of assisting any
person to avoid a prosecution for a drug trafficking offence, a foreign drug trafficking offence, a serious
offence or a foreign serious offence or the making or enforcing a confiscation order.

4. Knowingly assisting to retain or control by arrangement

A person who enters into or is otherwise concerned in an arrangement, knowing or having reasonable grounds
to believe that by the arrangement:
i. The retention or control by or on behalf of another (referred to in Section 43 of CDSA as ‘that other person’)
of that other person’s benefits from criminal conduct is facilitated (whether by concealment, removal from
jurisdiction, transfer to nominees or otherwise); or
ii. That other person’s benefits from criminal conduct:
(a) are used to secure funds that are placed at that other person’s disposal, directly or indirectly, or
(b) are used for that other person’s benefit to acquire property by way of investment or otherwise.

Therefore the act of facilitating the flow of criminal funds, transferring or concealing will also be criminalized.

Table 5.3.2: Summary of Key Provisions of the CDSA

Offences Description

Section LAUNDERING OWN BENEFITS FROM DRUG TRAFFICKING

46(1) &
Any person who:
47(1)
a) Conceals or disposes any property which is, in whole or in part, directly or indirectly, represents
his benefits of Drug Trafficking or his benefits from criminal conducts; or
b) Converts or transfers that property or removes it from the jurisdiction; or
c) Acquire, possesses or uses that property;
shall be guilty of an offence.

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Offences Description

Section MONEY LAUNDERING BY ACQUISITION

46(3) &
Any person who knowing or having reasonable grounds to believe that any property, in whole or
47(3)
in part, directly or indirectly represents another person’s benefits of drug trafficking or benefits
from criminal conduct, acquires that property or has possession of or uses such property, shall be
guilty of an offence.

Section ASSISTING ANOTHER TO CONCEAL, CONVERT, TRANSFER, ETC.

46(2) &
Any person who knowing or having reasonable grounds to believe that any property is in whole or
47(2)
in part, directly or indirectly represents another person’s benefit of drug trafficking or benefits
from criminal conduct:
a) Conceals or disguises that property; or
b) Converts or transfers that property or removes it from the jurisdiction shall be guilty of an
offence.

Section ASSISTING ANOTHER TO RETAIN BENEFITS OF DRUG TRAFFICKING / CRIMINAL CONDUCT BY

43(1) & ARRANGEMENT
44(1)
A person who enters into or is otherwise concerned in an arrangement, knowing or having
reasonable grounds to believe that, by the arrangement:
a) The retention or control by or on behalf of another (referred to in this section as that other
person) of that other person’s benefit of drug trafficking or criminal conduct is facilitated
(whether by concealment or removal from jurisdiction, transfer to nominees or otherwise); or
b) that other person’s benefit from drug trafficking or from criminal conduct:
i) are used to secure funds that are placed at that other person’s disposal directly or
indirectly; or
ii) are used for that other person’s benefit to acquire property by way of investment or
otherwise;
and knowing or having reasonable grounds to believe that the other person is a person who carries
on or has carried on drug trafficking or has benefitted from drug trafficking or who engages in or
has engaged in criminal conduct, shall be guilty of an offence.

Sections PENALTY FOR MONEY LAUNDERING OFFENCES

43(5),
A person who commits any money laundering offences stated above shall be liable to:
44(5),
46(6) & a) If an individual, a fine up to S$500,000, or imprisonment up to 10 years, or both; or
47(6) b) If non-individual, a fine of S$1 million.

Sections TIPPING – OFF OFFENCES

48(1) &
Disclosure Relating to Authorised Officer’s Investigation & Lodging of Suspicious Transaction
(2)
Report (STR)
Any person who:
a) Knows or has reasonable grounds to suspect that an Authorised Officer is acting or is proposing
to act in connection with an investigation which is being or is about to be, conducted under or
for the purpose of the CDSA; or

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Offences Description
b) Knows or has reasonable grounds to suspect that a disclosure has been or is being made to an
Authorised Officer under the CDSA; and
c) Discloses to any other person information or any matter which is likely to prejudice the
investigation which might be conducted following the discussion,
shall be guilty of an offence.

Section PENALTY FOR BREACH OF SECTION 48(1) & 48(2)

48 (1) &
- Fine up to S$30,000 or
(2)
- Imprisonment up to 3 years or
- Both

Section DISCLOSURES RELATING TO PRODUCTION ORDER OR SEARCH WARRANT

49 (1)
Where, in relation to an investigation into drug trafficking or criminal conduct, as the case may be,
an order under Section 30 (Production Order) has been made or has been applied for and has not
been refused or a warrant under Section 34 (Search Warrant) has been issued, a person who,
knowing or suspecting that the investigation is taking place makes any disclosure which is likely to
prejudice the investigation shall be guilty of an offence.

Section PENALTY FOR BREACH OF SECTION 49(1) & (3)

49(1) &
A person who commits an offence under section 49(1) or (3) shall be liable on conviction to:
(3)
- Fine up to S$30,000 or
- Imprisonment up to 3 years or
- Both

Section OFFENCE FOR FAILURE TO DISCLOSE KNOWLEDGE OR SUSPICION OF ILLEGAL AND SUSPICIOUS
39(1) TRANSACTION REPORTING (STR)
&(2)
A person who knows or has reasonable grounds to suspect that any property:
a) In whole or in part, directly or indirectly represents the proceeds of;
b) Was used in connection with;
c) Is intended to be used in connection with any act which may constitute drug trafficking or
criminal conduct and the information or matter on which knowledge or suspicion is based
came to his attention in the course of his trade, profession, business or employment;
he shall disclose the knowledge or suspicion or the information or such matter to an authorised
person (the STR Officer) who upon receiving the information shall report to the authorities (CAD
and MAS).

Section PENALTY FOR FAILURE TO REPORT SUSPICIOUS TRANSACTIONS

39(2)
Fines not exceeding S$20,000.

Sections STATUTORY PROTECTION IN REPORTING

39(6),
Sections 39(6),43(3) &44(3) of the CDSA provide comprehensive statutory protection to an
43(3),
institution, and their employees in making STRs under the CDSA, specifically:
44(3) &
45(1) a) The disclosure shall not be treated as a breach of law, contract or rules of professional conduct
prohibiting disclosure of information (e.g. secrecy laws);

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Offences Description
b) The person making the disclosure shall not be liable for any loss arising from the disclosure or
any action or omission in consequence of the disclosure to the STR Officer; or
c) The identity of the person making the STR cannot be revealed in any civil or criminal
proceedings, subject to the power of the Court to prevent to permit inquiry and require
disclosure under certain circumstances.

Section RECORD KEEPING

37(1) &
Section 37(1) provides for the statutory duty to keep records.
36(1)
Institutions are required to retain Financial Transactions Documents (FTDs) for a minimum period.
a) FTDs are defined in Section 36(1) to refer to any document that relates to financial transactions
carried out by the bank, and includes but is not limited to:
- Opening/closing of account
- Operation of account
- Opening or use of deposit box
- Telegraphic or electronic fund transfer
- Transmission of funds between Singapore and a foreign country/countries
- Loan application forms
- Customer identification records
b) Minimum period of retention is 5 years after the day the account is closed.

Section PENALTY FOR FAILURE TO RETAIN FTDs

37(3)
Failure to retain FTDs (such as above) shall be guilty of an offence and shall be liable on conviction
to a fine not exceeding S$10,000.

Section KEEPING REGISTER OF ORIGINAL FTDs RELEASED

38(1)
An institution may be required by law to release original FTD before the end of the minimum
&(2)
retention period applicable to FTD. In such instances, the institution must retain a complete copy
of the original FTD released until the end of the minimum period or until the original FTD is
returned, whichever occurs first. It must also maintain a register of all FTDs released.

Section PENALTY FOR FAILURE TO RETAIN COPY OR MAINTAIN REGISTER

38(3)
Failure to retain copy and maintain register is an offence and if convicted shall pay a fine not
exceeding S$10,000.

Section PRODUCTION ORDER

31(1)
All institutions must comply with a Production Order issued under Section 31 (1) of the CDSA by
the High Court within 7 days or period specified in the Order from the date of the Order.

Section PENALTY
33(2)
Failure to comply with Production Order shall be liable on conviction to:
- Fine up to S$10,000 or
- Imprisonment up to 2 year or
- Both

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Offences Description

Section SEARCH WARRANT

34
All institutions must comply with a search warrant issued by the court under the CDSA.

Section PENALTY
34(6)
Failure to comply with a search warrant and obstructing an Authorised Officer shall be guilty of an
offence and on conviction shall be liable to:
- A fine up to S$10,000; or
- Imprisonment up to 2 years; or
- Both

Sections RESTRAINT ORDER, CHARGING ORDER AND CONFISCATION ORDER

4, 5 16,
Besides a Production Order and a search warrant, all institutions must also comply with a Restraint
17 & 18
Order, Charging Order and Confiscation Order. A person who fails to comply with such orders
issued by the Court may be charged for contempt of court.

5.3.3 The Mutual Assistance in Criminal Matters Act. Cap 190A (MACMA)

MACMA was passed by Parliament in 2000 which was enacted to allow the Government of Singapore to provide
mutual assistance to other countries, in relation to investigations or criminal proceedings for offences covered
under the Act. This is because money laundering or terrorism financing crimes usually also involve cross-border
transactions. It is difficult to only see one side of the transactions and during investigation, it is easier and more
effective if both sides of the transactions are investigated and analysed. This is especially so where it involves
high value ticket items where investments can be outside the country.

5.3.4 Terrorism (Suppression of Financing) Act, Chapter 325 (TSOFA)

The TSOFA was enacted to give effect to the International Convention for the Suppression of the Financing of
Terrorism which Singapore signed in 2001 and the United Nations Security Council Resolution 1373. The TSOFA
criminalises terrorism financing and allows for the seizure and confiscation of property related to terrorist and
terrorism purposes. It also imposes a duty on all to provide information pertaining to terrorism financing to the
Police, and failure to do so is a criminal offence.

5.4 MAS Notices & Regulations on Prevention of Money Laundering &

Countering the Financing of Terrorism

5.4.1 MAS Notice on Prevention of Money Laundering and Countering the Financing of
Terrorism (SFA 04-N02 and MAS Notice 626)

The Notice sets out the obligations for a financial institution to take measures to help mitigate the risk of
Singapore’s capital markets being used for money laundering or terrorist financing. All financial institutions are
required to comply with the Notices and Guidelines. The Notice sets out the principles guiding the conduct of
financial institutions in preventing the system from being used for criminal purposes and the due diligence
required to be performed with proper controls to be implemented.

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5.4.2 MAS Notices and Circulars to All Financial Institutions on Sanctions and Regulating
Financial Institutions

MAS has issued several more guidelines on safeguarding the financial system integrity against risks emanating
from dealing with sanctioned countries and sanctioned individuals or persons dealing in sanctioned activities in
sanctioned countries. These guidelines include:
 Taking appropriate action to meet the recommendations of the FATF;
 Doing enhanced due diligence and give particular attention to business relations and transactions with
persons from or in sanctioned countries;
 Protecting against the use of correspondent banking relationships and front companies to shield illicit
activities and be alert generally to the impact of dealing with sanctioned countries; and
 Freezing assets and report suspicion of money laundering and terrorist financing when alerted, and to
prevent release of assets without approval from the regulator.

5.4.3 MAS Guidelines on Safeguarding Financial System Integrity against Risks Emanating from
Iran3

In the abovementioned guidelines, the MAS has advised financial institutions to take appropriate actions as
recommended by the FATF. Accordingly, financial institutions should conduct enhanced due diligence and
transactions monitoring on Iran-related business relationships. In particular, a financial institution should
protect against the use of correspondent banking relationships and front companies to shield illicit activities.
Financial institutions should also be alert to unilateral sanctions against Iran-related transactions – as these
actions may apply extraterritorially and could have a bearing on its reputation and operations. The board and
senior management of a financial institution should assess and consider their impact when making commercial
decisions.

5.5 Targeted Financial Sanctions related to Anti-Money Laundering and

Terrorism Financing

As a member of the United Nations (UN), Singapore is committed to implementing and giving effect to the
sanctions under the UN Security Council Resolutions. These resolutions may require imposing targeted financial
sanctions against specific individuals and/or entities identified by the UN Security Council which possibly present
a particular threat to, or breach of, international peace and security. These sanctions are made legally binding
through the MAS Regulations and are applicable to all financial institutions in Singapore.
In general, the MAS Regulations require financial institutions to:

 Immediately freeze funds, other financial assets or economic resources of designated individuals and
entities;
 Not enter into financial transactions or provide financial assistance or services in relation to: (i) designated
individuals, entities or items; or (ii) proliferation and nuclear, or other sanctioned activities; and
 Notify MAS of any fact or information relating to the funds, other financial assets or economic resources
owned or controlled, directly or indirectly, by a designated individual or entity.

3 MAS Guidelines on Safeguarding Financial System Integrity against Risks Emanating from Iran (11 May 2012)

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Under the MAS Act, a financial institution that is in breach of any MAS Regulations is guilty of an offence and
will be liable on conviction to a fine not exceeding $1 million.
Before engaging in a business relationship or providing any financial service, financial institutions must ensure
that they do not deal with designated individuals and entities. Financial institutions are required to conduct
comprehensive screening of their prospective and existing clients against the lists of designated individuals and
entities to proactively avert themselves from linking to AML/CFT activities.
Financial institutions should refer to the lists of targeted financial sanction regulations4 and lists of designated
individuals and entities5 for detailed information on their respective obligations under the UN or MAS
Regulations.

5.6 Designation of Tax Crimes as Money Laundering Predicate Offences in

Singapore

With effect from 1 July 2013, the offences of tax evasion and serious fraudulent tax evasion under the Income
Tax Act and the Goods and Services Tax (GST) Act have been designated as money-laundering (ML) predicate
offences.

5.6.1 What are the Tax Offences?

Singapore will designate tax offences under Sections 96 and 96A of the Income Tax Act and Sections 62 and 63
of the Goods and Services Tax Act as ML predicates for direct tax and indirect tax offences respectively.

5.6.2 Direct Tax Offences under Sections 96 & 96A of the Income Tax Act

1. Section 96 - Tax Evasion

Any person who wilfully with intent to evade or to assist any other person to evade tax:
i. Omits from a return made under this Act any income which should be included;
ii. Makes any false statement or entry in any return made under this Act or in any notice made under Section
76 (8);
iii. Gives any false answer, whether verbally or in writing, to any question or request for information asked or
made in accordance with the provisions of this Act; or
iv. Fails to comply with Section 76(8).

2. Section 96A - Serious Fraudulent Tax Evasion

Any person who wilfully with intent to evade or to assist any other person to evade tax:
i. Prepares or maintains or authorises the preparation or maintenance of any false books of account or other
records or falsifies or authorises the falsification of any books of account or records; or

4For the current list of targeted financial sanctions regulations, please refer to the MAS website at:
http://www.mas.gov.sg/Regulations-and-Financial-Stability/Anti-Money-Laundering-Countering-The-Financing-Of-Terrorism-And-
Targeted-Financial-Sanctions/Targeted-Financial-Sanctions/MAS-Regulations.aspx
5For the current list of designated individuals and entities, please refer to the MAS website at: http://www.mas.gov.sg/Regulations-
and-Financial-Stability/Anti-Money-Laundering-Countering-The-Financing-Of-Terrorism-And-Targeted-Financial-Sanctions/Targeted-
Financial-Sanctions/Lists-of-Designated-Individuals-and-Entities.aspx

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ii. Makes use of any fraud, art or contrivance or authorises the use of any such fraud, art or contrivance.

5.6.3 Indirect Tax Offences Covered by Sections 62 & Sections 63 of the GST Act

1. Section 62 - Tax Evasion

Any person who willfully with intent to evade or to assist any other person to evade tax:
i. Omits or understate any output tax or overstates any input tax in any return made under this Act;
ii. Makes any false statement or entry in any return, claim or application made under this Act;
iii. Gives any false answer, whether verbally or in writing, to any question or request for information asked or
made in accordance with the provisions of this Act;
iv. Prepares or maintains or authorises the preparation or maintenance of any false books of account or other
records or falsifies or authorises the falsification of any books of account or records; or
v. Makes use of any fraud, art or contrivance whatsoever or authorises the use of any such fraud, art or
contrivance.

2. Section 63 - Improperly Obtaining Refunds

Any person who knowingly:

i. Causes;
ii. Attempts to cause;
iii. Does any act with intent to cause; or
iv. Makes default in performance of any duty imposed upon him by this Act with intent to cause; the refund
to that person by the Comptroller of any amount in excess of the amount properly so refundable to him.

Implications - What does this mean for the industry?

Financial institutions must apply the full suite of anti-money laundering/countering the financing of
terrorism measures as contained in the relevant MAS Notices, to prevent the laundering of proceeds
from serious tax crimes. This involves the conduct of rigorous customer due diligence and
transactions monitoring, as well as, proper reporting of suspicious transactions. Financial
institutions must adequately identify and assess tax related risks and take action to appropriately
manage and mitigate those risks. These requirements will apply to both new and existing accounts.

5.7 The Three Lines of Defence

The board of directors and senior management of a financial institution are ultimately responsible and
accountable for ensuring compliance with AML/CFT laws, regulations and notices. Financial institutions must
identify and assess ML/TF risks on an enterprise-wide level, as well as have policies and procedures to assess
ML/TF risks presented by an individual customer. The board of directors and senior management should also
set a clear risk appetite and develop a compliance culture throughout their organisation.

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5.7.1 The 1st Line of Defence – Business Units

Business units (e.g. front office, customer-facing functions and operations within the business) are the 1st line of
defence in identifying, assessing and controlling ML/TF risks of their businesses. Robust controls are needed to
detect illicit activities, and there should be sufficient resources allocated to perform these functions effectively.
Employees and representatives in business units should be adequately trained and financial institutions should
clearly communicate their policies, procedures and controls on AML/CFT and provide clear guidance and
instructions to ensure compliance with prevailing AML/CFT rules and regulations.

5.7.2 The 2nd Line of Defence – Compliance and AML / CFT Unit Functions

The 2nd line of defence includes the AML/CFT functions within the financial institutions, as well as other support
functions such as risk management and permanent control. These functions work together to identify ML/TF
risks and are responsible for ongoing monitoring of AML/CFT obligations of the financial institutions. The
AML/CFT compliance function should alert the senior management or the board of directors of the financial
institutions of any potential breaches or ML/TF risks and concerns. The AML/CFT compliance function is typically
the contact point regarding all AML/CFT issues for domestic and foreign supervisory or law enforcement
authorities and financial intelligence units.

5.7.3 The 3rd Line of Defence – Internal Audit Function

The internal audit function is the 3rd line of defence and plays an important role in conducting independent and
periodic evaluations on the AML/CFT risk management framework, policies, procedures and controls of the
financial institution and reports to the audit committee of financial institution which is typically formed by the
board of directors, or a similar oversight body.

5.8 Client Onboarding

When onboarding clients, it is important to obtain information from the client to assess his source of funds and
wealth, as well as his reputation. Financial institutions must ensure that they do not open any anonymous
accounts or accounts in fictitious names. Much time and effort would be required to be spent on:
(a) Legal due diligence by the lawyers on the legal aspects (in particular for foreign based companies, on the
legality of the ownership of assets and operating businesses, the identity of the ultimate and beneficial
shareholders and the obtaining of all necessary registrations and licences); and
(b) Audit due diligence by the accountants or external auditors on the accounting aspects (in particular,
whether the accounts have been properly drawn up, whether there are material weaknesses in the business
and accounting framework and going through the profit projections in detail).

Besides relying on publicly available information, independent private investigators may be appointed to
uncover more background information on the promoters, especially if they are politically connected, in
particular on their character and integrity and to carry out spot checks on ascertain whether the foreign based
companies are truly ongoing concerns with actual production taking place on a sustained basis.

5.8.1 Gathering Personal Information

When gathering information it is important to obtain:

 Client’s personal details such as age, education, address / residency, identification, employment, family,
health and any other information which can be obtained in order to form any opinion of the client if he is

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an individual. This information is important to assess his lifestyle and whether his wealth seems to
commensurate with his income from employment and family background.
 If it is a corporate body then it is important to know the country of incorporation, the country of activity
and the type of business the client is in, the financials and organisation structure of the company,
shareholders and directors to determine the standing of the company and the risk score and profile of the
company for money laundering assessment purposes.
 If the customer is a partnership or a limited liability partnership, it is important to also identify the partners.
An example of a natural person with executive authority in a partnership is the Managing Partner.
 If the customer is not an individual, any persons with authority to act on behalf of them must also be
identified.

5.8.2 Account Opening – Know Your Client

Before opening an account for a client, it is important for a representative to:

 Investigate the client’s background, including close family members
 Verify sources of wealth, both historical and current
 Investigate current business and income
 Investigate political connections, business associates and close friends
 Learn about the client’s investments experience and knowledge
 Determine risk appetite
 Establish objective for the account

1. Where to get information about client?

 Internet
 Newspapers and other news sources
 Company reports
 Official subscribed databases such as: Factiva or Complinet
 Intermediary Introduction certificates and disclosures
 Others – e.g. grapevine

2. Which information source is most reliable?

Official subscribed databases and original identification records are reliable because official databases provide
indemnity and assurances of accuracy of information but is expensive. Original documents issued by regulatory
bodies are accepted because they are issued by regulatory bodies. Other sources like newspapers, internet and
the grapevine must not be taken as accurate but can be used to make further checks. Information which is not
authenticated should not be relied upon fully. Intermediaries’ disclosures should only be relied upon if its
reputation and reliability has been assessed. Otherwise it is best to carry out due diligence directly.

5.8.3 Documentation and Verification of Client Information

Documentation which can be used to verify client information includes:

 Individual – ID/passports, address proof
 Corporates – business constitution documents, board resolutions, ID documents of ultimate beneficial
owner, signatories
 Offshore companies – as above, plus certificate of incumbency & good standing. Determine whether shares
are registered or bearer.

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 Trust structures – trust deed, trustee’s resolution, letter of reference from trustee, Identity documents of
ultimate beneficial owner.

5.8.4 Client Acceptance Checks

The following checks should also be done to determine whether the client should be accepted:
 Checks in subscribed databases such as Factiva.com, Complinet.com, Internet
 Origin of wealth
 Reputation risk
 Whether it is a Listed Company
 All other relevant information deemed fit and then allocate accordingly
 Sensitivity criteria

Before a financial institution establishes business relations or undertakes any transaction without opening an
account, if the financial institution has reasonable grounds to suspect that the assets or funds of a customer are
proceeds of drug dealing or criminal conduct as defined in the CDSA, or are related to terrorism financing, the
financial institution shall:
i. Not establish business relations with, or undertake a transaction for the client; and
ii. File an STR, and extend a copy to MAS for information.

5.8.5 Questions to Ask During Client Onboarding

1. Client’s Activities

Questions or important issues to consider include:

 Is the company’s ownership transparent?
 Is the tax corporate structure designed for tax efficiency or to hide bad business practices?
 Does the company’s trading record make sense?
 Does the company generate unusually large amounts of cash and if so, do large amounts of cash make
sense for this kind of company?
 Are there contacts that do not make financial sense?

2. Shareholders & Ultimate Beneficial Owners

Financial institutions must take reasonable measures to identify the identities of the ultimate BOs. If the
customer is not a natural person, reasonable steps must be taken to understand the customer’s ownership and
control structure. Questions or important issues to consider include:
 Is the client or any of its shareholders, directors, beneficial owners, authorised signatories and members of
management a politically exposed person such as a member of government or the armed forces, or a
diplomat who might have derived unusual wealth from illicit activities?
 Do customer behaviour and service requests indicate a desire for an inappropriately high level of anonymity
such as hiding behind trusts and offshore companies?
 When sending or receiving funds, are the sources consistent with the customer’s profile?
 What are their sources of wealth?

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Unless there are other reasons to suspect money laundering, financial institutions are not required to inquire if
any of the customer’s ultimate BOs are:
i. A Singapore government or foreign government entity;
ii. An entity listed on SGX or any stock exchange outside of Singapore that is subject to regulatory disclosure
requirements and requirements relating to adequate transparency in respect of its beneficial owners
(imposed through stock exchange rules, law or other enforceable means);
iii. A financial institution supervised by MAS (other than holders of a money changer’s or remittance licence);
iv. A financial institution incorporated or established outside Singapore that is subject to and supervised for
compliance with AML/CFT requirements consistent with standards set by the FATF; or
v. An investment vehicle where the managers are (i) financial institutions supervised by MAS; or (ii)
incorporated or established outside Singapore but are subject to and supervised for compliance with
AML/CFT requirements consistent with standards set by the FATF.

3. Source of Funds

Questions or important issues to consider include:

 Are you satisfied with the legitimacy of source of funds?
 Have funds come from unexpected sources?
 Can the ownership of funds be established?
 Are the transactions consistent with the customer’s profile?
 Does the source of funds and the wealth of the client tally with the nature of the transaction?
 Does the flow of funds reflect the type and nature of business the customer is in?
 Are the payment to and/or from jurisdictions with inadequate AML/CFT laws?

5.8.6 Risk Based Approach to Client On-Boarding

Financial institutions must give particular attention to business relations and transactions with any customers
from or in countries and jurisdictions that are known to have inadequate AML/CFT measures. Under the Risk
Based Approach, financial institutions are allowed to accord higher or lower risk scores to different customers,
which determine how frequently the customers’ accounts should be reviewed. Generally, most financial
institutions use most of the following risk rating criteria depending on each institution’s internal policies:
i. PEP (refer to Section 5.8.14)
ii. Country
iii. Activity (Client data base)
iv. Size of wealth
v. Flow through (finance system)
vi. Last client visit date
vii. Complex structure
viii. Unusual services
ix. Origin and destination of funds
x. Any “other criteria” that may be appropriate

These factors would enable financial institutions to allocate a risk score to the client to determine the
appropriate follow up response, i.e. whether to monitor or take immediate action on the client. An example of
a risk evaluation matrix that a financial institution might use is shown on the following page:

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Figure 5.8.6(1) – Example of a Risk Evaluation Matrix

Source: FATF Guidance on National Money Laundering & Terrorist Financing Risk Assessment (February 2013)

Financial institutions should score their ML/TF risks accordingly and ensure that they have a dynamic scoring
system which can account for changes in transaction volumes or other relevant information.

1. Country Risk Rating

Different countries may be accorded with different risk ratings depending on factors such as governance,
transparency, financial sector standards, etc. According to the Basel AML Index Scores & Rankings6, some
countries which are considered low risk or high risk include:
• Low risk countries - Australia, New Zealand, Singapore, United Kingdom
• High risk countries - Cambodia, Guinea, Kenya

The table on the following page shows an extract from the Basel AML Index Report 2015:

6
Basel AML Index 2015 Report, 4th edition on 18 August 2015, page 2. This version includes a slightly adjusted methodology accounting
for changes in the FATF evaluations, which is one of the key components used to calculate the Basel AML Index. Refer to
https://index2015.baselgovernance.org/sites/index/documents/Basel_AML_Index_Report_2015.pdf for more details

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Table 5.8.6(2): Basel AML Index Scores and Rankings 2015

2. Business Risk Rating

Some examples of businesses which might be exposed to higher ML/TF risks include:
 Personal investment companies
 Trusts, gambling and sports-betting related enterprises
 Alternative remittance systems and money service business
 Precious metals & diamond related businesses
 Cash-intensive businesses such as travel agencies, pawnbrokers, restaurants, convenience stores, money
changers which may mix proceeds from genuine businesses with illegitimate income.

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Example – Risk Scoring of a Potential Client

Mr A is a potential client. He operates a trading company incorporated in Cambodia. He trades with a
counterpart in Kenya who is in the precious stones industry. He seems to be a reclusive person who does not
visit often and the company he is using to open the account is incorporated in Panama, and he has asked his
employee to operate the account for him with a limited power of attorney. According to the Basel AML Index
Scores & Rankings 2015, Cambodia is a high risk country, as well as Kenya and Panama.

What would you consider this account’s risk score to be?

Cambodia - High
Kenya - High
Panama - High

His business activity dealing in precious stones business is high risk. If you add up all the factors, it will have a
high risk score. This should trigger Enhanced Due Diligence and even after proper validation and acceptance,
he should be put on the annual review cycle.

3. Other Business Activities Exposed to Risk

Accountants, Lawyers, Notaries, Trustees, Offshore Trustees - These professions set up accounts for third
parties, which may be conduits for money laundering whereby the beneficiary of the account makes use of the
credibility attached to the accountant, lawyer, notary or Trustee’s name as a front.

Import/ Export of Retail items, Shipping Companies - These business activities can be used for trade-based
money laundering through false trade pricing, multiple invoicing or fabricating shipments.

Example - Kiting
A company set up by a reputable law firm may be used for a scam to defraud banks via “kiting”. Kiting is a process
whereby a person deposits an overseas bank’s cheque for a certain sum into his account which usually is a very
large sum. Knowing that there will be no funds upon presentation for clearing and that it takes longer for foreign
cheques to be cleared and notification of funds availability to be made, the person then takes advantage of the
time gap, and arranges for withdrawal of the amount against the uncleared effects. Once the withdrawal is done,
the ultimate BO disappears with the funds. By the time the bank is notified of the non-clearance of the cheque
deposited, he would have fled and the bank discovers that the company is merely a shell.

As the company was set up by a reputable firm, it was assumed that the persons behind the company were good
for the credit. Financial institutions should not make such assumptions but should have policies in place for
independent checks on the customer. This can happen to capital market intermediaries too when payments are
made by cheques for securities purchases. It should have policies in place not to allow release of securities until
the cheques have been cleared.

It is important to look at the country’s risk, the client’s business activity, whether it come through intermediaries
and whether its shareholders and ultimate beneficiary can be clearly traced so that the assigned risk rating
provides guidance to the need to focus attention when on-boarding or monitoring the account.

5.8.7 Non-Face-to-Face Business Relations or Customers

Financial institutions should implement policies and procedures to address specific risks related with business
relationships or transactions where there is no face-to-face verification.

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Financial institutions should also keep abreast with the ML/TF risks associated with new technological and cross-
border developments, as it may create specific risks associated with non-face-to-face business relations with a
client or transactions for a client. For example, financial institutions must be able to distinguish specific risks and
develop policies and procedures to mitigate these risks that arise from mobile or online trading, as ML/TF risks
may be aggravated due to the ease of unauthorised access, absence of physical documents, and so on.

The policies and procedures for establishing new customer relationships or conducting ongoing due diligence
should ensure that the due diligence measures carried out for such non-face-to-face business relations are as
stringent as those that would be performed if there was face-to-face contact. Financial institutions should also
perform additional checks if there is no face-to-face contact with the business or the customer, such as robust
anti-fraud checks.

5.8.8 Timing for Verification

Financial institutions must complete verification of the identity of a customer, natural persons appointed to act
on behalf of the customer and beneficial owners of the customer:
i. before the financial institution establishes business relations with the customer; or
ii. before the financial institution undertakes any transaction of a value exceeding S$20,000 for the customer,
where the customer has not otherwise established business relations with the financial institution.

However, there are some circumstances where financial institutions may establish business relations with a
customer before verifying its identity, if it is essential in order not to interrupt the normal conduct of business
operations is securities trades, where timely execution of trades is critical given changing market conditions.

A technique which financial institutions may apply to effectively manage the ML/TF risks arising from the
deferral of completion of verification is to put in place appropriate limits on the financial services available to
the customer (e.g. limits on the number, type and value of transactions that can be effected) and employ closer
monitoring procedures, until the verification has been completed. Financial institutions should develop and
implement internal risk management policies and procedures concerning the conditions under which such
business relations may be established prior to verification. They should also ensure that:
(a) verification is completed as soon as is reasonably practicable;
(b) completion of verification should not exceed 30 business days after the establishment of business relations;
(c) if verification remains uncompleted 30 business days after the establishment of business relations, financial
institution should suspend business relations with the customer and refrain from carrying out further
transactions (except to return funds to their sources, to the extent that this is possible);
(d) if verification remains uncompleted 120 business days after the establishment of business relations, the
financial institution should terminate business relations with the customer; and
(e) these time limitations are factored into its policies, procedures and controls.

5.8.9 Screening

Financial institutions must conduct screening of their customers before establishing business relationships,
irrespective of the customers’ risk profiles. If the screening results in a positive hit against sanctions lists, they
are obligated to freeze the funds or assets of designated persons and entities that it has control over, in order
to comply with applicable laws and regulations in Singapore. Such assets should be reported promptly to the
relevant authorities and a Suspicious Transaction Report (refer to Section 5.8.17 for details).

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Screening is normally conducted as an automated process against available databases, so financial institutions
should consider the nature, size and risk profile of their business and should be aware of any shortcomings in
their automated screening systems (e.g. when using “fuzzy matching” to identify non-exact matches).

Periodic screening should be conducted to monitor any changes in customers’ status or risks, or to assess
whether to impose additional ML/TF risk mitigation measures (e.g. enhanced CDD measures). Financial
institutions should also ensure that there are adequate arrangements to perform screening of their customer
database when there are changes to the lists of sanctioned individuals and entities. Financial institutions should
implement “four-eye checks” or quality assurance checks on alerts from sanctions reviews before closing alerts.

5.8.10 Simplified Customer Due Diligence

As financial institutions are allowed to do risk-based Customer Due Diligence (CDD), simplified CDD can be
considered if the money laundering risks are low, or if the customer is a specified type of financial institution
under MAS’ supervision. The following could be considered as ‘’low-risk’’:
a) For companies listed on stock exchange and subject to regulatory disclosure requirements (relating to
adequate transparency in respect of beneficial owners (imposed through stock exchange rules law or other
enforceable means);
b) Where reliance can be placed on another regulated financial intermediary incorporated or established
outside Singapore that is subject to and supervised for compliance with AML/CFT requirement consistent
with standards set by the FATF but with a confirmation that due diligence has indeed been carried out and
is satisfactory.
c) The customer is a financial institution under MAS supervision; and
d) The customer is a Singapore government entity.

However, if there are reasons to believe there may be questionable information on a potential client then full
due diligence should be conducted. For example, when an intermediary is on MAS sanctioned list or warning
list, or when intermediary is unwilling to provide information or document. Simplified CDD should not be
performed if the financial institution suspects that money laundering or terrorist financing is involved.

Reliance on Third Parties - There is a separate provision permitting a financial institution to rely on a third party
(namely, specific types of financial institutions), subject to certain conditions. Reliance on such a third party does
not diminish the responsibility of the financial institution in fulfilling its obligations to the regulations and
regulator. In instances where financial institutions rely on intermediaries to perform CDD, the financial
institutions would need to immediately obtain the CDD information from the intermediaries. If this is not done,
financial institutions should carry out their own due diligence.

5.8.11 Enhanced Due Diligence (EDD)

When the Risk Score is high, a financial institution and its Representative must carry out EDD. EDD is conducted
on potentially high risk customers, geographical risk and product/service/transaction or delivery channel risk as
well as local and foreign politically exposed persons. Examples of “high risk” clients include clients who:
• conduct business in higher risk businesses activities/sectors identified by the financial institution or in
Singapore’s National ML/TF Risk Assessment (NRA);
• have an ownership structure that appears unusual or excessively complex given the nature of the legal
person’s or legal arrangement’s business;
• are legal persons or legal arrangements that are personal asset holding vehicles;

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• conduct their business relationships under unusual circumstances (e.g. significant unexplained geographic
distance between the bank and the client);
• are companies that have nominee shareholders or shares in bearer form; or
• are cash intensive businesses
Examples of higher geographic risk include countries or jurisdictions which have been as identified by the FATF
or other credible international bodies such as Transparency International as having significant levels of
corruption, terrorism financing, inadequate ML/TF mitigating measures or other criminal activity.
Examples of product/service/transaction or delivery risk include:
• anonymous transactions (which may involve cash); or
• frequent payments received from unknown or associated third parties.

5.8.12 Red Flags in Account Opening

Examples of red flags to watch out for include:

 Prospective client is evasive about source of funds
 Business activity is inconsistent with business profile
 Client’s background and profile do not match the size of account relationship and conduct of account
 Windfall or lump sum payments that are unexplained
 Unclear purpose of account
 Non-transparent ownership

5.8.13 Escalation

Due diligence is an on-going process, so for those accounts with “higher risk”, an annual review is necessary.
Representatives must determine whether the client’s background and profile matches the size of account
relationship and conduct of the account. As a representative, if you identify any red flags or potential AML/CFT
issues when managing the client relationship, these should be highlighted to your supervisor or compliance
immediately. You can recommend ending the business relationship with client for AML/CFT reasons. The
decision and reason to close the account must be recorded and filed.

5.8.14 Politically Exposed Person (PEP)

1. Who is a Politically Exposed Person (PEP)?

 A person who has a prominent public function, in Singapore or overseas

 Immediate family members of such a person
 Close associate of such a person

“Prominent public functions” includes role held by heads of state, heads of government, government ministers,
senior civil servants, senior judicial or military officials, senior executives of state owned corporations and senior
political party officials.

There are different sensitivities for PEPs and PEPs should be classified based on such sensitivities, for example:
 Whether the person is a current PEP, a high ranking official or an active PEP who has retired;
 Subscription to databases for checking PEP names;

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 System scanning of PEPs through the client database even after the relationship has commenced. The client
may not be a PEP when the account was opened but may have become a PEP subsequently; or
 Higher Risk Score to be accorded to PEPs.

In addition to performing CDD measures specified above, a financial institution should also put in place proper
policies and procedures for EDD including but not limited to the following:
i. Implementing appropriate internal policies, procedures and controls to identify and determine if a
customer or BO is a PEP i.e. a PEP policy;
ii. Obtaining the approval from the senior management of the financial institution to establish or continue
business relations where the customer or BO is a PEP or subsequently a PEP; and
iii. Establishing the source of wealth and source of funds of any customer or BO by appropriate and reasonable
means.

2. When Does One Carry Out Enhanced Due Diligence?

A financial institution shall perform EDD for customers, business relations or transactions which the financial
institution has assessed to present a higher risk of money laundering and terrorist financing. A financial
institution shall perform EDD for political exposed person or PEP (i.e. a natural person, who has prominent public
functions in Singapore or a foreign country).
EDD measures include:
 Implementing appropriate internal policies, procedures and controls to determine if customers is a PEP;
 Obtaining approval from senior management to establish or continue business relations in case where there
are sensitivities e.g. one of client’s group company is on a sanctioned list. Do we proceed with on-boarding?
 Establishing the customer’s source of wealth or funds; and
 Conducting enhanced monitoring of business relation with customer.

5.8.15 Personal Data Protection Act

The Personal Data Protection Act (PDPA) governs the collection, use, disclosure and care of personal data.
Therefore, the PDPA has implications on financial institutions from such as legal action for sharing information
or disclosing information if regulatory requests are made. It is important that the financial institutions
incorporate disclosure clauses related to PDPA to the terms and conditions for account opening to provide for
such situations. Failing which financial institution may breach the PDPA which serves to maintain the
confidentiality of clients’ information. It should be noted that express consent from customer is needed and
should be obtained. Financial institutions should add disclosure clauses or update its Terms & Conditions in
account opening documents and check the “Do Not Call Registry” (DNC) if marketing calls is intended.

5.8.16 Record Keeping

All documents of checks and transactions with the client has to be kept for audit trail purposes and the retention
period is for 5 years after termination of business with a client for client information and 5 years after the
completion of each transaction.

5.8.17 Reporting Suspicious Transactions

Financial institutions shall report any suspicious transactions to the Commercial Affairs Department (CAD) of the
Singapore Police Force, as well as extend a copy of the report to MAS. When a suspicion arises, an investigation
should be conducted by Compliance and management, and a Suspicious Transaction Report (STR) should be filed

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within 15 days. For example, a transaction or circumstance could be considered suspicious and warrant filing a
STR to the relevant authorities if the customer:
 Is unable to complete CDD measures;
 Is reluctant, unable or unwilling to provide any information requested by the financial institution; or
 Decides to withdraw a pending application to establish business relations or a pending transaction or to
terminate existing business relations.

Additional reporting requirements are set out in the Notice on Reporting of Suspicious Activities and Incidents
of Fraud. A financial institution must lodge a report to the MAS, upon discovery of any suspicious activities and
incidents of fraud where such activities or incidents are material to the safety, soundness or reputation of the
financial institution.

STRs should be filed to the Suspicious Transaction Reporting Office, Commercial Affairs Department of the
Singapore Police Force, as required under the various Prevention of Money Laundering and Countering the
Financing of Terrorism Notices applicable to it. For incidents of fraud, the financial institution should lodge a
police report and submit to the MAS a copy of the report. Where the financial institution has not lodged a police
report, it should notify the MAS of the reasons for its decision.

5.8.18 Policies & Procedures for Ongoing Monitoring

Financial institutions must establish appropriate policies and procedures to combat financial crimes and appoint
a central contact point or liaison for regulators.

During the course of business relations, financial institutions and representatives should observe the conduct of
the customer’s account and transactions undertaken to ensure that the customer’s behaviour is consistent with
their knowledge of the customer, its business and risk profile and where appropriate, the source of funds.
Complex or unusually large transactions or unusual patterns of transactions that have no apparent or visible
economic or lawful purpose should be given further scrutiny and attention.

Financial institutions and representatives should make further inquiries into the background and purpose of any
unusual transactions and document its findings with a view to making this information available to the relevant
authorities should the need arise.

Periodic review of customer identification and beneficial ownership information should be conducted to ensure
the information is kept up to date, particularly for higher-risk categories of customers.

5.8.19 Summary of a “KYC” Framework

A KYC framework can be summarised as follows:

 Know Your Customers / customer selection
 Maintain KYC documentation
 Monitor Transactions
 Report suspicious transaction to Management as well as to Compliance
 Work with Compliance and Management to determine if transaction needs to be reported to the police/
central bank
 Avoid tipping off

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A flowchart of the KYC process is shown below:

Work Flow of the KYC Process

(Figure 5.8.19)

Potential Clients

KYC, Client Onboarding & Customer

Due Diligence
 Financial institution /
Representative gathers information
about client
(E.g. age, investment experience,
source of funds)
 Ask questions, perform
identification and verification
checks for red flags & simulate risk

Risk
Score: Accept
Yes
LOW Client

No

Risk Score: High

Conduct Enhanced Due Diligence

 Checks Validated;
 Red Flags Assessed; Accept
No Yes
 Escalated to Senior Client
Reject Management
Client

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5.9 Enterprise-Wide Risk Assessment

In addition to assessing the ML/TF risks presented by an individual customer, a financial institution shall identify
and assess ML/TF risks on an enterprise-wide level. This will include a consolidated assessment of its ML/TF risks
that exist across all its business units, product lines and delivery channels.

In conducting an enterprise-wide risk assessment, the broad ML/TF risk factors that the financial institution
should consider include target customer markets and segments; countries or jurisdictions the financial
institution is exposed to, especially countries or jurisdictions with relatively higher levels of corruption, organised
crime or inadequate AML/CFT measures, as identified by the FATF as well as the nature, scale, diversity and
complexity of the business activities undertaken by the financial institution.

The scale and scope of the enterprise-wide ML/TF risk assessment should be commensurate with the nature
and complexity of the business of the financial institution. As far as possible, the enterprise-wide ML/TF risk
assessment undertaken by a financial institution should entail both qualitative and quantitative analyses to
ensure that it accurately understands its exposure to ML/TF risks. A quantitative analysis of the financial
institution’s exposure to ML/TF risks should involve evaluating data on its activities using the applicable broad
risk factors set out in the above paragraph.

A financial institution shall take into account all its existing products, services, transactions and delivery channels
offered as part of its enterprise-wide ML/TF risk assessment, and make its own determination as to the risk
weights to be given to the individual factor or combination of factors.

To ensure its enterprise-wide assessments are up-to-date, a financial institution should review its risk
assessment at least once every 2 years or when material trigger events occur, whichever is earlier. Material
events may include the acquisition of new customer segments or delivery channels, or the launch of new
products and services by financial institutions. The results of these reviews should be documented and approved
by the senior management even if there are no significant changes to the enterprise-wide risk assessment of
the financial institution.

5.10 Operational Risk Controls to Prevent Financial Crimes

5.10.1 Prevention & Operational Control - “A Risk Management Framework”

In the Technology Risk Management Guidelines issued in June 20137, MAS had outlined its expectations of
controls that have to be implemented to prevent fraud and other security breaches. These include:
 Physical Security Controls through access to premises & controlled areas
 Access control over systems and control of data integrity.

Breaches of security will impact:

 Banking Secrecy provisions in the Banking Act
 Personal Data Protection Act
 Civil Action
 Fines
 Imprisonment Terms
 Reputation

7 MAS Technology Risk Management Guidelines (June 2013)

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5.10.2 Responsibilities of Board of Directors and Senior Management

Board of Directors and senior management are responsible for instilling the following controls:
 People selection (staff, vendors, contractors etc.)
 Password access to premises & controlled areas
 Password access to systems and information on a “Need to Know” or “Need to Have” basis
 Requirement for periodic change of Password
 No sharing of password to “sensitive” systems
 Clean Desk Policy
 Dual or Independent Control of Payment Instructions
 Hold-mail Control
 Training on IT awareness & Fraud
 Audit

5.10.3 FRAUD – Prevention & Detection in Summary

 F – Follow Policies & Procedures. If you don’t know what these are, ask compliance where to find them.
 R – Report any suspicious transaction or inconsistencies to Compliance and Management through a
whistle blowing process.
 A – Act if you suspect and investigate.
 U – Unite with Management, Compliance & Enforcement Agencies to bring perpetrators to justice.
 D – Disciplinary action to be taken and criminal charges Imposed.

5.11 Reporting & Filing Requirements

A financial institution shall have policies and procedures in place for the reporting of any suspicious transaction8
or client and an appropriate escalation process in place for the reporting of suspicious transactions. It should
have a single reference point to whom all staff are instructed to promptly refer all transactions which are
suspected of money laundering or used for terrorist activities. This is to enable quick investigations to take place
so that a decision can be taken to file a Suspicious Transaction Report (STR).

Once a decision is made to file an STR such filing must be done within 15 days of the case being referred to by
the relevant staff. Such reports are to be filed with the Commercial Affairs Department of the Singapore Police
with a copy to MAS. The report should include the investigation report and analysis with the reason to conclude
why an STR is to be filed.

The financial institution must maintain proper records of all transactions leading to the filing of the STR and
these should be retained for the minimum retention period required of 5 years. A proper register of all STR filed
and the supporting documents must similarly be maintained and retained for the minimum period. (Please refer
to Appendix E for Examples of Suspicious Transactions)

8 MAS Notice SFA 04-N02 Appendix B – Examples of Suspicious Transactions

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5.12 Penalties & Risks for Non-Compliance

There are severe penalties for non-compliance with laws and regulations governing AML/CFT and sanctions and
embargoes. It is also important to note that tipping offences carry with it both fines and imprisonment terms.

5.12.1 What is Tipping-off?

A person who knows or has reasonable grounds to suspect that:

(a) An authorised officer is acting or is proposing to act, in connection with an investigation which is being or
is about to be conducted under or for the purposes of the CDSA; and
(b) Discloses to any other person information or any matter which is likely to prejudice any investigation which
might be conducted following the disclosure, shall be guilty of an offence.

5.12.2 Penalties for Tipping-off

The penalty for tipping-off offences carries:

- Fines up to $30,000; or
- Imprisonment up to 3 years; or
- Both a fine and imprisonment

The penalty for ML offences carries:

- Fines up to $500,000; or
- Imprisonment up to 10 years or
- Both a fine and imprisonment

Failure to report a suspicious transaction faces a penalty of fine up to $20,000.

Failure to maintain financial transaction records carries fine up to $10,000.

Failure to maintain a register of all STR filed and records for the minimum period required will carry a fine of up
to $10,000.

Failure to comply with a Production Order both under CDSA or MACMA will face a penalty of
- Fine of up to $10,000 or
- Imprisonment of up to 2 years or
- Both a fine and imprisonment

Note that the penalties include fines and imprisonment terms which means the liability for non-compliance is a
personal one as institutions can pay fines but cannot go to prison which implies that individuals are the ones
who face the prison terms.

In addition to the above fines which are not exhaustive, it is also important to note that failure to comply may
lead to:
i. Regulatory sanctions
ii. Reputation Risks
iii. Loss of business and thus face financial risks.

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5.13 Training, Audit and Internal Control Framework

A financial institution must have internal policies, procedures and an internal control framework to prevent
financial crimes. These policies and procedures must be properly communicated to all staff. Such policies and
procedures must include the naming of a central point of referral, reporting and filing of STR.

Compliance control programmes to include key performance indicators as well as control tests and procedures
to check on PEPs, transactions and documentation requirements are in place after CDD or EDD. The Compliance
function must be staffed by appropriately qualified staff and senior head of department.

A financial institution must have an internal audit function that is adequately resourced and independent, and
is able to regularly assess the effectiveness of its controls and compliance with regulatory requirements.

A training program should be in place to ensure that staff attends regular training on AML/CFT, fraud and other
financial crimes prevention. It is important that such training be refreshed on a yearly basis. Training can be in
the form e-learning, face-to-face training (whether internal or externally provided training, etc.) and such
training received should be recorded for audit purposes.

In addition, there has to be proper policies and procedures in place for the proper selection of staff and their
screening when hiring.

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Appendix A
Criteria for the Assessment of a Customer
Account Review1

1. A Customer who satisfies any of the following may be assessed as possessing the knowledge or experience
in derivatives for the purpose of opening of a specified investment product trading account:
(a) The customer holds a diploma or has higher qualifications in accountancy, actuarial science, business,
business administration, business management, business studies, capital markets, commerce,
economics, finance, financial engineering, financial planning, computational finance and insurance;
(b) The customer has a professional finance-related qualification (e.g. Chartered Financial Analyst
Examination conducted by CFA Institute, USA and the Association of Chartered Certified Accountants
(ACCA) Qualifications);
(c) The customer has transacted in Specified Investment Products which are listed or quoted on a
securities market or a futures market at least 6 times in the preceding 3 years; or
(d) The customer has a minimum of 3 consecutive years of working experience in the past 10 years, in the
development of, structuring of, management of, sale of, trading of, research on or analysis of
investment products; or the provision of training in investment products. Work experience in
accountancy, actuarial science, treasury or financial risk management activities will also be considered
relevant experience.

2. Where a customer is assessed to not possess knowledge or experience in derivatives, but subsequently
demonstrates sufficient understanding of the features and risks of derivatives through a learning module
provided by an independent body as set out in the Practice Note on the Sale of Investment Products [SFA
PN-01], the customer may be deemed to possess the knowledge to transact in specified investment
products which are listed or quoted on a securities market or a futures market.

1 SFA04-N12 Notice on the Sale of Investment Products

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Appendix B
Criteria for the Satisfaction of the
Customer Knowledge Assessment1
1. A Customer who satisfies any of the following may be assessed as possessing the knowledge or experience
in the unlisted specified investment product for the purpose of the satisfaction of the Customer Knowledge
Assessment in the specified investment product concerned:
i. The customer holds a diploma or has higher qualifications in accountancy, actuarial science,
business/business administration/business management/business studies, capital markets, commerce,
economics, finance, financial engineering, financial planning, computational finance and insurance;
ii. The customer has a professional finance-related qualification (e.g. Chartered Financial Analyst Examination
conducted by CFA Institute, USA and the Association of Chartered Certified Accountants (ACCA)
Qualifications);
iii. The customer has invested in the following unlisted specified investment products:
(a) For transactions in collective investment schemes (referred to as “CIS”) and investment-linked life
insurance policies (referred to as “ILPs”), the customer has transacted in CIS or ILPs at least 6 times in
the preceding three years; or
(b) For transactions in specified investment products which are neither listed nor quoted on a securities
market or a futures market (excluding CIS and ILPs), the customer has transacted in any specified
investment products which are neither listed nor quoted on a securities market or a futures market
(excluding CIS and ILPs) at least 6 times in the preceding 3 years; or
iv. The customer has invested in the following unlisted specified investment products has a minimum of 3
consecutive years of working experience in the past 10 years in the development of, structuring of,
management of, sale of, trading of, research on and analysis of investment products or the provision of
training in investment products. Work experience in accountancy, actuarial science, treasury or financial
risk management activities will also be considered relevant experience.

2. Where a customer is assessed to not possess knowledge or experience in understanding to understand an

unlisted specified investment product, but subsequently demonstrates sufficient understanding of the
features and risks of that unlisted specified investment product through a learning module provided by an
independent body as set out in the Practice Note on Recommendations on Investment Product [FAA PN-
02], the customer may be deemed to possess the knowledge to trade in that unlisted specified investment
product.

1 SFA04-N12 Notice on the Sale of Investment Products

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Appendix C
Risk Warning Statement for Overseas-
Listed Investment Products

RISK WARNING

An overseas-listed investment product* is subject to the laws and regulations of the jurisdiction it is listed in.
Before you trade in an overseas-listed investment product or authorise someone else to trade for you, you
should be aware of:
 The level of investor protection and safeguards that you are afforded in the relevant foreign jurisdiction
as the overseas-listed investment product would operate under a different regulatory regime.
 The differences between the legal systems in the foreign jurisdiction and Singapore that may affect your
ability to recover your funds.
 The tax implications, currency risks, and additional transaction costs that you may have to incur.
 The counterparty and correspondent broker risks that you are exposed to.
 The political, economic and social developments that influence the overseas markets you are investing in.
These and other risks may affect the value of your investment. You should not invest in the product if you do
not understand or are not comfortable with such risks.

*An “overseas-listed investment product” in this statement refers to a capital markets product that is listed
for quotation or quoted only on overseas securities exchange(s) or overseas futures exchange(s) (collectively
referred to as “overseas exchanges”).

1. This statement is provided to you in accordance with paragraph 29D of the Notice on the Sale of Investment
Products [SFA04-N12].

2. This statement does not disclose all the risks and other significant aspects of trading in an overseas-listed
investment product. You should undertake such transactions only if you understand and are comfortable
with the extent of your exposure to the risks.

3. You should carefully consider whether such trading is suitable for you in light of your experience, objectives,
risk appetite, financial resources and other relevant circumstances. In considering whether to trade or to
authorise someone else to trade for you, you should be aware of the following:

Differences in Regulatory Regimes

(a) Overseas markets may be subject to different regulations, and may operate differently from approved
exchanges in Singapore. For example, there may be different rules providing for the safekeeping of securities
and monies held by custodian banks or depositories. This may affect the level of safeguards in place to
ensure proper segregation and safekeeping of your investment products or monies held overseas. There is

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also the risk of your investment products or monies not being protected if the custodian has credit problems
or fails. Overseas markets may also have different periods for clearing and settling transactions. These may
affect the information available to you regarding transaction prices and the time you have to settle your
trade on such overseas markets.
(b) Overseas markets may be subject to rules which may offer different investor protection as compared to
Singapore. Before you start to trade, you should be fully aware of the types of redress available to you in
Singapore and other relevant jurisdictions, if any.
(c) Overseas-listed investment products may not be subject to the same disclosure standards that apply to
investment products listed for quotation or quoted on an approved exchange in Singapore. Where
disclosure is made, differences in accounting, auditing and financial reporting standards may also affect the
quality and comparability of information provided. It may also be more difficult to locate up-to-date
information, and the information published may only be available in a foreign language.

Differences in legal systems

(d) In some countries, legal concepts which are practiced in mature legal systems may not be in place or may
have yet to be tested in courts. This would make it more difficult to predict with a degree of certainty the
outcome of judicial proceedings or even the quantum of damages which may be awarded following a
successful claim.
(e) The Monetary Authority of Singapore will be unable to compel the enforcement of the rules of the
regulatory authorities or markets in other jurisdictions where your transactions will be effected.
(f) The laws of some jurisdictions may prohibit or restrict the repatriation of funds from such jurisdictions
including capital, divestment proceeds, profits, dividends and interest arising from investment in such
countries. Therefore, there is no guarantee that the funds you have invested and the funds arising from your
investment will be capable of being remitted.
(g) Some jurisdictions may also restrict the amount or type of investment products that foreign investors may
trade. This can affect the liquidity and prices of the overseas-listed investment products that you invest in.

Different costs involved

(h) There may be tax implications of investing in an overseas-listed investment product. For example, sale
proceeds or the receipt of any dividends and other income may be subject to tax levies, duties or charges in
the foreign country, in Singapore, or in both countries.
(i) Your investment return on foreign currency-denominated investment products will be affected by exchange
rate fluctuations where there is a need to convert from the currency of denomination of the investment
products to another currency, or may be affected by exchange controls.
(j) You may have to pay additional costs such as fees and broker’s commissions for transactions in overseas
exchanges. In some jurisdictions, you may also have to pay a premium to trade certain listed investment
products. Therefore, before you begin to trade, you should obtain a clear explanation of all commissions,
fees and other charges for which you will be liable. These charges will affect your net profit (if any) or
increase your loss.

Counterparty and correspondent broker risks

(k) Transactions on overseas exchanges or overseas markets are generally effected by your Singapore broker
through the use of foreign brokers who have trading and/or clearing rights on those exchanges. All
transactions that are executed upon your instructions with such counterparties and correspondent brokers
are dependent on their respective due performance of their obligations. The insolvency or default of such

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counterparties and correspondent brokers may lead to positions being liquidated or closed out without your
consent and/or may result in difficulties in recovering your monies and assets held overseas.

Political, Economic and Social Developments

(l) Overseas markets are influenced by the political, economic and social developments in the foreign
jurisdiction, which may be uncertain and may increase the risk of investing in overseas-listed investment
products.

ACKNOWLEDGEMENT OF RECEIPT OF THIS RISK WARNING STATEMENT

I acknowledge that I have received a copy of the Risk Warning Statement and understand its contents.

Signature of customer: ______________________

Name of customer: _______________________

Date: ______________________

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Appendix D
Excluded Investment Products1
Unless otherwise provided here, the terms used or referred to in this Annex shall have the same meanings
assigned to them in section 2 of the Act or section 2 of the Financial Advisers Act (Cap. 110), where applicable.

“Excluded Investment Product” means:

i. any stocks or shares issued or proposed to be issued by a corporation or body unincorporate, other than
where such corporation or body unincorporate is a collective investment scheme;
ii. any unit of a share which represents ownership of the underlying share, where –
(a) the underlying share is held on trust for the unit-holder by a custodian; and
(b) no additional consideration (other than administrative fees) is payable by the unit-holder in the event
that he converts the unit of share into the underlying share;
iii. any right, option or derivative issued or proposed to be issued by a corporation or body unincorporate in
respect of its own stocks or shares;
iv. any unit in a business trust;
v. any derivative of units in a business trust;
vi. any unit in a collective investment scheme, such collective investment scheme being an arrangement:
(a) that is a trust;
(b) that invests primarily in real estate and real estate-related assets specified by the Authority in the Code
on Collective Investment Schemes; and
(c) all or any units of which are listed for quotation on a securities exchange;
vii. any unit in a collective investment scheme, where the constitutive documents of the scheme contain
covenants that bind the manager of the scheme, or where the prospectus of the scheme or any document
issued in connection with an offer of units in the scheme (being an offer that is not required to be made in
or accompanied by a prospectus under section 296(1) of the Act), contains restrictions that bind the
manager of the scheme:
(a) to invest only in:
(A) deposits; or
(B) any products specified in paragraphs (a) to (j) in this Annex; and
(b) not to engage in securities lending or repurchase transactions for the scheme;
viii. any debenture other than:
(a) asset-backed securities as defined in section 262(3) of the Act; or
(b) structured notes as defined in regulation 2(1) of the Securities and Futures (Offers of Investments)
(Shares and Debentures) Regulations 2005;

1 SFA04-N12 Notice on the Sale of Investment Products

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ix. any contract or arrangement the effect of which is that one party agrees to exchange currency at an agreed
rate of exchange with another party, where such currency exchange is effected immediately; or
x. two or more products specified in paragraphs (a) to (i) in this Annex that are linked together in a stapled
manner such that one product may not be transferred or otherwise dealt without any of the other
product(s).

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Appendix E1
Examples of Suspicious
Transactions
1. General Comments
The list of situations given below is intended to highlight some basic ways in which money may be laundered or
used for TF purposes. While each individual situation may not be sufficient to suggest that ML/TF is taking place,
a combination of such situations may be indicative of a suspicious transaction. The list is intended solely as an
aid, and must not be applied as a routine instrument in place of common sense.

The list is not exhaustive and may be updated due to changing circumstances and new methods of laundering
money of financing terrorism. Financial institutions are to refer to STRO’s website for the latest list of red flags2.

A customer's declarations regarding the background of such transactions should be checked for plausibility. Not
every explanation offered by the customer can be accepted without scrutiny.

It is reasonable to be suspicious of any customer who is reluctant to provide normal information and documents
required routinely by the financial institution in the course of the business relations. Financial institutions should
pay attention to customers who provide minimal, false or misleading information or, when applying to open an
account, provide information that is difficult or expensive for the financial institutions to verify.

2. Transactions Which Do Not Make Economic Sense

(i) Transactions that cannot be reconciled with the usual activities of the customer, for example switching
from trading only penny stocks to predominantly blue chips.

(ii) A customer relationship with the financial institution where a customer has a large number of accounts
with the same financial institution, and has frequent transfers between different accounts.

(iii) Transactions in which assets are withdrawn immediately after being deposited3, unless the customer’s
business activities furnish a plausible reason for immediate withdrawal.

(iv) Transactions which, without plausible reason, result in the intensive use of what was previously a
relatively inactive account, such as a customer’s account which shows virtually no normal personal or
business related activities but is used to receive or disburse unusually large sums which have no obvious
purpose or relationship to the customer or his business.

1 Guidelines to MAS Notice No: SFA 04-N02 and 626, Appendix B

2 The website address as at 24 April 2015: http://www.cad.gov.sg/aml-cft/suspicious-transaction-reporting-office/suspicious-
transaction-reporting
3For CMIs or CMS licence holders, this could mean depositing of funds into trust accounts, margin accounts, as collaterals or for fund
management purposes

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(v) Provision of bank guarantees or indemnities as collateral for loans between third parties that are not in
conformity with market conditions.

(vi) Unexpected repayment of a delinquent account without any plausible explanation.

(vii) Unexpected repayment of credit facilities by a third party on behalf of the customer.

(viii) Back-to-back loans without any identifiable and legally admissible purpose.

(ix) Corporate finance transactions under consideration that do not make economic sense in respect of the
business operations of the customer, particularly if the customer is not a listed company.

(x) Request by a customer for investment management services where the source of funds is unclear or not
consistent with the customer’s apparent standing.

(xi) Buying and selling of security with no discernible purpose or in circumstances which appear unusual.

(xii) Large amounts of funds deposited into an account, which is inconsistent with the salary of the customer.

(xiii) Customers running large positive credit card or charge card balances.

3. Transactions Involving Large Amounts of Cash

(i) Frequent withdrawal of large cash amounts that do not appear to be justified by the customer’s business
activity.

(ii) Frequent withdrawal of large amounts by means of cheques, including travellers’ cheques.

(iii) Provision of funds for investment and fund management purposes in the form of large cash amounts.

(iv) Customers making large and frequent cash deposits but cheques drawn on the accounts are mostly to
individuals and firms not normally associated with their business.

(v) Large cash withdrawals from a previously dormant/inactive account, or from an account which has just
received an unexpected large credit from abroad.

(vi) A large amount of cash is withdrawn and immediately deposited into another account.

(vii) Provision of margin collaterals in the form of large cash amounts.

(viii) Exchanging an unusually large amount of small-denominated notes for those of higher denomination.

(ix) Purchasing or selling of foreign currencies in substantial amounts by cash settlement despite the customer
having an account with the financial institution.

(x) Payments made via large amounts of cash. A guideline to what constitutes a large or substantial cash
amount would be a cash amount exceeding S$20,000 (or its equivalent in any currency).

(xi) Company transactions, both deposits and withdrawals, that are denominated by unusually large amounts
of cash, rather than by way of debits and credits normally associated with the normal commercial
operations of the company (e.g. cheques, letters of credit, bills of exchange).

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(xii) Crediting of customer trust or margin accounts using cash and by means of numerous credit slips by a
customer such that the amount of each deposit is not substantial, but the total of which is substantial.

(xiii) Payments or deposits containing counterfeit notes or forged instruments.

(xiv) Unusual settlements of securities transactions in cash form.

(xv) Depositing cash by means of numerous credit slips by a customer such that the amount of each deposit is
not substantial, but the cumulative total of which is substantial.

(xvi) The deposit of unusually large amounts of cash by a customer to cover requests for bankers’ drafts, money
transfers or other negotiable and readily marketable money instruments.

(xvii) Large cash deposits using night safe facilities and cash deposit machines, thereby avoiding direct contact
with the financial institution.

(xviii) Customers who together, and simultaneously, use separate tellers to conduct large cash transactions or
foreign exchange transactions.

(xix) Customers whose deposits contain counterfeit notes or forged instruments.

(xx) Customers who use cash advances from a credit card or charge card account to purchase money orders
or bank drafts to transfer funds to foreign destinations.

(xxi) Customers who take cash advances from a credit card or charge card account to deposit into another
account.

(xxii) Large cash payments for outstanding credit card or charge card balances.

(xxiii) Customers who maintain positive balances on their credit card or charge card and then request cash
advances or other type of refunds.

4. Transactions Involving Accounts of the Customer with the Financial Institution

(i) High velocity of funds through an account, i.e. low beginning and ending daily balances, which do not
reflect the large volume of funds flowing through an account.

(ii) Substantial increases in deposits of cash or negotiable instruments by a professional firm or company,
using customer accounts or in-house company or trust accounts, especially if the deposits are promptly
transferred between other customer company and trust accounts.

(iii) Matching of payments out with credits paid in by cash on the same or previous day.

(iv) Transfers of funds from a company’s account to an individual account of an employee or persons related
to the employee and vice-versa.

(v) Multiple depositors using a single account.

(vi) Paying in large third party cheques endorsed in favour of the customer in settlement for securities
purchased, or for other financial services provided.

(vii) Frequent deposits of a company’s cheques into an employee’s account.

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(viii) An account operated in the name of an offshore company with structured movement of funds.

(ix) Purchase of securities to be held by the CMS licence holder in safe custody, where this does not appear
appropriate given the customer’s apparent standing.

(x) Requests for refunds of unaccountable “erroneous” payments to CMS licence holders or customers’ trust
accounts by unknown persons.

(xi) Transfers of funds from various third parties into an account, which is inconsistent with the nature of the
customer’s business.

5. Transactions Involving Transfers Abroad

(i) A customer who appears to have accounts with several financial institutions in the same locality,
especially when the financial institution is aware of a regular consolidated process from such accounts
prior to a request for onward transmission of funds elsewhere.

(ii) Large and regular payments that cannot be clearly identified as bona fide transactions, from and to
countries or jurisdictions associated with (a) the production, processing or marketing of narcotics or other
illegal drugs or (b) other criminal conduct.

(iii) Transfer of large amount of money abroad by a person who does not maintain an account with the
financial institution and who fails to provide a legitimate reason when asked.

(iv) Cross border transactions involving acquisition or disposal of high value assets that cannot be clearly
identified as bona fide transactions.

(v) Substantial increase in injection of funds by a customer without apparent cause, especially if such
injections are subsequently transferred within a short period of time out of the account or to a destination
not normally associated with the customer.

(vi) Repeated transfers of large amounts of money abroad accompanied by the instruction to pay the
beneficiary in cash.

(vii) Building up large balances, not consistent with the known turnover of the customer’s business, and
subsequent transfer to account(s) held overseas.

(viii) Cash payments remitted to a single account by a large number of different persons without an adequate
explanation.

(ix) “U-turn” transactions, i.e. where funds received from a person or company in a foreign country or
jurisdiction are immediately remitted to another person or company in the same country or foreign
jurisdiction, or to the sender’s account in another country or jurisdiction.

6. Transactions Involving Unidentified Parties

(i) Transfer of money to another financial institution without indication of the beneficiary.

(ii) Payment orders with inaccurate information concerning the person placing the orders.

(iii) Use of pseudonyms or numbered accounts for effecting commercial transactions by enterprises active in
trade and industry.

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(iv) Holding in trust of shares in an unlisted company whose activities cannot be ascertained by the financial
institution.

(v) Provision of collateral by way of pledge or guarantee without any discernible plausible reason by third
parties unknown to the financial institution and who have no identifiable close relationship with the
customer.

(vi) Customers who wish to maintain a number of trustee or customers’ accounts that do not appear consistent
with their type of business, including transactions that involve nominee names.

(vii) Requests by a customer for investment management services where the source of funds is unclear.

7. Tax Crimes Related Transactions

(i) Negative tax-related reports from the media or other credible information sources.

(ii) Unconvincing or unclear purpose or motivation for having accounts opened in Singapore.

(iii) Originating sources of multiple or significant deposits/withdrawals are not consistent with the declared
purpose of the account.

(iv) Inability to reasonably justify frequent and large fund transfers from or to a country or jurisdiction that
presents higher risk of tax evasion.

(v) Re-deposit or reinvestment of funds back into the original country or jurisdiction after being transferred
to another country or jurisdiction, often a tax haven with poor track record on CDD or record keeping
requirements.

(vi) Accounts managed by external asset managers who may not be adequately regulated and supervised.

(vii) Purchase or sale of large amounts of precious metals by a customer which is not in line with his business
or background.

(viii) Purchase of bank cheques on a large scale by a customer.

(ix) Extensive or increased use of safe deposit facilities that do not appear to be justified by the background
of the customer and for no apparent reason.

8. Other Types of Transactions

(i) Account activity is not commensurate with the customer’s known profile (e.g. age, occupation, income).

(ii) The customer fails to reasonably justify the purpose of a transaction when queried by the CMS licence
holder.

(iii) Transactions with countries or entities that are reported to be associated with terrorism activities or with
persons that have been designated as terrorists.

(iv) Frequent changes to the address or authorised signatories.

(v) A large amount of funds is received and immediately used as collateral for margining or financing facilities.

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(vi) When a young person (aged about 17-26) opens an account and either withdraws or transfers the funds
within a short period, which could be an indication of terrorism financing.

(vii) When a person receives funds from a religious or charitable organisation and utilises the funds for
purchase of assets or transfers out the funds within a relatively short period.

(viii) Customers requesting for a credit card or charge card to be sent to an international or domestic
destination other than the customer’s address or place of business.

(ix) Indications of a credit card or charge card merchant refunding payments to any person without an
underlying purchase of goods or services.

(x) The customer uses intermediaries which are not subject to adequate AML/CFT laws.

(xi) Transactions that are suspected to be in violation of another country’s or jurisdiction’s foreign exchange
laws and regulations.

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Appendix F
Review Questions
Candidates should note that the sole purpose of the Review Questions is to familiarize candidates with the
scope and general nature of the examinations, and the format of the examination questions.

The Review Questions are not intended to be used as preparatory study material for the examinations, nor do
the questions cover all the material tested in the examination.

Chapter 2 – Licensing and Business Operations

1. To be eligible for registration as a trading representative, an applicant must be at least ____ years old.

a. 18
b. 21
c. 25
d. 30

2. Under which of the following circumstances would an individual NOT fulfill the "fit and proper" criteria?

a. He has had a speeding ticket

b. He has not paid a library loan fine on time and has incurred a late payment charge
c. He has been a substantial shareholder of a company that has become insolvent
d. He has previously taken 2 weeks of medical leave due to a leg injury

3. Which of the following transaction information is NOT required to be recorded by a financial institution
under the record keeping requirements of the SFA and SFR (LCB)?

a. Quantity of assets that are subject to the transaction

b. Price and fee arising from the transaction
c. Name of the customer and counterparty on whose behalf the transaction is entered into
d. Location of the transaction

4. Financial institutions must seek the Monetary Authority of Singapore's approval for the appointment of
____________.

a. Chief Executive Officer

b. Executive Directors
c. Chief Executive Officer and Executive Directors
d. Chief Executive Officer and Directors

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5. Money received on account of a customer does NOT include money ____________.

a. from a sale or purchase of futures contract or a transaction connected with leveraged foreign
exchange trading
b. which is to be used to defray the CMS Licensee's brokerage and other proper charges
c. from a sale of securities
d. received in the course of the business of the Licensee

6. A financial institution must maintain a trust account in which it deposits moneys received on account of
its customer(s) with:

I. A bank licensed under the Banking Act

II. A merchant bank approved as a financial institution under the MAS Act
III. A finance company licensed under the Finance Companies Act

a. I & II
b. I & III
c. II & III
d. I, II & III

Chapter 3 – Market Conduct

7. Which of the following is/are considered a form of market misconduct under the SFA?

I. Insider Trading
II. False Trading
III. Over-Trading

a. I only
b. I & II
c. II & III
d. I & II & III

8. Which of the following is NOT a typical technique used in the circulation of false or misleading statements
and information?

a. Using electronic means such as message boards or other electronic media to spread rumours about a
security to raise or lower its market price
b. Passing around ‘hot tips’ by word of mouth
c. Sending the audited annual report of a company to a client
d. Putting out favourable but unverified information about a particular security via media sources

9. What types of penalties / liabilities will a person face for committing market misconduct offences under
the SFA?

I. Criminal penalties
II. Civil penalties
III. Criminal liabilities
IV. Civil sanctions

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a. I, II & III
b. I, II & IV
c. I, III & IV
d. II, III & IV

Chapter 4 – Central Provident Fund Investment Scheme (CPFIS)

10. Which of the following CPF members cannot make use of CPF funds to invest under CPFIS?

a. Those above 55 years old

b. Those below 18 years old
c. Those residing outside Singapore
d. A discharged bankrupt

11. Which of the following types of investments are NOT allowed under CPFIS-SA?

a. Annuities
b. All Investment-Linked Insurance Products
c. Fixed Deposits
d. Singapore Government Bonds

12. Only monies in excess of ________________in a CPF Member's Ordinary Account and __________in the
Special Account can be invested under the CPF Investment Scheme (CPFIS).

a. $40,000, $60,000
b. $20,000, $40,000
c. $40,000, $20,000
d. $60,000, $40,000

13. Which of the following is NOT included in the types of investments allowed under CPFIS-OA scheme?

a. Fixed deposits
b. Annuities
c. Singapore Government Bonds
d. SGX Singapore Dollar Interest Rate Futures

Chapter 5 – Prevention of Financial Crimes

14. Sources of terrorism financing may be derived from ________________.

I. kidnapping
II. extortion
III. donations
IV. sale of publications

a. I & II only
b. I, II & III
c. III & IV
d. I, II, III & IV

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15. The minimum period of retention of Financial Transaction Documents is ___________ years after the day
the account is closed.

a. 2
b. 4
c. 5
d. 7

16. The document retention policy under the MAS Notice on Prevention of Money Laundering and
Countering the Financing of Terrorism allows for documents to be retained for a period of _________.

a. 1 year
b. 3 years
c. 5 years
d. 7 years

17. Money laundering is an offence in Singapore under the _____________.

a. Securities and Futures Act

b. Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act
c. Banking Act
d. None of the above

18. Sources of terrorism financing are _____________________ and involves amounts that are
____________.

a. always illegitimate, not always large

b. always illegitimate, always large
c. not always illegitimate, not always large
d. not always illegitimate, always large

19. Representatives must have training at regular intervals to remind themselves of their responsibilities to
combat money laundering and be informed of new development. Refresher training should be held at
least once every _________.

a. quarter
b. 6 months
c. year
d. 2 years

20. The statutory obligations and prohibitions relating to prevention of money laundering apply
___________________________.

a. only to banks
b. only to banks and securities firms and their employees
c. only to banks and insurance companies and their employees
d. to all persons in Singapore

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Answers to Review Questions

Chapter 2 – Licensing and Business Operations Chapter 5 – Prevention of Financial Crimes

1. b. Section 2.3.2 – Minimum Entry and 14. d. Section 5.1.3 - Definition of Terrorism
Examination Requirements Financing
2. c. Section 2.3.2 – Minimum Entry and 15. c. Section 5.3.2 – Table: Summary of Key
Examination Requirements Provisions of the CDSA
3. d. Section 2.8.1 – Keeping of Books and 16. c. Section 5.11 - Reporting & Filing
Furnishing of Returns Requirements
4. d. Section 2.2.3 – Criteria in Respect of the 17. b. Section 5.3.2 - Corruption, Drug
Board of Directors, Chief Executive Trafficking and Other Serious Crimes
Officer and Representatives of the (Confiscation of Benefits) Act (CDSA),
Applicant Chapter 65A
5. b. Section 2.9.1 - Definitions 18. c. Section 5.1.2 – Definition of Money
Laundering, Section 5.1.3 - Definition of
6. d. Section 2.9.2 – Customers’ Moneys
Terrorism Financing
19. c. Section 5.13 - Training, Audit and
Chapter 3 – Market Conduct
Internal Control Framework
7. b. Section 3.2 – Market Misconduct under
20. d. Section 5.3 - The Regulatory Framework
the SFA
of Financial Crimes – Rules and
8. c. Section 3.5 – False or Misleading Regulations
Statements and Information
9. b. Section 3.12 - Penalties for Misconduct
under the SFA

Chapter 4 – Central Provident Fund Investment

Scheme (CPFIS)
10. b. Section 4.4 - Eligibility Criteria
11. b. Section 4.2.1 - Types of Investments
Allowed under the 2 Types of the CPFIS
and Investment Limits, Section 4.8.1 -
Inclusion Criteria for Investment Products
12. b. Section 4.2.1 - Types of Investments
Allowed under the 2 Types of the CPFIS
and Investment Limits
13. d. Section 4.2.1 - Types of Investments
Allowed under the 2 Types of the CPFIS
and Investment Limits, Section 4.8.1 -
Inclusion Criteria for Investment Products

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Appendix G
Essential Readings

1. Securities and Futures Act

Available online on Attorney-General’s Chambers website - Singapore Statutes Online
(http://statutes.agc.gov.sg/)

2. Securities and Futures (Licensing and Conduct of Business) Regulations

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

3. Securities and Futures (Financial & Margin Requirements for Holders of Capital Markets Services
Licences) Regulations
Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

4. Guidelines on Criteria for the Grant of a CMS Licence

(Guideline No. SFA 04-G01)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

5. Guidelines on Fit and Proper Criteria

(Guideline No. FSG-G01)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

6. Guidelines on Short Selling Disclosure

(Guideline No. SFA 15-G02)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

7. Notice on Recommendations on Investment Products

(Notice No. FAA-N16)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

8. Notice on Reporting of Misconduct of Representatives by Holders of CMS Licence and Exempt

Financial Institutions
(Notice No. 04-N11)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

9. Notice on Minimum Entry and Examination Requirements for Representatives of Holders of CMS
Licence and Exempt Financial Institutions
(Notice No. 04-N09)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

10. Circular on Due Diligence Checks and Documentation in Respect of the Appointment of Appointed,
Provisional and Temporary Representatives
(CMI 01/2011)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

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11. Notice on Sale of Investment Products

(Notice No. SFA 04-N12)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

12. Banking Secrecy Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)
13. Personal Data Protection Act
Available online on Personal Data Protection Commission website - (http://www.pdpc.gov.sg/)

14. Central Provident Fund Investment Scheme

Available online on Central Provident Fund website (www.cpf.gov.sg)

15. Corruption, Drug Trafficking and Other Serious Crime (Confiscation of Benefits) Act
Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

16. Mutual Assistance in Criminal Matters Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

17. Terrorism (Suppression of Financing) Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

18. Notice to Capital Markets Intermediaries on Prevention of Money Laundering and Countering the
Financing of Terrorism
(Notice No. SFA04-N02)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

19. Guidelines to MAS Notice SFA04-N02 on Prevention of Money Laundering and Countering the
Financing of Terrorism
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

20. MAS Notice on Prevention of Money Laundering & Countering the Financing of Terrorism – Banks
(Notice No. 626)
Available online on Monetary Authority of Singapore website (www.mas.gov.sg)

21. Income Tax Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

22. Goods and Services Tax (GST) Act

Available online on Attorney-General’s Chambers website – Singapore Statutes Online
(http://statutes.agc.gov.sg/)

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