On July 31, 2023, the Monetary Authority of Singapore (MAS) released a consultation paper outlining a new exemption framework for Single Family Office (SFO) in Singapore to strengthen surveillance and defence against money laundering (ML) risks in the SFO sector.
Under the revised framework, SFOs will need to meet specific criteria to qualify for exemptions from licensing requirements outlined in the Securities and Futures Act 2001 (SFA) for conducting fund management activities in Singapore. Additionally, SFOs will have new notification and annual reporting requirements to fulfil.
Qualifying criteria for class exemption
A SFO is a private organization dedicated to managing the financial, legal, and administrative affairs of one high net-worth family. As SFOs generally do not serve external clients or handle third-party funds, currently they can either rely on existing class licensing exemptions under the Securities and Futures Act 2001 or apply for individual licensing exemptions on a case-by-case basis from the MAS.
Under the revised framework, the authorities introduce a new class licensing exemption for SFOs, eliminating the necessity for case-by-case licensing exemptions. To qualify under the proposed class exemption, the SFO must meet the following criteria:
- Members of the same family must wholly own the SFO, either directly or indirectly.
- The SFO must conduct fund management activities for or on behalf of (i) family members, including family trusts and corporations wholly owned by and for the sole benefit of the family; (ii) charitable organizations funded exclusively by the family (with the exception that it may also conduct fund management for or on behalf of key employees).
- The SFO must incorporate in Singapore.
- The SFO must establish and maintain business relations with at least one of the financial institutions regulated by MAS.
Notification and annual reporting requirements
Under the new exemption framework, SFOs will have to notify MAS and confirm their ability to comply with the qualifying criteria, within 7 days of commencement of their operations in Singapore. They have to obtain a legal opinion supporting their qualification under the first two criteria mentioned above.
Additionally, SFOs must submit an annual report to MAS. This report should include details on the total assets they are managing and the names of the financial institutions regulated by MAS with which they have established and maintained business relationships.
Transitional arrangements for existing SFOs
MAS proposes a transitional period for existing SFOs operating in Singapore to comply with the proposed framework. The existing licensing exemption that an SFO has been relying on will be withdrawn when the SFO files the commencement notification to MAS, or at the end of the six-month transitional period, whichever is earlier.
If an SFO has applied for tax incentives under Section 13O or Section 13U of the Income Tax Act 1947, and furnished a legal opinion to MAS as part of its application, the SFO will need to obtain a new legal opinion. This new legal opinion should confirm that the SFO meets the criteria specified in the proposed class exemption framework.
The new requirements, including the need to establish custodian relationships with financial institutions, may bring about higher operational costs for SFOs, although the extent of this impact remains uncertain and varies by individual circumstances. Despite potential challenges, the revised framework represents a commendable effort to foster transparency and combat corruption, benefiting both SFOs and the wider financial community in Singapore. It reflects Singapore’s commitment to maintaining a strong and integrity-driven financial sector in an ever-changing world.